DISSECTING the DIGITAL DOLLAR Part One
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DISSECTING THE DIGITAL DOLLAR Part One How streaming services are licensed and the challenges artists now face DISSECTING THE DIGITAL DOLLAR Published by the Music Managers Forum Produced by CMU Insights Written by Chris Cooke Printed by Headley Brothers, Ashford © Music Managers Forum 2015 A big thank you to the many people who contributed insight and information to our research and helped to produce this report, including: Amanda Harcourt, Andy Edwards, Andy Malt, Ben McEwen, Brian Message, Cliff Fluet, Eric Mackay, Fiona McGugan, Horace Trubridge, Indy Vidyalankara, James Barton, Jane Dyball, John Simson, Jon Webster, Lee Morrison, Maria Forte, Nick Yule, Nigel Dewar Gibb, Perry Resnick, Randy Grimmett, Richard Kirstein, Sophie Goossens, Tahir Basheer and Tom Frederikse. This is Part One of ‘Dissecting The Digital Dollar’ which sets out to instigate and inform a debate amongst the artist, management and wider music community. Part Two will report on those discussions. Follow the MMF online for details of that report. themmf.net | @mmfuk CMU cmuinsights.com | @cmu INTRODUCTION DISSECTING THE DIGITAL DOLLAR Part One How streaming services are licensed and the challenges artists now face Section One: Executive Summary 5 Section Two: Music Rights & Controls 15 Section Three: Ownership & Royalties 20 Section Four: Performer Rights & ER 27 Section Five: Monetising Music Rights Before Digital 29 Section Six: Digital Licensing 36 Section Seven: Manager Survey 48 Section Eight: Issues 52 DISSECTING THE DIGITAL DOLLAR | PAGE 3 INTRODUCTION ABOUT THE Escape, the UK’s biggest music business MUSIC MANAGERS FORUM conference at the heart of Europe’s leading festival for new music. The Music Managers Forum represents over CMU also runs an education programme 400 artist managers in the UK, who in turn for new talent called CMU:DIY providing represent over 1000 of the most successful workshops and online resources for acts on the planet. aspiring artists, songwriters and music Since its inception in 1992, the MMF has entrepreneurs. worked hard to educate, inform and represent UK managers, as well as offering a network through which members can share ABOUT THE AUTHOR experiences, opportunities and information. Chris Cooke co-founded CMU in 1998, While this work continues, the MMF and continues to contribute to the title as is also focusing more on providing a Business Editor. Having written about the collective voice in this time of change, music business daily for almost fifteen years, giving real, meaningful value for members he is a leading expert on the sector, and and their artists, from helping to unlock often comments on developments in it for investment and opening up new markets, to other media, most notably the BBC. With encouraging a fair and transparent business degrees in English and Law, he is a particular environment in this digital age. expert on music rights, and has closely documented the evolution of digital music. ABOUT CMU INSIGHTS Chris also heads up CMU owner 3CM CMU is a service provider to the music UnLimited, through which he publishes industry best known for its media: free daily cultural recommendations service news bulletin the CMU Daily and premium ThisWeek London and Edinburgh Festival services the CMU Digest and CMU Trends magazine ThreeWeeks Edinburgh, and Report. helps run the award winning PR training charity the Taylor Bennett Foundation, CMU Insights provides training and which is enabling more ethnic diversity in consultancy to music companies and the communications industry. He co-hosts companies working with music. This the CMU and TW Podcasts and recently includes a regular seminars and events debuted his first spoken word show ‘Chris programme, and CMU Insights @ The Great Cooke’s Free Speech’. PAGE 4 | DISSECTING THE DIGITAL DOLLAR EXECUTIVE SUMMARY Section One: Executive Summary The rise of digital has created both challenges and opportunities for the music industry. The challenges around piracy have been widely documented, but working with legitimate digital services has also been challenging for music rights owners, especially as we have seen a shift from downloads to streams, because licensing these platforms requires a new approach to doing business. Over the last decade the music rights sector has been busy evolving new licensing models, and new industry standards are now starting to emerge. However, issues remain, and there is some debate as to whether both the fundamentals and the specifics of these new business models are the best possible solutions, and whether or not they have been created to be more beneficial to some stakeholders in the music community than others. And even where standards are emerging, there remains much confusion in the wider music community as to how, exactly, streaming services are being licensed, how it is calculated what digital service providers must pay, and how that money is then processed and shared by the music rights industry. There are various reasons for this • Those who have led on the development confusion… of new licensing arrangements have often done a poor job of communicating them to other stakeholders. • The complicated nature of the streaming deals. In evolving these new licensing models, • The record industry and music publishers record companies, music publishers and do not always license in the same way. collective management organisations have had to navigate copyright laws and other • The way services are licensed and music industry conventions which were royalties processed can vary from not specifically developed with the digital country to country. distribution of recorded content in mind. • Most streaming deals are ultimately revenue share arrangements, making In doing so, some assumptions have been exact payments per usage less made which perhaps, with hindsight, predictable. require more consideration, either by lawmakers, courts or the wider music • The specifics of many streaming community. Or, at least, a more unified deals are secret due to non-disclosure approach across the industry, and across agreements in key contracts. the world. DISSECTING THE DIGITAL DOLLAR | PAGE 5 EXECUTIVE SUMMARY DISSECTING THE where the key differences exist between DIGITAL DOLLAR different systems. In order to inform this debate, the UK’s Music Managers Forum MUSIC RIGHTS & DIGITAL commissioned this report, to PLATFORMS: HOW IT WORKS review and explain how music 1. Copyright provides creators with rights have been exploited in the controls that can be exploited for past, how digital licensing has profit evolved, and what issues now need Copyright is ultimately about providing to be tackled. We spoke in-depth creators with certain controls over that to over 30 leading practitioners which they create, either as a point of from across the music, digital and principle, and/or to encourage and enable creativity by allowing creators and their legal sectors, and surveyed 50 business partners to exploit these controls artist managers in five markets for profit. who, between them, represent artists signed to all three major Exactly what controls a copyright owner enjoys varies from country to country, but music companies and over 100 they commonly include the exclusive right independent labels. to make and distribute copies of a creative work, to adapt the work, to rent it out or The way music rights work varies around communicate it, and to perform it in public. the world, partly because of differences in copyright law, and partly because of Copyright makes money when third different practices and conventions that parties wish to exploit one of these have evolved in each market. This variation controls, because the third party must is in itself a challenge in a digital sector get permission – or a licence – from where so many services aspire to be truly the copyright owner. The licensor will global. usually charge the licensee a fee to grant permission. It also poses challenges in explaining how music copyright works on a general level, 2. The core music rights because different rules, technicalities and The music industry controls and exploits terminology may apply in any one country; various kinds of intellectual property, and there are significant differences of though the core music rights are the emphasis between so called ‘common law’ separate copyrights in songs (lyrics and jurisdictions, like the UK and the US, and composition) and sound recordings, what ‘civil law’ systems, like France and Spain. civil law systems might refer to as the separate ‘author’ and ‘neighbouring rights’. Although we have tried to be ‘market neutral’ in describing the basics of music Both copyright law and the music copyright in this report, we are arguably industry routinely treat these two kinds of starting from a common law and possibly copyright differently. Within the business, UK perspective, but we will try to be clear music publishers generally control song PAGE 6 | DISSECTING THE DIGITAL DOLLAR EXECUTIVE SUMMARY Which copyrights and controls are you exploiting? You burn a copy of a track onto CD You are exploiting the ‘reproduction control’ of both the song and recording copyright (what music publishers call the ‘mechanical right’) You perform a song at a gig You are exploiting the ‘public performance control’ of just the song copyright You play a track on the radio You are exploiting the ‘communication control’ of both the song and recording copyright You synchronise a track to a TV show You are exploiting the ‘reproduction control’ of both the song and recording copyright when you actually synchronise the track… and then the ‘communication control’ of both the song and recording copyright when the TV show is broadcast You download or stream a track You are exploiting both the ‘reproduction control’ and the ‘communication control’* (probably the specific ‘making available control’) of both the song and recording copyright *This can vary from country to country, for example in the US only a reproduction rights licence is required for downloads, while only a performing rights licence is required for personalised radio services.