House of Commons Digital, Culture, Media and Sport Committee Economics of music streaming Second Report of Session 2021–22 HC 50 House of Commons Digital, Culture, Media and Sport Committee Economics of music streaming Second Report of Session 2021–22 Report, together with formal minutes relating to the report Ordered by the House of Commons to be printed 9 July 2021 HC 50 incorporating HC 868 2019-21 Published on 15 July 2021 by authority of the House of Commons The Digital, Culture, Media and Sport Committee The Digital, Culture, Media and Sport Committee is appointed by the House of Commons to examine the expenditure, administration and policy of the Department for Digital, Culture, Media and Sport and its associated public bodies. Current membership Julian Knight MP (Conservative, Solihull) (Chair) Kevin Brennan MP (Labour, Cardiff West) Steve Brine MP (Conservative, Winchester) Alex Davies-Jones MP (Labour, Pontypridd) Clive Efford MP (Labour, Eltham) Julie Elliott MP (Labour, Sunderland Central) Rt Hon Damian Green MP (Conservative, Ashford) Rt Hon Damian Hinds MP (Conservative, East Hampshire) John Nicolson MP (Scottish National Party) Giles Watling MP (Conservative, Clacton) Mrs Heather Wheeler MP (Conservative, South Derbyshire) Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk. Publication © Parliamentary Copyright House of Commons 2019. This publication may be reproduced under the terms of the Open Parliament Licence, which is published at www.parliament.uk/copyright. Committee reports are published on the Committee’s website at www.parliament.uk/dcmscom and in print by Order of the House. Evidence relating to this report is published on the inquiry publications page of the Committee’s website. Committee staff The current staff of the Committee are Keely Bishop (Committee Operations Assistant), Andy Boyd (Committee Operations Manager), Dr Conor Durham (Committee Specialist), Lois Jeary (Committee Specialist), Dr Stephen McGinness (Clerk), Charlotte Swift (Second Clerk), Anne Peacock (Senior Media and Communications Officer) and Gina Degtyareva (Media and Communications Officer). Contacts All correspondence should be addressed to the Clerk of the Digital, Culture, Media and Sport Committee, House of Commons, London SW1A 0AA. The telephone number for general enquiries is 020 7219 6188; the Committee’s email address is [email protected]. You can follow the Committee on Twitter using @CommonsDCMS. Economics of music streaming 1 Contents Summary 3 1 Introduction 4 The economics of music streaming 4 The loss of live music income 4 Our inquiry 5 Our Report 6 2 The dominance of digital music 7 Significance of the UK market 7 Advent of music streaming 9 Music streaming service models 14 Copyright and remuneration from music streaming 16 When music is streamed 16 How rights are exploited 17 How rightsholders are remunerated 19 The consumer experience 20 Consumer benefits from streaming 20 Changing consumption habits 21 3 Creator remuneration 26 Remuneration of recording rightsholders 27 Impact on performers 27 Equitable remuneration 34 Remuneration of song rightsholders 43 Valuation of the song 43 Impact on music publishing 45 Metadata 49 Royalty chains 52 4 The market for music rights 54 Consolidation 54 Recent historic trends 54 State of the market 56 Market dominance 60 Competition concerns 62 Oligopsony in asset acquisition 63 Oligopoly in music licensing 67 Conflict of interest in negotiations 69 Transparency 72 Non-disclosure agreements 72 Transparency obligations 74 5 The music streaming market 76 Competition in the streaming market 76 Technology-driven challenges to the market 77 Algorithms and playlists 77 User data 79 Vertical integration 80 Prominence 82 Safe harbour 82 Safe harbour provisions in law 82 Economic implications of safe harbour 84 EU Directive on Copyright in the Digital Single Market 87 Payment models 90 Pro-rata system 90 Alternative models 90 Livestreaming and digital music futures 92 Annex 1: Glossary of terms 95 Annex 2: Music streaming service models 99 Conclusions and recommendations 103 Formal minutes 109 Witnesses 110 Published written evidence 112 List of Reports from the Committee during the current Parliament 118 Economics of music streaming 3 Summary Music streaming intersects two sectors of considerable political, economic and cultural significance to the UK: our world-renowned music industry, which contributes over £5 billion in gross value added (GVA) to our economy, and our dynamic, innovative tech sector, which in 2018 was growing by nearly 8 percent per year and currently creates hundreds of thousands of jobs. Following over a decade of digital piracy, music streaming has returned the recorded music sector to growth and is now the dominant mode of music consumption for consumers in the UK and globally. Real-terms revenues from recorded music, however, are far below the levels seen in previous decades. For consumers, recorded music is now cheaper, more personalised and more readily available than ever before. While in the short term, the pricing structure of the industry, and free availability of such product, may be seen as a good deal for music-lovers, the danger is that without greater levels of revenue, some of the music they love may not be being made in ten years’ time. Despite the streaming boom that has provided a partial economic recovery for the music industry, not all stakeholders have received proportionate benefit. In many instances, companies have leveraged structural advantages to achieve seemingly unassailable positions in their relative markets. Streaming services that host user-generated content (UGC) have significant advantages over other services due to copyright safe‘ harbours’, which has led to the dominance of services like YouTube. We have been told that the major music companies have experienced historic profit margins, and continue to consolidate their position as the largest asset owners of recording and song rights through mergers, acquisitions, and integration with all aspects of the digital music business. Meanwhile, performers, songwriters and composers receive only a small portion of revenue due to poor royalty rates and because of the valuation of song writing and composition, relative to the recording. Whilst these issues predate the Covid-19 pandemic, this has been compounded and thrown into sharp relief by the loss of live music, which continues to impact them and the ecosystem that supports them. Poor remuneration risks disincentivising successful, professional musicians and diminishing the UK’s ability to support new domestic talent. We recommend a broad yet comprehensive range of legislative reforms and regulatory interventions to deal with these issues. In order to address artist remuneration and the disparity in power between creators and companies, we recommend that the Government introduce a right to equitable digital music remuneration, a right to recapture the rights to works after a period of time and the right to contract adjustment if their works are successful beyond the remuneration they receive. We have deep concerns about the position of the major music companies and call on the Government to support the independent sector and take advice from the Competition and Markets Authority as to whether competition in the recorded music market is being distorted. We also advise the Government to proactively normalise the requirements on streaming services both within the streaming market and with other modes of music consumption, by placing greater licensing obligations on UGC-hosting services, future-proofing the public service broadcasting prominence regime and addressing ‘payola’ concerns about algorithms and playlist curators. 4 Economics of music streaming 1 Introduction The economics of music streaming 1. Music streaming is the process whereby music multimedia is accessed by consumers over the internet. Streaming has irrevocably changed modern music consumption and, as musicians have been restricted from touring and performing live during the Covid-19 pandemic, they have become solely reliant on revenue from recorded music. Some successful, critically acclaimed artists have found that the earnings from streaming “are not significant enough to keep the wolf away from the door”.1 Some hit songwriters have found that they cannot live off streaming revenue and are “forced to live on universal credit” with the Government “picking up the bill”.2 In response, musicians have mobilised, calling for a review of how recorded music revenues are shared.3 The loss of live music income 2. Our decision to examine the economics of music streaming complements our previous work on the broader economic impacts of the Covid-19 pandemic on the digital, culture, media and sport sectors4 and our recently-Reported inquiry into UK music festivals.5 Last year, we heard that 90 percent of UK festivals had been cancelled and 93 percent of grassroots music venues faced permanent closure.6 We also alerted the Government to the fact that a quarter of the music industry workforce, including 42 percent of respondents to a Musicians’ Union survey, did not qualify for the Self Employed Income Support Scheme and producers and sound engineers had lost an average of 70 percent of their income.7 We recommended, in our Report on ‘The Impact of COVID-19 on DCMS sectors’, that the Government “should investigate how the market for recorded music is operating in the era of streaming to ensure that music creators are receiving a fair reward”.8 The Government’s response to our Report stated that it had tasked the Intellectual Property Office (IPO) with supporting an independent qualitative and quantitative research project, jointly funded by Nesta and supported by a coalition of industry bodies, to investigate how music creators earn money from streaming.9 The project is led by Dr Hyojung Sun, Ulster University, Professor David Hesmondhalgh, University of Leeds and Dr Richard Osborne, Middlesex University, and (at the time of writing) is due to report in the summer 2021.10 3.