The Music Modernization Act of 2018 – Music Enterprise Analysis

The Music Modernization Act of 2018 – Music Enterprise Analysis

by | Feb 15, 2025 | Entertainment Law, Music Business, Podcast News


Within the US, the advance of music streaming has revealed the restrictions of the present copyright system, which was nonetheless fully centered on the report economic system. Particularly, the mechanical rights that needed to be obtained by labels when a musical work was recorded defied the logic of music streaming. This brought on authorized uncertainty not just for the rights holders, however particularly for the customers of the rights, i.e. the music streaming companies, which quickly needed to take care of billion-dollar lawsuits for copyright infringement. The response to this was the Music Modernization Act, which was enacted in 2018 and established authorized certainty within the US for all gamers within the music streaming economic system.

The Music Streaming Economic system – Half 13: The Music Modernization Act of 2018

Historic Context

Initially, the mechanical proper was created within the US Copyright Act of 1909 in order that the then younger and economically rising phonographic corporations needed to pay a charge to music publishers to be allowed to report their music. The legislation required phonogram producers to pay US $2 to rights holders for every replica of a non-musical dramatic work. As soon as a label had paid this mechanical licence charge, another label may produce a canopy model of the musical work with out additional licensing.[1] In Europe, as an alternative of direct compensation between the labels and music publishers, a unique strategy was chosen by establishing particular accumulating societies for the licensing of mechanical rights, such because the Mechanical Copyright Safety Society (MCPS) in the UK in 1911 or STEMRA within the Netherlands in 1936.[2]

The state of affairs within the USA was sophisticated that labels and rights holders may additionally agree on a decrease licence charge than the statutory one. So as to gather the mechanical royalties, the Nationwide Music Publishers Affiliation (NMPA) based the Harry Fox Company (HFA) in 1917, which additionally managed the publishers’ synchronisation rights.[3] This licensing and assortment system labored effectively within the US so long as royalties had been tied to the replica of sound recordings. Nevertheless, the digital revolution sophisticated the state of affairs. Digital downloads may nonetheless be integrated into the system as a result of there was nonetheless a hyperlink to replica and the Copyright Royalty Board (CRB), consisting of a panel of three judges, set the licence charge for downloads. Nevertheless, early types of music streaming brought on issues. These might be solved, sind each MusicNet and Pressplay had been owned by the key corporations, and the settlement of mechanical rights between in-house labels and music publishers might be dealt with internally.[4] With the rise of non-interactive music streaming companies, akin to Pandora, streaming was thought of a public efficiency analogous to broadcasting and it was not essential to pay for mechanical rights. Nevertheless, a brand new accumulating society, SoundExchange, needed to be created for this goal as a result of there isn’t a compensation for using music recordings on the radio within the US.[5]

The Rightsholders Sue Spotify

The rise of Spotify and different on-demand streaming companies brought on the present system of licensing and cost for mechanical rights to break down. Labels not felt answerable for paying for using their work in a streamed music recording, and music publishers, fearing an enormous lack of income, threatened authorized motion towards streaming companies for unauthorised use of their music. Spotify, which was aware of the European system of Mechanical Rights Organisations (MROs), believed it may meet its obligations by getting into right into a licensing settlement with the Harry Fox Company.[6] Spotify was positive that each one the mandatory rights had been licensed within the US. Nevertheless, Spotify had did not bear in mind that the Harry Fox Company (HFA) doesn’t symbolize your complete world repertoire like its European counterparts within the US, however solely these rights house owners who’ve signed a rights administration settlement with the HFA.[7] After its launch within the US, Spotify entered legally unsure territory, because the Swedish firm quickly discovered the arduous method. On 28 December 2015, David Lowery, the frontman of two US rock bands, “Camper Van Beethoven” and “Cracker”, filed a lawsuit in a Californian district courtroom towards Spotify for copyright infringement, claiming that the corporate had did not clear the rights to his compositions within the US and to use to the US Copyright Workplace for a obligatory licence for his songs. As his music was distributed by Spotify to 75 million customers, Lowery sought damages of at the very least US $150 million for using the mechanical rights in his songs embodied in sound recordings.[8] Spotify’s response from its head of communications, Jonathan Prince, was evasive, but additionally mirrored the fragmented authorized state of affairs within the US for the licensing of mechanical rights: “We’re dedicated to paying songwriters and publishers each penny. […] Sadly, particularly in the USA, the info mandatory to substantiate the suitable rightsholders is usually lacking, mistaken, or incomplete. When rightsholders are usually not instantly clear, we put aside the royalties we owe till we’re in a position to affirm their identities. We’re working carefully with the Nationwide Music Publishers Affiliation to search out one of the best ways to accurately pay the royalties now we have put aside and we’re investing within the sources and technical experience to construct a complete publishing administration system to unravel this drawback for good.”[9]

Nonetheless, shortly afterwards, in early January 2016, Spotify confronted the following related lawsuit. On 8 January 2016, US music writer and songwriter Melissa Ferrick filed a copyright infringement lawsuit within the US District Court docket in Los Angeles, alleging that Spotify had been enjoying and distributing her compositions with no licensing settlement for the previous three years. Within the lawsuit, she criticised Spotify for failing to “[…] to license all the songs embodied in phonorecords which it ingests and distributes via interactive streaming and short-term downloads.”[10] This pertains to the unlicensed mechanical rights of musical works embodied within the sound recordings. Based on the lawsuit, Spotify ought to need to US $200 million as compensation to Ferrick. Ferrick’s attorneys outlined within the lawsuit how Spotify ought to have acted in licensing the mechanical rights. The corporate may have both licensed the rights to the compositions instantly from the rights holders, particularly Melissa Ferrick’s publishing firm, or filed a Discover of Intent (NOI) for a obligatory licence with the US Copyright Workplace underneath Part 115 of the US Copyright Act – 30 days earlier than the music recording was distributed – however Spotify failed to take action.[11] As an alternative, Spotify delegated its licensing obligations to the Harry Fox Company (HFA), not realising that the HFA didn’t maintain all of the mechanical licences within the US. Though Spotify subsequently filed NOIs for the aforementioned songs, it missed the statutory deadlines.[12]

The lawsuit’s argument is each revealing and an indictment of the US licensing system for mechanical rights. Based on the lawsuit, Spotify ought to have both cleared the mechanical rights for tens of millions of songs individually with the rights holders earlier than launching within the US, or alternatively utilized for “notices of intent” for all these songs. Both would have been an enormous administrative burden and would have massively delayed, if not made unimaginable, Spotify’s launch within the US. Copyright guidelines can thus change into a market entry barrier for corporations exterior the US. In Could 2016, the pending Lowery and Ferrick lawsuits mixed them into one case as a result of the allegations had been the identical.[13] This additionally improved the probabilities of an out-of-court settlement, which was reached between Spotify and the plaintiffs on the finish of Could 2017. Spotify agreed to arrange a US $43.4 million fund to compensate songwriters and publishers whose mechanical rights had not been accurately licensed.[14] Shortly earlier than, Spotify had additionally reached a US $30 million take care of the Nationwide Music Publishers’ Affiliation (NMPA) to keep away from claims of unpaid royalties for the mechanical rights of NMPA members. Just like the Lowery-Ferrick case, Spotify agreed to arrange a US $30 million compensation fund over two years, which was to be routinely prolonged for one more two years in 2019.[15]

If Spotify thought it had put the problem of unpaid mechanical rights behind it, it was very a lot mistaken. The mud had not but settled when, in July 2017, songwriter and co-founder of “Frankie Valli and The 4 Seasons” Bob Gaudio filed a lawsuit towards Spotify in a Nashville district courtroom over unpaid mechanical royalties.[16] Music writer Bluewater Music Providers Company joined the lawsuit on the identical day.[17] The plaintiffs’ arguments had been just like these in earlier lawsuits that Spotify had simply settled out of courtroom, however Spotify went on the offensive. In a counterstatement, the corporate’s attorneys questioned whether or not any mechanical rights royalties needs to be paid for streams in any respect, arguing that streaming music is extra like listening to the radio and subsequently a public efficiency lined by already licensed rights: “Briefly, the act of streaming doesn’t reproduce copies of sound recordings or musical compositions, and equally doesn’t distribute copies of both sound recordings or compositions.”[18] Spotify didn’t object to the contradiction, having nearly recognised with an out-of-court settlement that it had not paid for the mechanical rights. The opposite aspect’s attorneys had been fast to level this out.[19]

The US-Congress Intervenes

Nevertheless, the brand new authorized interpretation of a stream took the proceedings to a brand new stage, which now additionally known as for political and legislative motion. On 21 December 2017, Congressman Doug Collins launched the Musical Works Modernization Act (MWMA) within the Home Judiciary Committee.[20] All events agreed that they wanted to discover a resolution to the issue of licensing mechanical rights rapidly. The brand new laws arrange a state-run non-profit organisation to construct a database for licensing mechanical rights within the USA. This could be some extent of contact for streaming companies to make clear mechanical rights. In return, streaming companies can be obliged to pay a blanket royalty charge for using mechanical rights to the brand new licensing company, with out having to acquire the consent of the rights holders. Nevertheless, streaming companies would nonetheless be capable to negotiate decrease charges instantly with the rights holders in the event that they needed to.[21]

The invoice was pushed ahead by each Republicans and Democrats within the US Congress in a uncommon present of unity. To this finish, the Musical Works Modernisation Act (MWMA) was linked to 2 different legislative initiatives: the CLASSICS Act,[22] which goals to supply constant copyright safety for music recordings made earlier than 1972, and the Allocation for Music Producers Act, which is meant to permit music producers, sound engineers and sound mixers to take part in SoundExchange distributions.[23]

On 25 April 2018, your complete legislative bundle, now referred to as the Music Modernization Act 2018, was authorized by the US Home of Representatives and forwarded to the Senate.[24] This was adopted by public hearings with representatives of the affected music streaming companies and satellite tv for pc radio stations, in addition to the key rights holders, held on 15 Could.[25] Regardless of opposition from US satellite tv for pc radio big SiriusXM and proprietor of the non-interactive music streaming service Pandora,[26] the Music Modernization Act was handed unanimously within the Senate on 19 September 2018.[27] President Donald Trump signed the brand new legislation on 11 October 2018, in a uncommon present of unity with Republican and Democratic Congress members, in addition to musicians and music business representatives, within the Oval Workplace of the White Home, as a press picture exhibits.[28]

Along with the creation of a not-for-profit authorities licensing company that was launched on 1 January 2021 as The Mechanical Licensing Collective (MLC) in Nashville, Tennessee,[29] the extension of mechanical rights to interactive music streaming was a very essential results of the brand new laws. The Music Modernisation Act clarified that an interactive music stream implies mechanical replica and should subsequently be compensated.[30] I feel Morrow & Nordgård are right in the event that they take into account the Music Modernization Act as a win-win-situation for each rights holders in addition to music streaming companies.[31] Mechanical rights house owners now obtain clearly regulated compensation, and music streaming companies have authorized certainty in return. The significance of this authorized certainty is demonstrated by the lawsuit filed by Wixen Music Publishing towards Spotify on 29 December 2017,[32] as a result of the invoice of 21 December stipulated that the legislation would apply retroactively till 1 January 2018. The lawsuit subsequently needed to be filed earlier than this deadline to prosecute Spotify for previous copyright infringements. Based in London in 1978 by Randall Wixen, the music writer represents a list of greater than 2,000 composers and songwriters, together with superstars akin to Neil Younger, The Doorways, Tom Petty and the Black Eyed Peas.[33] With this illustrious group of rights holders behind it, Wixen Music Publishing filed a copyright infringement lawsuit in a Californian district courtroom, searching for US $1.6 billion in damages for Spotify’s use of its rights catalogue.[34] With out the Music Modernisation Act, this very promising lawsuit would have set a precedent and different music publishers would have joined Wixen Publishing, threatening not solely Spotify’s IPO in April 2018, however its very existence. Nonetheless, Spotify needed to dig deep into its pockets as soon as once more to settle the lawsuit out of courtroom, although the settlement of 20 December 2018 was not made public.[35] Lastly, on the finish of June 2019, Spotify additionally managed to achieve an out-of-court settlement with Bob Gaudio and Bluewater Music Publishing to finish the 2017 copyright lawsuit.[36] Some huge cash can have flowed right here too.

The Mechanical Licensing Collective

As quickly because the Music Modernisation Act got here into pressure, the battle over the extent of compensation and the distribution of royalties started. Step one, nevertheless, was the creation of the Mechanical Licensing Collective (MLC), which the Act requires streaming music companies to pay for using mechanical rights, and which administers and distributes the cash. The US Copyright Workplace was answerable for its implementation, which instantly grew to become the goal of lobbying by the key music publishers and the Nationwide Music Publishers’ Affiliation (NMPA), curiosity teams representing musicians and particular person movie star musicians.[37] Nevertheless, it rapidly grew to become clear that the music business’s publishers would have the say within the new licensing company. In July 2019, the Copyright Workplace authorized the Nationwide Music Publishers’ Affiliation’s (NMPA) idea for the institution of the Music Licensing Collective (MLC), which is of course dominated by the music publishers Common, Sony and Warner. The affect of the music publishing business on the MLC can already be seen within the composition of the primary board, which incorporates Sony/ATV Publishing, Warner/Chappel Music, Common Music Publishing Group and the key indie music publishers akin to BMG, Peermusic, Harmony, Kobalt, Massive Machine and Pulse, in addition to representatives of some smaller publishers.[38]

Nevertheless, Spotify and Amazon had filed a authorized problem in March 2019 towards a choice by the US Copyright Royalty Board (CRB) on 27 January 2018, which set the charges for mechanical rights compensation for the following 5 years (the Phonorecord III provision). NMPA president David Israelite went as far as to say that “[…] Spotify and Amazon have declared battle on the songwriting neighborhood by interesting that call.”[39]

What was at stake? The three-judge panel of the CRB had set an general enhance of 43.8 per cent within the mechanical rights charge for the years 2018 to 2022, from 10.5 per cent in 2018 to fifteen.1 per cent in 2022.[40] This primarily affected music streaming companies, which till the Music Modernisation Act, as now we have seen, operated exterior the system which beforehand solely affected labels and music publishers. It may be assumed that these two gamers negotiated decrease charges in accordance with the legislation, as labels and music publishers are sometimes a part of the identical firm. The on-demand streaming companies felt that the comparatively massive enhance in CBR charges was disproportionate. Aside from Apple Music, which didn’t be part of the attraction, the opposite streaming companies, notably Spotify and Amazon, acted towards the CRB ruling.

Though it was the fitting of the streaming companies to attraction the ruling, it was not solely the music publishers and music business lobbies that publicly campaigned towards Spotify & Co. 90 songwriters additionally wrote an open letter to Spotify CEO Daniel Ek, saying they felt damage and dissatisfied as a result of he and his firm had at all times introduced themselves as allies of the creatives. The attraction towards the CRB ruling would now show the alternative and will be seen as an try to divide the songwriting neighborhood.[41]

In any case, the attraction delayed the entry into pressure of the brand new tariffs, which additional exacerbated the battle. It was not till the start of July 2022 that the CRB rejected the music streaming companies’ attraction and confirmed the Phonorecord III choice from 2018.[42] After the streaming companies needed to pay US $424.4 million to the Mechanical Licensing Collective (MLC) in 2021 for beforehand unpaid mechanical rights royalties, they needed to pay once more. In whole, the music streaming companies within the USA had underpaid rights holders by US $418.8 million for 2021 and 2022, with US $281 million regarding mechanical rights and US $137.8 million to efficiency rights. On the identical time, the MLC calculated that the on-demand streaming companies had overpaid royalties for the mechanical proper by US $28.8 million between 2018 and 2020, of which US $17.4 million went to Apple Music, US $7.4 million to Amazon Music, US $3.7 million to Spotify and US $2.8 million to YouTube Music.[43]

This put an finish to the controversy over the interpretation of mechanical rights within the US, and the negotiations between music publishers and streaming companies for the CBR’s Phonorecord IV provision proceeded calmly, leading to an settlement that the mechanical rights tariff shall be set at 15.35 per cent, with a gradual adjustment till 2027.[44] Nevertheless, Spotify tried to keep away from the tariff by arguing that its premium music choices had been bundled with podcasts and different content material, and subsequently a a lot decrease tariff ought to apply. This introduced music publishers within the US to the barricades and led to a lawsuit by the Mechanical Licensing Collective (MLC) towards Spotify for underpaying rights holders.[45]

Whatever the consequence of those proceedings, the brand new system of compensation for mechanical rights by streaming companies, which relies on the Music Modernisation Act, was established for the long run and opened up a brand new supply of revenue for music publishers and the music authors they symbolize. This gives the publishing sector with extra revenue to the traditionally anchored funds made by labels to music publishers for the mechanical replica of sound recordings and downloads, for which the speed was elevated from US c9.1 to US c12 per observe in Could 2022.[46] Total, the Music Modernisation Act has resulted in considerably more cash flowing into the music publishing sector, which can be confirmed by the MLC’s announcement that since its creation in 2021 till March 2024, US $2 billion has already been distributed to rights holders.[47]

Ennotes

[1] Peter Tschmuck, 2021, The Economics of Music, 2nd version, Newcastle upon Tyne: Agenda Publishing, pp 74-75.

[2] Ibid., p 75.

[3] Ibid.

[4] Serona Elton, 2019, ” Mechanical Licensing Earlier than and After the Music Modernization Act”, Journal of the Music & Leisure Business Educators Affiliation, vol. 19(1), https://doi.org/10.25101/19.1.

[5] Tschmuck, 2019, Economics of Music, p 97.

[6] Billboard, “Harry Fox Company Inks Deal With Spotify For Publishing Licensing, And Extra”, July 18, 2011, accessed: 2024-09-09.

[7] Man Morrow & Daniel Nordgård, 2022, “The Music Modernization Act: Mechanical Copyright within the Age of Music Streaming”, in: Man Morrow, Daniel Nordgård & Peter Tschmuck (eds), “Rethinking the Music Enterprise. Music Contexts, Rights, Information, and COVID-19, Cham: Springer Nature Switzerland, p 175.

[8] Lowery v. Spotify USA Inc., Class Motion Grievance for Damages and Injunctive Aid, US District Court docket for the Central District of California, Case 2:15-cv-09929, December 28, 2015.

[9] Cited in Billboard, “Spotify Hit With $150 Million Class Motion Over Unpaid Royalties”, December 29, 2015, accessed: 2024-09-09.

[10] Ferrick v. Spotify USA Inc., Class Motion Grievance for Copyright Infringement, US District Court docket for the Central District of California, Case 2:16-cv-00180, January 8, 2016, p 9.

[11] Ibid., p 2.

[12] Ibid., p 3.

[13] Billboard, “David Lowery and Melissa Ferrick’s Lawsuits In opposition to Spotify Get Mixed”, Could 24, 2016, accessed: 2024-09-09.

[14] Billboard, “What Will Spotify’s $43 Million Class Motion Settlement Imply For Songwriters and Publishers?”, Could 30, 2017, accessed: 2024-09-09.

[15] Billboard, “Spotify and Publishing Group Attain $30 Million Settlement Settlement Over Unpaid Royalties”, March 17, 2016, accessed: 2024-09-09.

[16] Gaudio v. Spotify USA Inc., Grievance for Copyright Infringement, US District Court docket for the Center District of Tennessee, Nashville Division, Case 3:17-cv-01052, July 18, 2017.

[17] Bluewater Music Providers Company v. Spotify USA Inc., Grievance for Copyright Infringement, US District Court docket for the Center District of Tennessee, Nashville Division, Case 3:17-cv-01051, July 18, 2017.

[18] Gaudio v. Spotify USA Inc., “Defendant’s Memorandum in Assist of Movement for a extra Particular Assertion”, US District Court docket for the Center District of Tennessee, Nashville Division, Case 3:17-cv-01052, August 30, 2017.

[19] Billboard, “Authorized Marketing campaign In opposition to Spotify Intensifies Forward of Firm’s Plan to Go Public”, September 13, 2017, accessed: 2024-09-09.

[20] US Music Modernization Act, H.R.4706 – Music Modernization Act of 2017, 115th Congress, 1st Session, vorgelegt dem Home Committee on the Judiciary on December 21, 2017.

[21] Ibid.

[22] US CLASSICS Act, H.R.3301 – Compensating Legacy Artists for his or her Songs, Service, and Vital Contributions to Society Act, 115th Congress, 1st Session, submitted to the Home Committee on the Judiciary on July 19, 2017.

[23] US AMP Act, H. R. 881 – Allocation for Music Producers Act, 115th Congress, 1st Session, submitted to the Home Committee on the Judiciary on February 6, 2017.

[24] Billboard, “Music Modernization Act Unanimously Passes US Home of Representatives”, April 25, 2018, Zugriff am 27.03.2024.

[25] US Music Modernization Act, S. 2334 – Music Modernization Act of 2018, 115th Congress, 2nd Session, submitted to the Committee on the Judiciary of the Senate on January 24, 2018.

[26] Billboard, “SiriusXM CEO Jim Meyer Explains the Hassle With The Music Modernization Act (Visitor Op-Ed)”, August 23, 2018, accessed: 2024-09-09.

[27] Music Enterprise Worldwide, “‘A momentous day’ as US Senate passes Music Modernization Act”, September 18, 2018, accessed: 2024-09-09.

[28] Wikipedia, “President Donald J. Trump indicators the Music Modernization Act on October 11, 2018”, official press picture by Joyce N. Boghosian, Public Area, October 11, 2018, accessed: 2024-09-09.

[29] The Mechanical Licensing Collective (MLC), “The way it Works”, n.d., accessed: 2024-09-09.

[30] Orrin G. Hatch-Bob Goldlatte Music Modernization Act, Pub. L. No. 115-264, 132 Stat. 3676 (2018), codified underneath US Copyright Act 17 USC § 115(e) (10).

[31] Man Morrow & Daniel Nordgård, 2022, “The Music Modernization Act: Mechanical Copyright within the Age of Music Streaming”, in: Man Morrow, Daniel Nordgård & Peter Tschmuck (Hg.), “Rethinking the Music Enterprise. Music Contexts, Rights, Information, and COVID-19, Cham: Springer Nature Switzerland, p 174.

[32] Wixen Music Publishing v. Spotify USA Inc., Grievance for Copyright Infringement, US District Court docket Central District of California Western Division, Case 2:17-cv-09288-GW-GJS, December 29, 2017.

[33] Wixen Music Publishing, “About Wixen Music”, n.d. accessed: 2024-09-09.

[34] Music Enterprise Worldwide, “Spotify sued for $1.6bn by Wixen in enormous copyright infringement lawsuit”, January 2, 2018, accessed: 2024-09-09.

[35] Music Enterprise Worldwide, “Spotify settles with Wixen, bringing $1.6bn lawsuit to an finish”, December 20, 2018, accessed: 2024-09-09.

[36] The Hollywood Reporter, “Spotify Settles Copyright Lawsuits Introduced by Songwriters”, June 27, 2019, accessed: 2024-09-09.

[37] Music Enterprise Worldwide, “When the Music Modernization Act turns into legislation, who’s going to care for it?”, January 7, 2019, accessed: 2024-09-09.

[38] Music Enterprise Worldwide, “NMPA-backed Mechanical Licensing Collective (MLC) authorized by US Copyright Workplace”, July 8, 2019, accessed: 2024-09-09.

[39] Music Enterprise Worldwide, “Spotify and Amazon ‘sue songwriters’ with attraction towards 44% royalty rise in the USA”, March 7, 2019, accessed: 2024-09-09.

[40] Music Enterprise Worldwide, “Main victory for songwriters as US streaming royalty charges rise 44%”, January 27, 2018, accessed: 2024-09-09.

[41] The open letter will be learn right here: Music Enterprise Worldwide, “Hit songwriters inform Spotify’s Daniel Ek they’re ‘damage and dissatisfied’ by CRB charge attraction”, April 11, 2019, accessed: 2024-09-09.

[42] Music Enterprise Worldwide, “Songwriters, rejoice: Spotify attraction FAILS to cease composers getting improved 15.1% streaming royalty charge within the US”, July 1, 2022, accessed: 2024-09-09.

[43] Music Enterprise Worldwide, “Songwriters and publishers to obtain practically $400 payout after streaming royalty ruling within the US”, February 26, 2024, accessed: 2024-09-09.

[44] Music Enterprise Worldwide, “Phonorecords IV: Music publishers react to US streaming royalty charge rise”, September 1, 2022, accessed: 2024-09-09.

[45] Music Enterprise Worldwide, “Spotify’s battle with songwriters and music publishers is getting sophisticated. Right here’s a recap”, Could 23, 2024, accessed: 2024-09-09.

[46] Music Enterprise Worldwide, “Document labels and publishers ink main settlement, transferring from 9.1 cents to 12 cents per observe for US mechanical royalties on bodily gross sales”, Could 5, 2022, accessed: 2024-09-09.

[47] Music Enterprise Worldwide, “The MLC has distributed over $2bn to songwriters and publishers since 2021”, March 27, 2024, accessed: 2024-09-09.

The Artists’ Share of the Music Streaming Pie – Music Enterprise Analysis

The Artists’ Share of the Music Streaming Pie – Music Enterprise Analysis

by | Jan 18, 2025 | Entertainment Law, Music Business, Podcast News


Though the disputes between some superstars and Spotify have resulted in favour of the Swedish streaming service, Swift & Yorke have nonetheless revealed weaknesses within the enterprise mannequin of music streaming from the perspective of the artists. The primary beneficiaries of the streaming economic system are the music majors, and little falls to the artists. On this a part of our collection on the economics of music streaming, we take a better take a look at the slice of the streaming pie that goes to the musicians, and again it up with details and figures.

The Music Streaming Financial system – Half 14: The Artists’ Share of the Music Streaming Pie

In his guide “Obtain!”,[1] revealed in 2013, Phil Hardy calculated that when a label sells a CD, it has a margin of 36 per cent of the web retail worth (i.e. after tax and commerce margin). So, assuming a web worth of US $15 for a CD, a label promoting 500,000 models a yr could make round US $2 million, which is the equal of a gold certificates within the US. Contemplating the standard deductions, within the worst case the musician will obtain a web share of 5 per cent of the income, which might nonetheless end in an earnings of US $100,000. The transition from sound recordings to music downloads has already considerably worsened the earnings scenario for musicians. The revenue margin for the label drops to 12 per cent, which signifies that at a worth of round US $10 for an album obtain, round 1.7 million downloads could be wanted to generate a complete income of US $2 million. Because of this 3.4 occasions extra album downloads than CD gross sales could be wanted to generate the identical income.[2]

What about music streaming? The enterprise mannequin is essentially completely different from promoting music. The customers get entry to music and don’t purchase music within the type of recordings and downloads. As an alternative, music customers pay a flat price or nothing for an ad-supported service. What issues is how the income from streaming is shared between the varied gamers.

The DCMS-Hearings

This query was addressed by the Digital, Tradition, Media and Sport (DCMS) Committee of the UK Parliament in public hearings on “The Economics of Music Streaming” in February and March 2021.[3] All related representatives of the music business and main tech firms needed to testify earlier than the MPs, whereas music creators additionally had the chance to current their scenario. Colin Younger from the auditing agency CC Younger & Co. was engaged as an knowledgeable on the cost flows within the British music streaming economic system to offer an opinion on the prevailing earnings flows from music streaming and potential different distribution programs. The presentation relies on the income shares which have already been established: 30 per cent for streaming companies, 55 per cent for the neighbouring rights and 15 per cent for the compensation of publishing rights (see fig. 1).

Determine 1: The distribution of music streaming income within the UK

Supply: After Colin Younger, 2021, Comparability of Streaming Therapy by Document Label and Publishing Firm, Report for the DCMS Committee Hearings on the Economics of Music Streaming, February-March 2021.

What goes to the artists relies upon closely on the contractual preparations between performers and labels on the one hand, and authors (composers and lyricists) and music publishers on the opposite. In one of the best case, performers can negotiate a 30 per cent share of the streaming revenues. Because of this 38.5 per cent of the streaming pie stays with the labels and 16.5 petr cent goes to the performers. Income streams within the music publishing sector are way more difficult. As we now have seen, the mechanical proper to a musical work have to be distinguished from the performing proper.

Within the UK, two completely different amassing societies are liable for the administration of those rights – the Mechanical-Copyright Safety Society (MCPS) and PRS for Music. PRS for Music distributes royalties to its members when their music is broadcast on radio or tv, carried out dwell, streamed or downloaded as a sound file. The MCPS collects cash when its members’ music is reproduced on sound carriers, but additionally for mechanical reproductions on the radio and the web, in addition to for using music in TV, movie and radio.[4] Since PRS for Music additionally collects the licence charges for on-line use on behalf of MCPS, the income from this have to be divided between the 2 amassing societies in line with a negotiated key based mostly on on-line use.[5] For simplicity’s sake, Younger has assumed that about half of the income share – i.e. 3.75 per cent – from music streaming must be redistributed by PRS for Music to MCPS. PRS for Music then distributes the remaining 3.75 per cent to authors, whereas MCPS distributes 11.25 per cent to music publishers, who obtain 30 per cent, and authors, who obtain 70 per cent. In complete, music publishers obtain 4.5 per cent of the streaming pie and authors (composers and lyricists) obtain a complete of 10.5 per cent. A singer/songwriter who writes, composes and performs his or her personal songs would due to this fact obtain 27 per cent of the full streaming income.

The Examine “Music Creators’ Earnings within the Digital Period”

Constructing on the UK Parliament’s DCMS hearings, a crew of researchers led by David Hesmondhalgh, commissioned by the Mental Property Workplace (IPO), has produced the examine, “Music Creators’ Earnings within the Digital Period”,[6] which meticulously traced the technology and distribution of music streaming revenues in the UK. Based mostly on the statements of music business insiders earlier than the parliamentary committee, they got here to a barely completely different conclusion relating to the distribution of income within the music streaming economic system in comparison with Colin Younger’s examine. In keeping with their calculations, the recording sector generated 52 per cent of the streaming income and publishing generated 15 per cent. Of their mannequin, round one third (33 per cent) of all streaming revenues stay with Spotify & Co.[7] From the hearings it was clear that the median income share for music streaming earnings for performers in label offers is 25 per cent. From this, 4 per cent is deducted for the music producer, leaving a web share of 21 per cent. The 15 per cent share for music publishers is cut up 75:25 between authors (composers and lyricists) and music publishers.[8] This leads to the next simplified total image (fig. 2), as a result of the executive prices of the amassing societies haven’t but been thought of.

Determine 2: Distribution of streaming revenues between rights holders

Supply: After Hesmondhalgh et al., 2021, p 139.

Based mostly on these splits, a month-to-month earnings for the music creators can now be calculated. Hesmondhalgh and his crew assume that a mean of GBP 0.011 per stream is generated within the UK, with GBP 0.008 being distributed to the rights holders. If an artist’s songs are streamed 1 million occasions per thirty days, this leads to a month-to-month streaming income of GBP 11,000, of which GBP 8,000 is distributed to the rights holders. Of this, round 11 per cent is paid out by the labels to the performers, who thus earn round GBP 1,200 per thirty days. The authors (composers and writers) obtain just a little greater than the performers, with GBP 1,238, because of the increased share of publishing revenues. Lastly, the producers are additionally to be thought of, who take part with GBP 229.

Determine 3: Month-to-month music streaming revenues for 1 million streams within the UK (in GBP) by stakeholder

Supply: Calculations based mostly on Hesmondhalgh et al., 2021, p 139.

Over the course of a yr, this interprets into a good earnings of round GBP 14,400 for the performer and GBP 14,850 for the songwriter. If the performer is a singer/songwriter, they’d earn virtually GBP 30,000 per yr from music streaming. The image adjustments, should you take into account that many acts are bands, normally consisting of 4 members. To realize the identical outcome, their songs must be streamed 4 million occasions a month. The scenario is analogous for songwriters, who not often have sole tune credit however normally work in songwriting collectives. Furthermore, 1 million streams per thirty days is a hurdle to beat. The authors of the examine “Music Creators’ Earnings within the Digital Period” calculated, utilizing knowledge from the Official Charts Firm (OCC), which compiles the UK-charts, that of 424,073 artists listed in 2020, just one,613, or simply beneath 0.4 per cent, have been capable of file greater than 1 million streams (and fewer than 10 million) per thirty days. Solely 8,322 artists, or round 2 per cent of the artists, have been capable of exceed the 100,000 streams threshold. Greater than 10,000 (and fewer than 100,000) streams per thirty days have been achieved by 27,180 artists (6.4 per cent), and greater than 1,000 (and fewer than 10,000 streams) have been achieved by round 60,000 musicians (14 per cent) (fig. 4).

Determine 4: Variety of artists per streaming and earnings threshold, UK 2014 and 2020

Variety of streams per thirty days Annual earnings per threshold in GBP 2014 in % 2020 in % Change 2014 to 2020
10 to 100 million 145,200 3 0.001% 110 0.03% 3,567%
1 to 10 million 14,520 187 0.09% 1,613 0.38% 763%
100,000 to 1 million 1,452 1,610 0.74% 8,322 1.96% 417%
10,000 to 100,000 145.20 7,026 3.22% 27,180 6.41% 287%
1,000 to 10,000 14.52 19,778 9.07% 59,997 14.15% 203%
0 to 1,000 0 189,546 86.89% 326,881 77.08% 72%
Whole   218,150 100% 424,073 100% 94%

Supply: After Hesmondhalgh et al., 2021, p 201.

The comparability between 2014 and 2020 highlights a transparent enchancment within the earnings scenario for musicians. Whereas in 2014, when Taylor Swift had her music faraway from Spotify, solely 187 musicians have been capable of cross the brink of 1 million streams per thirty days, by 2020 the quantity had elevated virtually ninefold to 1,613. And the variety of musicians whose tracks have been streamed greater than 100,000 occasions a month has greater than quintupled, from 1,610 to eight,322. Nevertheless, with 100,000 streams per thirty days, a musician can earn an annual earnings of GBP 1,452 from music streaming, and a singer/songwriter can earn round twice as a lot. Nevertheless, it ought to be famous that solely just below 2.4 per cent of all musicians within the UK can generate greater than 100,000 streams per thirty days with their music. Those that solely handle 10,000 streams per thirty days earn simply GBP 145.20 per yr, and people who exceed the 1,000 stream per thirty days threshold earn GBP 14.52, which solely 23 per cent of all musicians handle to do. Conversely, which means 77 per cent of musicians within the UK weren’t capable of earn even GBP 14 per yr from streaming music in 2020.

In March 2021, Hesmondhalgh et al. (2021) performed a survey of 708 music professionals within the UK to complement these hypothetical calculations and to evaluate their earnings scenario. 71 per cent of respondents have been male and 28 per cent feminine. 1 per cent of respondents recognized as numerous. 40 per cent have been instrumentalists, 33 per cent have been singers and 55 per cent have been songwriters or composers, with a number of solutions attainable. It is usually attention-grabbing to notice that 52 per cent of respondents had a solo profession, with the rest both working with one other artist or in small ensembles or bands.[9]

28 per cent of respondents stated that music was their solely supply of earnings, whereas an additional 26 per cent stated it was their important supply of earnings. 30 per cent stated their important earnings got here from non-music associated actions and the remainder want to earn cash from music however have been unable to on the time of the survey.[10] It’s due to this fact not stunning that 37 per cent of respondents earned not more than GBP 5,000 in 2019 and an additional 10 per cent earned not more than GBP 10,000. Based mostly on the UK’s nationwide minimal annual earnings of GBP 20,000, round 62 per cent of respondents have been under this degree in 2019, taking solely their music earnings into consideration.[11] One other essential benchmark is he median earnings of a full-time worker within the UK, which the Workplace for Nationwide Statistics (ONS) determines round GBP 31,000. The examine highlights that 72 per cent of respondents earned not more than GBP 30,000 per yr from their musical actions and have been due to this fact under this median earnings.[12]

These figures present that even earlier than the COVID-19 pandemic, musicians within the UK had a relatively low earnings from their musical actions. The pandemic has additional worsened the earnings scenario, and in 2020 some 54 per cent of respondents fell under an annual earnings of GBP 10,000 and 65 per cent under the nationwide minimal wage.[13]

Music streaming doesn’t play a big position as a supply of earnings within the already troublesome financial scenario of musicians. Respondents indicated that earlier than the pandemic, a very powerful supply of earnings was live performance exercise, which accounted for 31 per cent of complete earnings. Music classes adopted with a share of 9 per cent, and solely in third place was earnings from music streaming at 6 per cent equally essential because the earnings from the sale of sound recordings.[14] These empirical knowledge assist the truth that music streaming will not be a related or perhaps a negligible supply of earnings for many musicians in the UK.

The Revenue State of affairs of Musicians in der US

This additionally confirms the findings of a examine on the earnings scenario of US musicians performed by Alan Krueger in 2018.[15] The survey requested 1,227 musicians in regards to the supply and quantity of their music-related earnings. The outcome was that round 81 per cent of respondents stated they earned earnings from dwell performances, making it a very powerful supply of earnings. Instructing music was a related supply of earnings for 42 per cent of respondents, adopted by participation in church choirs and different spiritual music performances (38 per cent of respondents). Some 36 per cent of respondents stated they earned earnings from audio and video recordings, 29 per cent from songwriting and 28 per cent from music streaming. Though streaming income was a supply of earnings for greater than 1 / 4 of respondents, the median earnings was solely US$100 per yr and was one of many least essential sources of earnings for US musicians after YouTube monetisation, at US $53 per yr. Respondents earned considerably extra from songwriting and recording, at US $850 every. However that is nothing in comparison with the dwell music enterprise, from which respondents earned a median earnings of round US $5,400. Nevertheless, the very best median earnings of US $8,000 per yr was earned from performing music in a non secular context. Music instructing, with a median annual earnings of US $4,000, was additionally considerably extra profitable for the musicians surveyed in 2017 than the music streaming enterprise.[16]

Because the 2021 UK examine highlights, the scenario has probably not improved. Revenues from music streaming are normally economically irrelevant for music creators.

Endnotes

[1] Phil Hardy, 2013, Obtain! How the Web Remodeled the Document Enterprise. London and so on.: Omnibus Press.

[2] Ibid.

[3] The transcripts of the hearings, in addition to statements and research, may be accessed on the DCMS web site: https://committees.parliament.uk/work/646/economics-of-music-streaming/, accessed: 2024-09-16.

[4] The collaboration between PRS for Music and the MCPS is defined on the PRS for Music web site: “PRS and MCPS”, n.d., accessed: 2024-09-16.

[5] The precise distribution of on-line revenues is defined on the PRS for Music web site, “On-line royalties”, n.d., accessed: 2024-09-16.

[6] Hesmonhalgh, David, Richard Osborne, Hyojung Solar & Kenny Barr, 2021, Music Creators’ Earnings within the Digital Period, examine commissioned by the Mental Property Workplace (IPO), London.

[7] Ibid., p 139.

[8] Ibid.

[9] Ibid., pp 165-166.

[10] Ibid., p 168.

[11] Ibid., p 169.

[12] Ibid., p 170.

[13] Ibid., p 169.

[14] Ibid., pp 171-172.

[15] Krueger, Alan, 2018, Inaugural Music Trade Analysis Affiliation (MIRA) Survey of Musicians, p 18.

[16] Ibid.

The Artist-Centric Model – Music Business Research

The Artist-Centric Model – Music Business Research

by | Dec 21, 2024 | Entertainment Law, Music Business, Podcast News

A design negotiated by the French music streaming service Deezer and Universal Music Group has recently attracted a lot of media attention in addition to the pro-rata and user-centric approaches to delivering audio streaming profits that were highlighted in piece 15. However, iƫ iȿ not the user-centric tყpe tⱨat Deezer has advocated in the ρast, but a so-called artist-centric design.

The Music Streaming Economy– Part 16: The Artist-Centric Model

This date dates back to April 2017, when Mark Mulligan entirely revealed on his Midia Music Industry website that Deezer was considering bringing a user-centric unit and had already discussed options with big right buyers. ]1 ] But nothing practical followed. The French broadcasting services invited journalists to a press conference in Paris two years later to learn about its plans to conduct a user-centric type testing in France starting in the new year. Worldwide, 40 categories and music producers, including Believe Digital, have spoken out in favour of switching to the new concept, and Deezer assured the media present that the introduction of the user-centric design do not require substantial funding. ]2 ]

The transition from the pro-rata to the user-centric concept has been silent once more. Ɗeezer’s planned IƤO, whįch was repeatedly announced, ȩnded up goiȵg back with a pause on July 5, 2022 on the Euronext in Ƥaris, making it possible that it waȿ σverdue. ]3 ] It was therefore a surprise when Deezer, together with the Universal Music Group, announced the introduction of an artistic-centric model in a joint press release on 6 September 2023″ ]… ] to better reward artists and music, while enhancing fan experience”. ]4 ] This should be achieved by letting “professional artists” to make more than 1, 000 channels per month from at least 500 unique people. These artists ‘ streams are valued at half as much as those at these levels. Additionally, the value σf music that įs conȿtantly searched fσr and accessed by users doubles. This results in four days more profits for guitarists above the boundary, who are artists whose song is constantly searched for and not suggested by systems. This double enhance is intended to lower the importance of analytic songs recommendations and increase music fans ‘ involvement in streaming royalties distribution. It also aims to remove the” white noise” of non-music from the revenue pool. Increased security measures are iȵ place ƫo prevent fraud involving tainted ȿtreams during the moⱱe. ]5 ]

What the media release does no notice, however, is that only a few designers may benefit from the “royalty improve”. Let’s recollect that in the UK in 2020, just 97, 222 or 23 per cent of players were able to make more than 1, 000 channels per month. Around 327, 000 performers remain below this level. Deezer and Universal are adamant about downgrading all of these musicians as “non-professionals. ” The percentage of artists who see theiɾ ȿtreaming income double or tɾiple is more reḑuced įf the Deezer laω aIso mandateȿ 500 unique users per month and that they aɾe constantly searching for the audiσ. This is why we should not talk about an artist-centric model, but rather a superstar-centric model ,]6 ] because only the really successful artists will benefit from this regulation. According to Mark Mulligan’s blog, DIY artists without a label contract increased their music streaming income by 60 % between 2000 and 2022, compared to the majors ‘ streaming income, which only increased by 35 % between 2000 and 2022. DIY artists accounted for 8 % of the world’s music streaming market in 2022. Ąccording to ⱨim,” The fastest-growing and ɱost dynamic aspect oƒ thȩ music industry could become a permaȵent funding mechanism for thȩ biggest labels and stars,” because many oƒ ƫhese artists onIy had fewer thαn 1, 000 streams per month. ]7 ] This is, of course, in the interests of Universal Music Group, which has the world’s largest music catalogue and represents many of the superstars whose streams are now being’ gold-plated’. Therefore, Deezer will likely pay significantIy hįgher amounts tσ Universal and the other maɉors. However, the artist-centric model will do nothing to change the income misery of the vast majority of artists, on the contrary, it will exacerbate it by economically devaluing their music streams. The pictưre is unchanged at all because of tⱨe double increase iȵ the number of musicians in the UK ωho receive betweeȵ 1, 000 and 10,000 streams eαch ɱonth.

Finally, Deezeɾ must be mentioned ƫhat Universal was forced to alter its mind ḑuring negotiations because the French streaming servįce haȿ long advocated fσr the switcⱨ from α pro-rata ƫo a user-centric model. However, the artist-centric model retains the pro-rata model, and the higher valuation of some streams merely redistributes the streaming revenue in favour of the music companies. Warner Music Group is also signing agreements with Deeȥer aȵd label licensing companყ MERŁIN in November 2023, which are putting pressure on oƫher streaming services ƫo adoρt ƫhe artist-ceȵtric royalty model.

Endnotes

]1 ] Mark Mulligan,” Exclusive: Deezer Is Exploring User Centric Licensing”, Midia-Music-Industry-Blog, April 19, 2017, accessed: 2024-07-05.

]2 ] Music Business Worldwide,” Deezer plans 2020 User-Centric Payment System pilot launch – if it can get rightsholders to sign up”, September 11, 2019, accessed: 2024-07-05.

]3 ] Music Business Worldwide,” Deezer goes public: Spotify rival makes stock market debut on Euronext Paris”, July 5, 2022, accessed: 2024-07-05.

]4 ] Universal Music Group press release,” Universal Music Group and Deezer to Lauch the First Comprehensive Artist-Centric Music Streaming Model”, September 6, 2023, accessed: 2024-07-05.

]5 ] Ibid.

]6 ] Basically, it is still a pro-rata model in which only the market shares are redistributed by the higher valuation of streams.

]7 ] Mark Mulligan” How to make artist centric artist centric”, Midia-Music-Industry-Blog, September 6, 2023, accessed: 2024-07-05.

]8 ] Music Business Worldwide,” Warner Music Group has signed up for Deezer’s ‘ artist-centric’ royalties model in France”, November 12, 2023, accessed: 2024-07-05.

]9 ] Music Business Worldwide,” Indie artists shift to artist-centric payments on Deezer, as streaming service signs new deal with Merlin”, March 21, 2024, accessed: 2024-07-05.

Various Distribution Fashions – Music Enterprise Analysis

Various Distribution Fashions – Music Enterprise Analysis

by | Nov 23, 2024 | Entertainment Law, Music Business, Podcast News


Along with the pro-rata and user-centric fashions mentioned intimately partially 14, there are different various approaches to distributing streaming revenues amongst rightsholders. These fashions, in addition to the idea of equitable remuneration used within the distribution of radio and TV royalties, can be examined in additional element on this a part of the collection on the economics of music streaming.

The Music Streaming Financial system – Half 17: Various Distribution Fashions

Spotify has additionally introduced a brand new distribution mannequin for 2024. This mannequin will apply to artists who generate greater than 1,000 streams per yr. Those that don’t attain this threshold can have their shares stream into the overall royalty pool. Billboard has calculated that two-thirds of the out there catalogue will now not be remunerated. This can end in a redistribution of royalties of 0.5 per cent of whole revenues. Whereas this will likely seem like a comparatively modest sum, it represents a redistribution of US $46 million in whole revenues.[1] Spotify justified this alteration by arguing that it was a strategy to fight streaming fraud and push again non-music. To again this up, it has additionally launched a EUR 10 superb for each monitor that’s 90 per cent manipulated (e.g. by streaming farms). As well as, non-music tracks, reminiscent of recordings of rain and the sound of the ocean, have to be at the least two minutes lengthy to be remunerated.[2]

Nonetheless, Spotify’s new distribution mannequin shouldn’t be an actual various to the pro-rata mannequin. It retains the pro-rata mannequin and redistributes the streaming pie by introducing a decrease restrict on the variety of streams. In an instructional article,[3] Frederik Juul Jensen recognized Spotify’s streaming cap mannequin as considered one of 5 various cost fashions that may be mixed with each the pro-rata and user-centric fashions. Another choice can be to think about the totally different lengths of tracks when calculating the worth. At present, all tracks streamed for greater than 30 seconds are charged on the similar price. This discriminates towards longer tracks, reminiscent of these generally present in classical music, jazz and even some rock genres (e.g. artwork or psychedelic rock). These might be charged at a better price relying on their size.[4] The context of streaming might also be necessary. It makes a distinction whether or not music is actively looked for and streamed, or passively listened to, as on the radio.[5] It’s exactly this distinction between curated passive music consumption and lively music listening that Deezer has made in its double increase mannequin, the place tracks which might be actively searched and streamed are rated twice as extremely as these instructed by a music suggestion system. The mannequin of paying for a tune solely from the second stream is comparable. The concept behind that is that music shoppers solely worth a tune in the event that they play it repeatedly. Due to this fact, music that’s performed solely as soon as shouldn’t be included within the distribution pool for streaming royalties.[6]

Lastly, the Affiliation for Unbiased Music (AIM) has launched the “artist progress mannequin”, whereby the music of artists at the beginning of their careers needs to be valued extra extremely than that of established superstars. The concept is to mitigate the winner-takes-all phenomenon that AIM believes has been amplified within the music streaming economic system. This mannequin relies on the idea of social and cultural assist measures that many European music accumulating societies have carried out by channelling a part of the storage media remuneration into corresponding funds to advertise younger, native artists.[7] AIM has commissioned former Spotify chief economist Will Web page and ASCAP vice-president David Safir to develop such a mannequin for the UK. It proposes that the highest 10,000 tracks streamed every month are divided into ten deciles, with the highest two deciles devalued by 8 per cent. This 8 per cent is then redistributed to the subsequent 4 deciles. The worth of the underside 4 deciles would stay unchanged.[8] It sounds sophisticated, and it’s. That’s the reason AIM in contrast this mannequin with a digressive tax system throughout the DCMS parliamentary hearings on the music streaming economic system, to make the idea comprehensible to the MPs.[9]

Musicians’ curiosity teams within the UK, which have joined forces to kind the Council of Music Makers (CMM), have introduced one other remuneration mannequin into the DCMS hearings, the idea of Equitable Remuneration (ER), which has already been tried and examined for radio royalties. In lots of European international locations, together with the UK, performers are remunerated for the efficiency rights within the sound recordings through which they seem. When these recordings are carried out in public or broadcast on the radio, they’re entitled to a price, as are the music labels. These are collected by accumulating societies reminiscent of Phonographic Efficiency Ltd. (PPL) within the UK, Gesellschaft zur Verwertung von Leistungsschutzrechten (GVL) in Germany or Leistungsschutzgesellschaft (LSG) in Austria and is distributed not solely to featured artists but additionally to session musicians and background singers.[10]

In the UK, this remuneration is named Equitable Remuneration (ER), as it’s distributed in a 50:50 ratio between the rights holders (sometimes the labels) and the artists (32.5 per cent for featured artists and 17.5 per cent for non-featured artists) after the deduction of the accumulating society’s administrative bills. One benefit for the performers is that these royalties are excluded from the standard label contracts and subsequently stream on to the artists, fairly than being topic to recoup the prices of a music manufacturing.[11] Nonetheless, ER, which applies to broadcasting and on-line radio, was not prolonged to music downloads and on-demand music streaming on account of stress from the key labels. Consequently, studio musicians and background singers don’t obtain a share of the streaming income, and featured artists solely obtain their share if the prices of music manufacturing are recouped.

This case was not solely thought-about unsatisfactory by the musicians’ consultant organisations within the UK, but additionally by the members of the DCMS parliamentary committee, who offered a essential last report on the hearings in July 2021. Amongst different issues, the report referred to as for the introduction of an equitable remuneration system for revenues from digital music gross sales and music streaming. In level 5 of the suggestions for motion to the federal government, the MPs wrote within the last report: “The proper to equitable remuneration is an easy but efficient resolution to the issues attributable to poor remuneration from music streaming. It’s a proper that’s already established inside UK legislation and has been utilized to streaming elsewhere on the planet.” They usually adopted this up with a powerful suggestion: “We advocate that the Authorities legislate in order that performers take pleasure in the correct to equitable remuneration for streaming revenue.”[12]

Kevin Brennan, who sat on the DCMS Committee for the Labour Celebration, wished to get right down to enterprise immediately and launched the Brennan Invoice, named after him, within the Home of Commons, proposing the introduction of truthful remuneration into the UK Copyright, Design and Patents Act 1988.[13] He met with fierce resistance, particularly from the British Phonographic Trade (BPI), whose CEO, Geoff Taylor, summarised the rejection in a remark in Music Enterprise Worldwide: “[E]quitable remuneration (ER) would, fairly frankly, be a recipe for catastrophe – a black gap that will suck worth away from music sector and in direction of the platforms.”[14] Given the pro-industry Tory majority within the Home of Commons, it was hardly stunning that the Brennan Invoice was rejected by a majority of MPs in December 2021.

This brought about an uproar amongst truthful remuneration advocates, prompting the federal government to fee a research from the Mental Property Workplace (IPO) to evaluate the impression of introducing ER into the UK copyright system. The IPO then commissioned music advisor Chris Carey to hold out the research, which in contrast totally different situations and evaluated the Spanish mannequin of ER for streaming revenues. These anticipating a transparent scientific assertion for or towards the introduction of a good remuneration regime for streaming revenues within the UK have been disenchanted. Chris Carey remained imprecise and referred to the necessity for additional analysis: “Whereas this paper didn’t got down to conclude in favour or towards any mannequin, the one key conclusion that may be drawn is that ER doesn’t supply a easy resolution to the streaming conundrum. There are numerous unknowns and complicated interdependencies inside the modelling, and a variety of additional questions that benefit deeper consideration. Importantly, this paper didn’t got down to decide what’s truthful and that necessary debate is outdoors the scope of this analysis.”[15]

The British authorities’s response was all of the extra stunning, because it interpreted the research as a transparent rejection of the ER distribution system and the accountable minister, Julia Lopez, drew conclusions that aren’t to be discovered there: “Its findings recommend that making use of the so-called ‘broadcast mannequin’ of equitable remuneration to music streaming is prone to be extraordinarily disruptive for the music {industry} with a excessive probability of damaging unintended penalties. That might embrace diminished funding in new artists and a discount in alternative for artists in how they negotiate with file labels.”[16] The representatives of the recording {industry} cheered loudly, as they have been capable of declare a significant lobbying success within the UK authorities’s rejection of the ER mannequin and noticed of their statements the hazard averted that Equitable Remuneration might undermine the flexibility of labels to put money into younger expertise and new music.[17] Given the huge income that the key labels specifically are incomes from the year-on-year progress in music streaming revenues, these statements appear virtually frivolous when you think about how little of the music streaming pie the vast majority of musicians are getting. Though the DCMS committee was capable of acquire an in depth image of the distribution of revenue within the music streaming economic system throughout the hearings and noticed truthful remuneration as an enchancment within the revenue state of affairs of performers, supported by music greats reminiscent of Paul McCartney, Sting, Stevie Nicks and Chris Martin,[18] the UK authorities gave ER a first-class funeral. Nonetheless, it’s uncertain that this may put an finish to the controversy concerning the distribution of streaming revenues within the UK, and it stays to be seen whether or not the Labour authorities elected within the July 2024 will put the difficulty again on the agenda.

Endnotes

[1] Billboard, “Every thing to Know About Spotify’s New Royalties Mannequin: How Does It Work & Who Will It Influence?”, November 20, 2023, accessed: 2024-10-07.

[2] Ibid.

[3] Frederik Juul Jensen, 2024, “Rethinking royalties: various cost programs on music streaming platforms”, Journal of Cultural Economics, 02 March 2024, https://doi.org/10.1007/s10824-024-09507-z.

[4] Ibid., pp 10-11.

[5] Ibid., pp 11-12.

[6] Ibid., pp 12-13.

[7] Ibid., pp 13-15.

[8] Affiliation of Unbiased Music (AIM), 2021, “Find out how to repair streaming–an introduction to the artist progress mannequin”, YouTube-Video, July 5, 2021, accessed: 2024-10-07.

[9] Affiliation of Unbiased Music (AIM), 2022, “SOLUTION: ‘Artist Development’ Mannequin for Fairer Streaming Outcomes”, Supplementary written proof submitted by the Affiliation of Unbiased Music for the DCMS Committee Hearings on the Economics of Music Streaming, February-March 2021.

[10] See Peter Tschmuck, 2021, The Economics of Music, 2nd version, Newcastle-upon-Tyne: Agenda Publishing, pp 97-98.

[11] See Music Managers Discussion board (MMF), 2015, Dissecting the Digital Greenback, half 2. Ashford: Hartley Brothers, pp 42-43.

[12] DCMS-Committee, 2021, Economics of music streaming. Second Report of Session 2021–22, HC 50 incorporating HC 868 2019-21, revealed on 15 July 2021 by authority of the Home of Commons, pp 103-104.

[13] Music Enterprise Worldwide, “Document labels actually, actually don’t like a brand new Invoice that might – ultimately – change how artists receives a commission within the UK”, November 24, 2021, accessed: 2024-10-07.

[14] Music Enterprise Worldwide, “Op/ed by Geoff Taylor: ‘Recognition is by far the largest determinant of success in streaming, simply because it has been for each recorded format earlier than it’”, April 13, 2021, accessed: 2024-10-07.

[15] Chris Carey, “The potential financial impression of ER on performers and the music market within the UK”, Research commissioned by the Mental Property Workplace (IPO), revealed on February 19, 2024.

[16] Music Enterprise Worldwide, “UK authorities confirms it has no intention to undertake ‘equitable remuneration’ payout mannequin for on-demand music streaming”, February 20, 2024, accessed: 2024-10-07.

[17] Ibid.

[18] Music Enterprise Worldwide, “Why are Paul McCartney, Led Zeppelin, Sting, Chris Martin and Stevie Nicks demanding the UK authorities ‘fixes streaming’?”, April 20, 2021, accessed: 2024-10-07.

” Breakage” in the Digital Age – Music Business Research

” Breakage” in the Digital Age – Music Business Research

by | Oct 26, 2024 | Entertainment Law, Music Business, Podcast News

The word “breakage” dates back to a day when information were made of acrylic and may break during travel. A label was obviously unable to continue selling these records, so clauses were written in the label contracts at the time to make sure that damage was not taken into account when determining the artists ‘ communicate. The phrase has survived into the modern era and is used to describe a band’s income that is not required to get shared with artists. In this final installment of the line on streaming music’s economics, we examine precisely what this profit is and the controversy that has arisen from it.

The Music Streaming Economy – Part 18:” Breaking” in the Digital Age

In” Record Makers and Breakers,” John Broven’s regular work on the US music business from the 1940s and 1950s exposes the deliberate use of record labels to break shellac records to prevent music productions from breaking even, avoiding paying the artists their profits. Henry Stone, the leader of De Luxe Records, claimed in an interview with the writer that the business was able to recover the lost revenue because the sales were typically covered by insurance against breakage. ]1 ]

But,’ breakage’ is also important in the modern age, albeit in a unique form. This has to do with the legal arrangements between music streaming services and brands, which we have covered extensively elsewhere. In a nutshell, Spotify &amp, Co. make progress payment to the categories to be allowed to use their song directories. These improve payments are therefore recouped using the streaming fees. Nevertheless, if the income is less than the progress, the change remains with the brands as “breakage”. A brand has US$ 25,000 in extra income that is not required to be distributed to the artists if a streaming company pays a label US$ 1 million as an advance for the contract period but the label’s catalogue is simply streamed to the value of US$ 750, 000 as an advance. The proceeds from the sale of the collateral that the degrees have acquired from streaming services are the same. They can convert it into dollars when they are sold, such as in an Investor like Spotify, where the designers are not required to disclose their artistic accomplishments, which in turn increased the value of the streaming service. The record label must determine whether or not to give “its” performers this money.

Many performers and their administrators have asked themselves whether their names, mainly the main labels, promote electronic “breakage” with them. Darius Van Arman, the founder and publisher of Secretly Group, criticized the majors ‘ “breakage” practice in a much-reported guest article for Billboard Magazine. He stated that” the majors typically share breakage only when required to do so in their contracts with big artists or larger distributed labels. ]… ] Unfortunately, this practice of maximizing breakage puts a downward pressure on the value of music ( i. e. in negotiations, major labels are requesting larger lump-sum payments, rather than pushing for higher royalty rates ), when really the whole music industry should be working together to increase the value of music, especially as large technology companies continue their assault on copyright”. ]2 ]

This was stated by Van Arman in advance of his evidence at the US Congressional” Music Licensing” sessions held on 10 and 25 June 2014 before the Subcommittee on Courts, Intellectual Property, and the Internet of the House Judiciary Committee. During the reading, the Members of the House interrogated representatives of the music industry, collecting societies, streaming services and labels, as well as Roseanne Cash, the daughter and heiress of singer and Johnny Cash, who testified about the disparate supply of streaming revenues between rights owners and artists, and called for a radio straight for authors in the US. In his detailed written statement, Darius Van Arman criticized the major labels, which “use their market power to maximize only the guarantee” [ …] with the intention that the guarantee cannot possibly be recouped within the time allotted for it. The major does not have to share the money with its artists, the independent labels that the major distributes, or publishing interests because it cannot be attributed to specific recordings or performances. ]5 ]

As a positive counterexample, Van Arman cited the indie label licensing association MERLIN, which distributes all “breakage” revenues to its members ,]6 ] although it should be added that MERLIN’s members are indie labels, not artists. However, in a” Labels ‘ Fair Digital Deal Declaration” ]7] drawn up by the Worldwide Independent Network ( WIN), the indies have agreed to share breakage revenues with their artists on a voluntary basis.

The public debate that ensued caused the music majors to feel uncomfortable. However, they were only made to comply when a contract between Spotify and Sony Music Entertainment was leaked in May 2015, disclosing the major labels ‘ business model of preferential treatment and terms of favor. [8 ] The International Music Managers Form ( IMMF) immediately responded by writing an open letter to music publishers and labels asking for more transparency in the reporting of streaming revenues, citing the Spotify-Sony deal, and voicing concerns about the music majors ‘ breakage practices. [9 ] In an interview, IMMF Vice-Chairman Volker May vehemently criticized Sony &amp, Co.’s handling of these” collateral additional revenues,” saying that” the labels are receiving all manner of collateral benefits from supplying the artists ‘ music to digital platforms, benefits that are not shared with the artists ( performers or writers )”. ]10]

Sony was forced to respond to these accusations by issuing a solemn statement in which it solemnly assured that the group’s labels would distribute all of its recording artists ‘ unallocated income from advances, non-recoverable payments, and minimum revenue guarantees as part of its digital distribution agreements. ]… ] This applies to all revenue under digital catalogue distribution agreements, whether or not the guarantees, advances or ‘ flat’ payments can be associated with individual master transactions”. ]11]

It’s probably not a coincidence that Warner Music Group leaked an anonymous royalty statement to Music Business Worldwide shortly afterward, revealing that Warner does indeed “break” revenues with its artists. To be fair, Van Arman specifically excluded Warner from his criticism. In any case, Warner Music Group felt obliged to issue the following statement:” Warner Music shares all advances, minimum guarantees and ‘ flat fees’ with its artists, ]…] This policy has been in effect at Warner Music since 2009, purposely treating breakage like other digital revenue”. ]12]

The statements from Sony and Warner have now put pressure on the third major music label, Universal Music Group, to also comment on its handling of “breakage” revenues. Universal also clarified its approach to digital “breakage” revenues on June 2 by stating that” we also choose to share with artists minimum guarantees as well as unrecouped digital advances, where they exist,” while the most significant source is composed of royalty payments. ]13]

However, the majors ‘ statements did not address whether all signed musicians would receive a portion of the “breakage” money or just a select few stars with bargaining leverage. Additionally, it’s unclear whether the sharing provisions only apply to artists who are currently under contracts or to those whose contracts have expired but whose music is still available and making money. In any case, we can only speculate about the artists ‘ share of the “breakage” revenues and the amount of compensation.

Finally, one might wonder why the majors have implemented such a system of improvements for music streaming services. Risk avoidance plays a particularly significant role in risk avoidance in addition to the same way that was used to recover advances from label contracts. In the early days of music streaming, there were many short-living players, with a high risk that they would generate little or even no streaming revenue. The advances were a revenue guarantee from the perspective of the majors, and they had the advantage of reducing the reliance on streaming services.

Overall, the example of “breakage” revenues highlights how multifaceted and complex the distribution problem in music streaming is. We have seen that rights holders are fiercely opposed to switching to alternative revenue distribution models like pro-rata and user-centric, and that revenue distribution models like pro-rata and user-centric have a negative impact on the distribution of streaming revenues. However, research on the musician’s income shows that only a select few stars profit from the streaming industry and that the majority of artists only make a small amount of money from music streaming. The big winners, on the other hand, are the labels and, secondarily, the music publishers, who were able to significantly improve their income situation in the US with the Music Modernization Act 2018. The main pillar of the business model of music streaming services is the music rights ( master and publishing rights ), which makes them structurally dependent on the rights holders, and, as we have seen with Spotify, makes it very difficult for them to operate their business model profitably.

Endnotes

]1 ] John Broven, 2010, Record Makers and Breakers. Voices of the Independent Rock ‘ n’ Roll Pioneers, Urbana and Chicago: University of Illinois Press, p 141.

]2 ] Billboard,” ‘ We Want to Compete,’ Says Secretly’s Van Arman, Ahead of His Congressional Testimony Tomorrow ( Guest Post )”, June 24, 2014, accessed: 2024-10-14.

]3 ] These hearings marked a significant step forward toward the Music Modernization Act of 2018.

]4 ] Testimony by Roseanne Cash before the” Subcommittee on Courts, Intellectual Property, and the Internet” of the House Judiciary Committee, 113th Congress, 2nd Session, Hearing on” Music Licensing under Title 17 ( Part I &amp, II ) on June 10 &amp, 25 2014, pp 240-242 of the hearing-transcript.

]5 ] Written statement complementary to Darius Van Arman’s testimony before the” Subcommittee on Courts, Intellectual Property, and the Internet” the House Judiciary Committee, 113th Congress, 2nd Session, Hearing on” Music Licensing under Title 17 ( Part I &amp, II ) on June 10 &amp, 25 2014, pp 270-286 of the hearing-transcript, cit. on p 274.

]6 ] Ibid., p 275.

]7 ] World Independent Network ( WIN),” Fair Digital Deals”, n. d., accessed: 2024-10-14.

]8 ] The Verge,” This was Sony Music’s contract with Spotify”, May 19, 2015, accessed: 2024-10-14.

]9 ] International Music Managers Forum ( IMMF),” Open letter on Record Label and Music Publisher Deals in the Digital Market”, May 21, 2015, accessed: 2024-10-14.

]10] Cited in Music Business Worldwide,” Managers react to leaked Sony and Spotify contract”, May 22, 2015, accessed: 2024-10-14.

]11] Cited in Music Business Worldwide,” Sony: We share Spotify advances with our artists”, May 27, 2015, accessed: 2024-10-14.

]12] Cited in Music Business Worldwide,” Warner pays artists share of Spotify advances… and has for 6 years”, May 29, 2015, accessed: 2024-10-14.

]13] Cited in Music Business Worldwide,” Universal: Yes, we share digital breakage money with our artists”, June 2, 2015, accessed: 2024-10-14.