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Discovery Mode, ER and royalty distribution models in the spotlight as IMPALA publishes ten point plan to “make streaming work”

By | Published on Wednesday 24 March 2021


As the UK Parliament’s inquiry into the economics of streaming reaches its conclusion, the pan-European trade group for the independent music community, IMPALA, has published a ten point plan to “make streaming work”.

Among other things, it criticises moves by Spotify to allow artists and labels to influence its algorithm in return for a royalty discount; opposes the introduction of equitable remuneration on streams but calls for fairer artist royalties across the sector; and proposes a number of alternative approaches to allocating streaming revenue to tracks each month, other than user-centric royalty distribution.

Launching the plan, IMPALA says that it is joining the ongoing streaming debate on behalf of its member organisations and labels as part of a bid to “make streaming fairer and provide a dynamic, compelling and responsible future for creators and for fans”.

There’s lots to digest in the plan and its accompanying document – which also talks about ongoing safe harbour reform and the implementation of the copyright directive in Europe – though the statements on topics like Spotify’s Discovery Mode, Performer ER and user-centric royalty distribution are probably most newsworthy.

Spotify’s announcement last year that it was piloting a scheme called Discovery Mode that would allow artists and labels to inform its algorithm in return for accepting a lower royalty on streams that that intervention facilitated received a mixed reception.

Some people welcomed Spotify’s new marketing tool, pointing out that the algorithm is generating ever more plays via the streaming service’s playlists, and its personalised radio and auto-play functions, and that being able to influence that process was a big help. Yes, it came with a cost, but not an upfront cost, given that artists and labels basically pay by accepting a lower royalty rate.

At its recent Stream On event, Spotify bigged up the successes that it said artists and labels have achieved as a result of its Discovery Mode pilot. It claimed that labels had seen on average a 30% growth in streams when they had used the service, meaning they made more money overall despite the lower royalties paid on those streams. They also referenced one case study involving an independent artist and music company – Odie and Empire – who, Spotify said, had achieved a 69% audience growth and 75% royalty increase by participating in their Discovery Mode pilot.

However, there have also been plenty of critics of the scheme, with many artists, labels and managers seeing the move as a return to the bad old days when you basically had to pay to get your CDs on the most prominent shelves in the big high street retail chains. Or – even worse – as a digital equivalent to payola, the usually illegal activity of paying radio stations to playlist your music.

IMPALA’s members are in the latter group. Although it doesn’t specifically namecheck Spotify or Discovery Mode, the organisation’s plan states: “We call on the entire music sector to stand with IMPALA to reject any proposals by services that reduce royalties for plays, or privileged treatment, in algorithms or other features. This is payola, and has no legitimate place in improving viability and opportunity for creators”.

The IMPALA plan also discusses the proposal – frequently mentioned during the UK Parliament’s inquiry – that performer equitable remuneration should be paid on streams. That would mean artists having a statutory right to payment whenever their recordings are streamed – administered via the collective licensing system – as is currently the case when music is broadcast or played in public.

The precise motives and mechanics of ER differ in copyright systems around the world, though a performer’s automatic right to payment under law often originates in compulsory licences, scenarios where the music industry is obliged to licence through the collective licensing system at standard rates. Where that applies, both copyright owners and performers lose their right to actually control the use of their music, but get a statutory right to payment for that usage in return.

IMPALA hones in on this in opposing the introduction of ER in the streaming space. “Equitable remuneration sounds fair and has recently received a lot of attention”, it states. “But let’s be clear, it is not a new right – it is a compensation mechanism for rights when they are stripped away”.

It also notes that the radio sector pays much lower royalties to the music industry than the streaming services. This “illustrates the loss of value” an ER approach can create, it goes on, “with radio paying rates per listener that are up to 200 times lower than streaming. It may also allow monopoly market participants to end the industry’s freedom to negotiate commercial rates for streaming; and it would not result in greater payouts to artists”.

There are various reasons why many in the artist community have called for ER to be paid on streams, though one key reason is to help heritage artists whose catalogues have become newly valuable in the streaming age, but who are often locked into 20th century life-of-copyright record deals that pay much lower royalties. When indie labels were questioned by MPs as part of the parliamentary inquiry, they argued that a better way to deal with that problem is for each label to commit to pay the same streaming royalty rates across its entire catalogue.

MPs were told how Beggars Group pays the same streaming royalty rate – 25% – to all its artists, including those on old contracts that originally provided lower rates that were standard at the time and based on physical product being manufactured. The company also writes off unrecouped balances – advances and other costs that artist are meant to repay – after fifteen years. The label’s Rupert Skellet told MPs: “Our chairman, Martin Mills, has tried to persuade the majors over a number of years to adopt at least a minimum royalty rate for all artists”.

IMPALA also supports this system for providing heritage artists with a fairer deal. “Record labels must commit to revising all pre-digital royalty rates, and all artists should receive a fair contemporary digital rate”, it states. “This benefits all artists, but especially those on older deals where royalties can be as low as 4%”.

Similar artist-friendly policies were also included in the Fair Deals Declaration developed by the World Independent Network in 2014, to which many indie labels have now signed up. “Equitable remuneration cuts across innovative initiatives such as the Fair Digital Deals Declaration, introduced by the independents to deal with legacy issues and to facilitate the sharing of revenue previously not covered by contracts”, IMPALA also argues. “It transformed the market, and helped thousands of artists share in the benefits accrued to labels when Spotify floated”.

As for how streaming services allocate monies to individual tracks each month, IMPALA also discusses the proposal that a user-centric system be introduced. This would mean that rather than monies being shared out based on the percentage of consumption achieved by each track among large groups of subscribers, each individual user’s monthly subscription would be divvied up separately.

“User-centric payouts feel more appealing to some who like the idea of their money going to the artists they listen to”, it notes. “We are ready to explore this option and scrutinise the pros, cons and unintended consequences of some services choosing the user-centric model. We feel, though, that on its own it won’t create the optimal market for artists, just a different set of artists who gain and lose, without growing the market or embracing other dynamics which we feel are needed to achieve change”.

In its submission to the parliamentary inquiry, the UK’s Association Of Independent Music raised similar concerns about the user-centric approach. But it also proposed a very interesting alternative system for sharing out the money, different to both the current set-up and basic user-centric.

That’s called the ‘artist growth model’ and would mean, AIM explained, that “the first tier of streams would be the most valuable, and that the more streams achieved by an artist, the less valuable each stream would become incrementally”. Such a system would benefit newer and more niche artists over the biggest mainstream stars.

IMPALA also proposes that the artist growth model be considered, while presenting some other new approaches too that it reckons should also be explored, stating “we want a more nuanced approach to the distribution of value from streaming platforms”.

Some of those other proposals could complement rather than replace the current system – or indeed a user-centric or artist growth system. It includes paying additional royalties on longer tracks – at five, ten and fifteen minutes – to overcome the fact that the current streaming model – where a one-off royalty is paid at 30 seconds – disadvantages those genres like classical where longer tracks are the norm. And also possibly paying a premium where a subscriber specifically seeks out an artist or track, or saves it to their personal library.

Another proposal is that artists and labels be able to generate extra additional revenues via streaming platforms by having the option to provide access to extra premium content, presumably in return for a one-off or recurring extra charge.

You can check IMPALA’s full ten step plan here. It also talks about platforms allowing users to navigate catalogues by label and publisher, as well as songwriter, producer and musician; the need for services to better combat activity like stream manipulation; and why streaming firms should be doing more to support local repertoires in smaller markets and to ensure that algorithm developments don’t negatively affect diversity, local repertoire and opportunities for artist discovery.

Launching the plan, Mark Kitcatt, Chair of IMPALA’s streaming working group and also MD of Spanish indie Everlasting/Popstock, says: “We spoke to members to get a feel for what streaming can and should offer, and how we can get there. We have an array of ideas to deliver greater income and opportunity to creators, and greater value to fans. The safe harbour experiment has failed on both those fronts – it needs to be put away for good. Labels must pay contemporary digital royalty rates to all artists. And then we can put fans and artists at the centre of a plan to unlock the true potential of streaming for this industry”.

Meanwhile, IMPALA’s Executive Chair Helen Smith adds: “We need to change the streaming status quo. Our conclusion says it all. The independent music community stands with artists, ready to help build better models for creators, consumers, services and the environment to make the most of the promise of streaming. Our proposals will also be useful for EU countries implementing the copyright directive”.

And the boss of AIM in the UK, Paul Pacifico, states: “It is vital to explore innovative solutions to streaming. It is also time to look beyond old world mechanics like equitable remuneration and into models that will work for a better streaming future. This paper will be helpful in setting out some of the tools that can really make a difference and achieve a more diverse and healthy music ecosystem”.