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Dissecting The Streaming Inquiry #04: Equitable remuneration

By | Published on Thursday 28 January 2021

Houses Of Parliament

We are currently reviewing and dissecting submissions made to the UK Parliament’s ongoing inquiry into the economics of streaming.

Based on the five years of research CMU Insights has undertaken with the Music Managers Forum as part of the ‘Dissecting The Digital Dollar’ project, we explain the background to the key debates, helping you navigate and understand each issue and the proposed solutions.

Our review of the submissions to Parliament’s big streaming inquiry so far has focused on the digital pie debate – how do streaming monies get shared out between the streaming services themselves and each stakeholder in the music industry, including artists, songwriters, session musicians, labels, distributors, publishers and collecting societies.

When it comes to the approximately 55% of streaming monies allocated to the sound recording rights, how that money is shared out between labels and artists depends entirely on each individual record deal. When artists sign with a label, they are paid a share of all future income generated by the recordings the label releases under that deal. That royalty could be 5% or it could 95% – though 20% is a common rate on conventional modern contracts.

As previously discussed, many artists and managers argue that the digital royalty rates paid to artists on conventional record deals should be higher. And where heritage artists are being paid even lower royalty rates based on terms in old record contracts, those rates should be increased to be in line with what is paid out on modern deals.

However, because every record deal is negotiated separately, it would be tricky for even Parliament to force an industry-wide change on the digital royalties received by artists through copyright law. Unless, of course, equitable remuneration were to be paid on streams.

Such a proposal was a key talking point at the initial oral hearings as part of this Parliamentary inquiry and – unsurprisingly – it also features in a number of the written submissions.

Performer equitable remuneration is a performer right, which is to say, a provision in copyright law that benefits performers even if – and especially when – they don’t own or control the copyrights in the recordings on which they perform.

The ER rule states that in certain scenarios when recordings are utilised, any performers who appear on said recording have a statutory right to payment under law. This applies oblivious of who owns the copyright in the recording, and any deals between the performer and the copyright owner.

Under UK law, ER applies when the performance and communication elements of the copyright are exploited – what are often referred to in the industry as the ‘performing rights’ or ‘neighbouring rights’. In practical terms, that covers things like broadcast and when recorded music is played in a public space.

Where ER applies, performers as well as copyright owners need to get paid. This is managed through the collective licensing system. So, in the UK, that’s PPL. Basically any monies collected by PPL from the broadcast and public performance of recorded music is split 50/50 between copyright owners – which are often labels – and performers.

In most countries ER is not paid on streams. This despite the fact it is generally agreed that streams exploit both the ‘mechanical rights’ and the ‘performing rights’ of the copyright.

However, it is argued that a stream actually exploits a different element of the copyright called ‘making available’. And while making available is often considered part of the performing rights, under UK law ER specifically does not apply when it’s the making available right that is being exploited.

But what if it did? Or what if we were to say that a stream was also a communication as well as a making available? Or what if we were to say that – when a stream is delivered via a playlist or algorithm – it’s actually a communication instead of a making available?

In any of those circumstances ER would be due on at least some streams, meaning artists would have a statutory right to payment from streaming separate from any royalties they are due under their record contracts.

Several submissions made to Parliament’s inquiry call for ER on streams. In his submission, Tom Gray of the #brokenrecord campaign says this should be achieved by simply changing the law so that ER is paid on making available as well as performance and communication.

He writes: “The #brokenrecord campaign has one key recommendation: amend UK legislation by extending the right to ‘equitable remuneration’ that already exists for ‘communication to the public’ (broadcasting) to cover the ‘making available’ right, so that artists can earn from on demand streaming in the same way they have long earned from radio and TV transmissions”.

This, Gray reckons, would be a relatively simple legislative solution that would be a game-changer for many artists, including those stuck in old low royalty paying record deals; those still paying back advances and other costs to their label; and especially session musicians who currently earn zero from streams but would be due ER.

He goes on: “Artists, with such low royalty rates, often wait years (or forever) to earn from streaming what they received from analogous physical sales. Cashflow is, of course, a serious problem for any business and, in this environment, the tens thousands of small businesses and sole traders working in the sector desperately need a cash injection to survive”.

“Equitable remuneration would help kickstart a skilled sector which, largely due to the application of old terms onto the new streaming model, remains in the doldrums”.

“Equitable remuneration is already a right granted to performers of music when their recordings are played on the radio or in public”, he continues. “It is possible extend this right for streaming to create an equitable and reliable stream of income (that cannot be affected by poor contractual terms). This would tip the scales (to some extent) back toward the entrepreneurial music-makers, providing much needed income and investment in the wider UK economy”.

The Musicians’ Union also calls for ER on streams. In its submission, it talks about the parallels between streaming and radio – especially where streams are pushed to users by playlists and algorithms. Those parallels are relevant to this debate twice over.

First, there is the legal dimension. The closer streams are to radio, the stronger the argument that an ER system that applies to broadcasting should apply to streaming too. Secondly, there is a practical dimension. If streaming services compete with radio, ultimately that might result in the radio industry going into decline, meaning the ER income from broadcasting that many artists – and especially session musicians – rely on might also take a hit.

The MU states: “Radio listening in the UK is in slight decline as evidenced by [official listening figures from] RAJAR. PPL royalties from radio and other broadcasting plus public performance help to sustain the incomes and careers of session musicians who currently receive no streaming royalties whatsoever”.

Without ER on streams to compensate for any future dip in radio income, the logic then goes, those session musicians will find it even harder to sustain careers in music. “If UK law enshrined the principle of appropriate and proportionate remuneration, or an unwaivable equitable remuneration, on streaming”, the MU adds, “this would provide a new and guaranteed income stream for all performers”.

Labels in the main oppose the idea of ER being paid on streams – especially if it means the same system being applied to streaming income as to broadcast and public performance revenue, where there is a 50/50 split between copyright owners and performers.

Though that’s not necessarily what ER on streams would mean. In Spain, where performers already have an automatic statutory right to payment when their music is streamed, an entirely different system is employed, with a few percent of the total digital pie being paid directly to performers via the collective licensing system.

There are other questions too about quite how ER on streams might work – enough questions, in fact, to make it a rather complicated ‘simple solution’. And those questions would need to be answered before any ER system was introduced.

This is noted in the submission from the Music Managers Forum and Featured Artists Coalition, which does acknowledge that ER would be an option if “record labels are unwilling to address the inequities” in how artists – and especially heritage artists – are paid when their music is streamed.

Aside from working out what ER on streams would actually involve, MMF and FAC write, “there is also the issue of how efficient the collection and distribution of this money would be, especially if foreign societies administered ER income in other territories (as they do for broadcast and public performance)”.

“If any form of ER was to be implemented, it is essential that it is done so in a manner which does not incur unnecessary administrative financial deductions”, they go on.

“While artists on unfavourable record deals would likely benefit from this system either way, new artists who have partnered with their managers and distributors or label services companies on their recorded music might actually be worse off if an ER system created new administrative costs and the risk of lost income as a result of inefficiencies in other markets”.

That said, the MMF and FAC submission adds, “despite these issues, many established artists and managers support the introduction of ER on streams. In some cases, this is because they do not trust labels to do the right thing regarding outdated and unfair contract terms. If label contracts were reformed then the need for ER as a solution would lessen”.

You can follow all our full coverage of the Parliamentary inquiry into the economics of streaming via this CMU timeline here.