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Dissecting The Streaming Inquiry: Overview

By | Published on Saturday 13 February 2021

If you’ve been following the Economics Of Streaming inquiry in Parliament, you might be feeling a little bit overwhelmed, suffering from information overload. There’s a reason the ‘Digital Dollar’ book is 216 pages long.

There are actually a number of distinct issues being discussed – both in the book and during the inquiry – and it is useful to identify each of those in order to navigate and understand the wider debate.

In our coverage of the 197 submissions made to the inquiry, we identified ten key issues, and then summarised what some of those submissions say about each of those ten things. Check the summary below and click through to read our more detailed dissection of each issue.

#01: The big picture view
In order to understand how the streaming music business works – and the various debates and disputes about the model – it’s important to understand why there are different distinct strands to the music industry, and how those different strands interconnect. You really need to get your head around all that before delving in to the other discussions.

#02: The artist / label split
Approximately 55% of streaming revenues are currently allocated to the recording rights and paid through to record labels and music distributors. Those companies then share that money with their artists subject to the terms of each record or distribution contract. What the artist earns depends on that contract, but on a classic record deal it is likely to be a 20% share or lower. Some people argue it should be higher.

#03: The recording / song split
Approximately 10-15% of streaming revenues are allocated to the song rights, and paid through to music publishers and collecting societies. Those organisations then share that money with songwriters: publishers subject to the terms of each publishing deal, societies according to their own rules. Some people argue that recordings getting such a higher allocation of overall revenues than songs is neither fair nor sustainable.

#04: Equitable remuneration
Under copyright law, artists – including session musicians – have a statutory right to payment whenever recordings on which they appear are performed in public or communicated to the public, oblivious of any deals they may have entered into with the artist or label that owns the copyright in those recordings. This is called performer ER, it applies to broadcast and public performance revenues, and is paid to artists via their collecting societies. It doesn’t currently apply to streams. Some people argue it should.

#05: User-centric royalty distribution
The streaming business is a revenue-share-based-on-consumption-share business. Each month – for each subscription type in each country – a service allocates revenue to each track based on what percentage of all overall streams (delivered to that specific subscriber type in that country) each track accounted for. If a track accounts for one percent of all streams, it is allocated one percent of the revenue generated by that subscription type in that country. The service then shares that allocation with the label or distributor that provided that track based on the terms of its revenue share agreement. But what if that maths was done separately for each individual subscriber instead of each subscription type? What impact would that have on what money each track is allocated? That’s called user-centric royalty distribution and some people argue that’s the system that should be employed.

#06: Transparency
The streaming business is quite complex. But there is also a lack of transparency over how deals are structured and royalties processed. Each streaming deal between a service and a label, distributor, publisher or society is subject to non-disclosure agreements. Many music companies are also often bad at explaining how new deals are structured, how lump-sum advances are being shared out with artists, and what royalty chains money flows down. Artists, songwriters and their managers will never really know how streaming works and whether they are being treated fairly until all that information is available to all. So, how do we get more transparency?

#07: Music rights data
Music rights data is a mess. We all know that. Lots of people are working on it and a number of improvements have been made. But overall, it’s still a mess. This impacts songwriters the most. The payment of streaming royalties is too slow and too expensive, and too often the right people don’t get paid at all. And tech giants can also exploit the data mess in their arguments against safe harbour reform. But what can we do about it?

#08: Royalty chains
The least talked about issue is possibly the single biggest problem for songwriters – the complex and mysterious royalty chains that their streaming money flows down, with deductions, delays and disputes occurring on each link of the chain. This issue is very much connected to the music rights data mess. The data problem exacerbates the royalty chain problem, and the royalty chain problem exacerbates the data problem. Plus there is too little transparency on what chains are employed. What can we do about it?

#09: Safe harbour
The one issue that unites pretty much the whole music community is the copyright safe harbour which reduces the liabilities of internet companies whose users distribute other people’s content without licence. The music industry argues that user-upload platforms like YouTube have exploited the safe harbour to secure preferential and unfairly low rates from labels, distributors, publishers and societies for the music they exploit. Therefore, it wants the safe harbour reformed to stop that from happening. The EU Copyright Directive is attempting to do that by increasing the liabilities of safe harbour dwelling user-upload services. But what about the UK?

#10: Curation and algorithms
Another less talked about but increasingly important issue: how do the streaming services push and recommend music? How do the algorithms the services employ actually work? And will the pushing and recommending of music by the services become more commercialised in the future? Is it already too commercialised? This is the area where the services themselves could be a lot more transparent. So how do we make that happen?

And there’s more…
There are actually other issues beyond these ten. There’s stream manipulation, by both the industry and outright fraudsters. The challenges presented by shifting to a consumption-based model rather than a sales-based model. And the fact that the removal of barriers to market entry by digital has created huge opportunities for artists and songwriters, but also unprecedented levels of competition. However, the ten issues above have dominated the submissions and oral hearings of the inquiry so far.

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

If you want to dig deeper on all these issues buy yourself a copy of the ‘Dissecting The Digital Dollar’ book from MMF and CMU Insights.

And check out more information on the ‘Digital Dollar’ project and the four free guides you can download.