Business News Labels & Publishers Legal

German managers call for “urgent” meeting with the labels over the slicing of the digital pie

By | Published on Monday 27 January 2020

Managers of some of Germany’s biggest artists have written to the German divisions of all three majors and BMG demanding a discussion over how streaming income is shared out between the various stakeholders in the music industry.

The managers – who represent acts like Rammstein, Die Toten Hosen and Helene Fischer – argue that there is an “urgent and fundamental” need to review the current streaming business model, and to confirm if current practices are “legally compliant”.

Ever since the start of the streaming boom – and even before it during the iTunes era – there have been plenty of debates about how digital income is shared out between the various stakeholders in the music community, including frontline artists, session musicians, songwriters, record labels and music publishers.

With both downloads and streams the starting point in terms of sharing out the money was the model employed when CDs are sold. Under that model, most money generated is allocated to the recording rights rather than the song rights. And for artists on traditional record deals, the labels will keep most of the money allocated to the masters.

There has been a slight shift, with artists often getting a few percent more on streams than CD sales, and a few percent more of the money going to the song rights. But plenty of artists – especially those receiving royalties from pre-digital record contracts – argue that they should get significantly more on streams, because the label’s overheads are lower without the need to manufacture and distribute plastic discs. Songwriters employ the same rationale for why they should be getting a bigger slice of the digital pie as well.

There is then the second debate over how a more significant re-slicing of the digital pie could be achieved, assuming labels aren’t going to just voluntarily give up a big portion of their share. With new record deals, artist and managers can try and negotiate better rates – mainly using the fact that artists can now work directly with distributors as leverage.

But what about those artists stuck in old deals? Along the way managers and lawyers have wondered if contractual interpretation could be used to increase the artist’s cut. Or if copyright law could be interpreted to the effect that artists should be getting the same ‘equitable remuneration’ payments directly from the streaming services that they already receive from radio and public performance. Or could copyright law be changed to empower the artist and allow them to renegotiate old contracts for the digital age?

More recently, of course, there has also been the third debate around the proposal that the streaming services shift over to user-centric royalty distribution. The digital pie would remain unchanged with that shift, but the way streaming money is allocated to individual recordings would be altered. Advocates of user-centric – like Deezer – argue that that approach would benefit more niche and middle-level artists.

To what extent copyright law is willing to interfere in contracts agreed between artists and labels, and songwriters and publishers, not to mention the music industry and the streaming services, varies greatly from country to country. Partly based on existing copyright conventions. And partly on the more general legal principles around contracts and when the law should seek to constrain or rewrite them.

But German copyright law is notable for the way it does already interfere in the deals done between artists and labels. And reforms in last year’s European Copyright Directive that could result in artists seeking to renegotiate old contracts in the context of the digital age actually originate in a bit of German law.

So maybe artists and managers in Germany – which is only now becoming a digital rather than physical music market – might have a stronger negotiating hand. Assuming they can get the labels to the negotiating table.

According to the German press, in their letter to the record companies, the signatory managers and lawyers requested a meeting with all the record companies in Berlin next month. Warner told Frankfurter Allgemeine Sonntagszeitung that it couldn’t attend such a meeting, citing competition law concerns. But it said that it was happy to meet the managers on its own to discuss their letter.

BMG is a subsidiary of German media firm Bertelsmann, of course, and is a particularly big player in Germany, hence it receiving the letter too. It has actually welcomed the managers’ intervention. Though that’s not surprising, since BMG boss Hartwig Masuch has been quite vocal about the changing relationship between labels and artists, and the impact that will inevitably have on how monies are shared out between the two. And BMG would argue that the way it structures its recording deals with artists already address the managers’ concerns.

A spokesperson for BMG said yesterday: “We strongly welcome this attempt to highlight some of the inequities of the traditional record deal. This letter is signed by some of Germany’s most respected music managers and should be taken seriously”.

“We need a sensible, grown-up debate”, the statement went on. “We do not find it justifiable in a world in which record companies no longer have the costs of pressing, handling and delivering physical product for them to try to hold on to the lion’s share of streaming revenues. The world has changed. It is time for record companies to change too”.