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IMPALA updates its ten step streaming plan, asks “is the label share being undervalued?”

By | Published on Thursday 27 April 2023


Pan-European indie label trade group IMPALA has updated its ten point plan to make streaming work, building on a document it published two years ago, and factoring in more recent market trends, industry developments and research work.

In the new plan and an accompanying white paper, IMPALA remains supportive of alternative models for sharing out digital income and again calls on all labels to pay all artists a modern royalty rate. It is also still opposed to Spotify’s discovery mode and the proposal to pay performer equitable remuneration on streams.

But perhaps most interestingly, this time it also talks about a proposal to revise the recording share of streaming income “upwards to adjust for the gradual decrease compared to other sectors”.

There are many different strands to the ongoing debate around the economics of music streaming. IMPALA’s original ten step plan was published as that debate was being heard in the UK Parliament as part of the inquiry undertaken there by the culture select committee.

The most contentious part of the economics of streaming debate relates to how streaming monies are shared out across the music community. Though even that is, in fact, several different distinct debates.

So there is debate to be had about: what streaming services charge for their subscriptions; how money is allocated to tracks that have been streamed; how money is shared between the recording rights, the song rights and the services; and how money paid through to the record industry is shared with artists.

The new white paper increases the focus on the first point, with the need for music streaming subscriptions to at least keep up with inflation now the first point in the ten point plan.

“Music streaming appears under-priced compared to other forms of entertainment”, the white paper says. “Subscribers receive access to almost all music recorded, ever, in one platform with no adverts for £9.99/€9.99/$9.99. A full price Netflix subscription costs 50% more, for a limited selection of televisual content”.

Meanwhile, in music, and especially with Spotify, you have “a headline price which has remained stuck for fifteen years. The £10 UK price point from 2008 is now worth £15.08 according to the Bank Of England’s consumer price index calculator. [And] many services continue to offer free, ad supported subscriptions”.

Most of the music industry now agrees that streaming subscription prices should go up, even though Spotify boss Daniel Ek told his investors the other day that further talks were needed with the record labels to decide when that can happen.

There’s also a lot of agreement within the wider music community that the way streaming money is allocated to individual tracks and catalogues needs a rethink, although there’s possibly less of a consensus as to what alternative approach should be adopted.

Two years ago when IMPALA published its first ten point plan the alternative approach getting most attention was the user-centric system. But IMPALA proposed a number of other alternatives, some of which have got more attention in recent months since Universal Music boss Lucian Grainge called for a big old revamp in this domain at the start of the year.

Things start to get more contentious, of course, once you are considering how streaming money should be shared between the recordings and the songs, or between the label and the artist.

On that latter point, the indie community generally supports a proposal that is also popular in the artist community: that all labels should pay all artists a modern digital royalty rate, including on catalogue recordings where old physical era record contracts usually provide a lower (sometimes much lower) rate than would be offered in a new record deal.

IMPALA’s members – the new white paper states – “know what a fair deal looks like, and are confident in calling for all labels to revise pre-digital rates to correspond with a modern, negotiated, digital royalty rate. This benefits all artists, but especially those on older deals where royalties can be as low as 4%”.

The majors, in the main, continue to resist the idea of minimum royalty rates on catalogue. Which has led some in the music-maker community to propose another way to get artists a bigger share of streaming income, that being extending the performer equitable remuneration system that applies to broadcast income to streams. Under such a system artists would get at least some of their share of streaming income through the collective licensing system at industry standard rates.

The indies and majors are united in opposing the ER idea. And the new IMPALA report repeats the indie community’s opposition. “Equitable remuneration would deplete value from the commercial market and reduce capital for investment in new artists and projects”, it argues. “This would disproportionately harm the independent sector, which is responsible for 80% of new releases, and that’s before counting the community of artists who are not signed to record labels”.

As for the debate over how monies are shared between recordings, songs and streaming services, much of the debate in that domain to date has focused on getting a bigger cut for songwriters, with song rights generally receiving at best 15% of total streaming monies, while recording rights usually get 50-55%.

As a result, the assumption to date has often been that the share going to the labels – as the biggest share – is either fair or too high. Even though the label cut has actually declined since streaming first launched fifteen years ago. And the share now going to songs on streams is around about double what was allocated on physical discs.

When songwriters campaign for a bigger cut – and when artists argue that they should get higher royalties from labels – the argument is that the cost of releasing and managing recorded music is lower once you take physical discs out of the equation. Which is clearly true.

Although, how much lower, given the often hidden costs of digital distribution and increases in marketing costs, especially once the data and analytics work that powers digital marketing is taken into account?

On all this, IMPALA cites recent studies by the Competition & Markets Authority and Intellectual Property Office in the UK.

The former, it notes, “showed that since the beginning of streaming, when it comes to the recorded sector, the costs of manufacture and distribution are lower, but other costs (eg marketing, data analysis, etc) have increased considerably, and record labels continue to face important risks when creating new recorded content for streaming services”.

“Yet, the UK IPO found that under streaming, the label’s share of revenue has decreased (concurrently to an increase of revenues to artists) and that the share allocated to [song] rights has increased significantly more than that of recording rights (with songwriters seeing a corresponding increase)”.

It goes on: “In line with the IPO’s findings, the CMA identified that the share of publishing in the UK has almost doubled from 8% in 2008 to 15% in 2021. The study goes on to say that ‘overall publishing revenues paid out by the UK’s largest music streaming services have grown … as streaming revenues continue to grow”.

“Major publishers in particular have seen above average streaming revenue growth between 2017 and 2021”, it then adds, “significantly outpacing their recording counterparts’ revenue growth”.

All of which leads to perhaps the most contentious questions posed by the new IMPALA report. “With that in mind”, it writes, “we ask whether the label share is being undervalued compared to other parts of the sector, which are experiencing increases”.

“We have always said that there cannot be a review of the allocation of revenues between different parts of the sector without a concomitant discussion about who’s taking the risk and investing in music. With the evidence from the UK market assessments, the question now is how do we boost the recording share to ensure investment in new talent can continue?”

Of course, many of the streaming services have also slightly increased their share of the digital pie over the last fifteen years, so any re-slicing back in favour of the recording rights wouldn’t necessarily have to come out of the song share.

Though the streaming services do like to stress that they are still mainly unprofitable. But critics in the music community might counter that that’s mainly due to the growth and diversification strategies of the services.

Either way, IMPALA’s new ten step plan – like the original version – both contributes to and expands upon the never ending economics of streaming conversation. You can access the new white paper here.