LONDON — The UK government's Intellectual Property Office has said that aligning streaming with UK TV and radio broadcasting by forcing record labels to pay artists “a fair fee” does not provide “a simple solution” to creators' concerns about low returns from services such as Spotify and Apple Music – and is “unlikely to generate net positive income for the industry as a whole”.
In its report on the potential impact of fair pay on the UK music business, published on Monday, the Intellectual Property Office (IPO) says its introduction could lead to companies reducing their investment in developing new transactions and would see rights holders pay “a significant amount of money” in administrative costs.
The report goes on to say that more work is needed to fully assess whether labels' ability to negotiate competing deals with streaming services on behalf of artists will be weakened – as the labels claim – by changing the way royalties are paid for music streams.
“While not a satisfying conclusion, it is clear that more research is needed into the nuances of how best to balance incentives to create with the need to monetize creation,” the report says.
The IPO's research paper on fair pay is the latest chapter in a long and ongoing series of government-led interventions in the UK music industry fueled by artists' dissatisfaction with low payments from streaming.
In 2021, a parliamentary inquiry into the music streaming industry questioned the dominance of major labels in the industry and branded the global streaming model unsustainable in its current form, saying it “needs a complete reset”.
One of the key proposals of the parliamentary inquiry was to change the revenue model for music streaming, forcing record labels to pay artists a fair fee — equivalent to a 50/50 royalty split — on music streams, which it called “a simple but effective solution to the problems caused by poor wages”.
A similar statutory right to fair remuneration has existed in the UK since 1996 for television and radio broadcasts, where revenue is split 50/50 between labels and performers and distributed through collective management company PPL. The statutory right guarantees rights to unselected performers, such as session musicians, whenever a song they perform on is broadcast on UK radio or television.
Instead, in the current music streaming model only the copyright holder receives payments from streaming platforms, which are then shared with the artist according to the terms of their contract. Average royalties are typically set between 25% and 30% for new artist deals and much less for legacy deals, with some indie labels now offering artists 50/50 profit share deals. (Session musicians do not typically receive royalties from streaming music).
The IPO report examines the impact that fair pay would have on the UK music industry by applying several predictive models to streaming over a five-year period.
When fair pay is applied to 100% of streaming income — based on a scenario where a label invests £150,000 and circulation generates £240,000 (3x the remunerative advance) — earnings for featured artists almost double to just under £115,000 , while the label's income moves from a profit of £90,000 to a loss of almost £13,000. Session musicians' income jumps from zero to just under £30,000.
In cases where fair pay is applied at 35% of streaming income, the same metrics see record labels' income fall from £90,000 to just under £54,000, while featured artists' income rises from a flat £60,000 advance to almost £100,000 (including return costs incurred).
The research also models the impact on loss-making deals and cases where 7x the record company advance is created, as well as the impact of fair pay on DIY artist deals.
The IPO's modeling assumes that the fair fee would make label investments “riskier and harder to justify,” while DIY artists would see an increase in administrative costs and receive little financial gain or, for heavily streamed releases, a cut of profits.
“If the intention is to better support the careers of current and future artists, then there is a significant risk that the introduction” of a full version of fair pay “will make it difficult for the current label investment model to continue,” the report says.
The research paper, which was carried out by the IPO in conjunction with a working group made up of industry stakeholders, further examines the potential impact of the UK introducing a fair pay version similar to that which already exists in Spain.
In Spain, 5.6% of streaming revenue is currently shared between featured artists and non-selected artists, with fair pay paid by streaming platforms rather than labels. However, the practice has been mired in litigation since its introduction in 2006, and critics say it has resulted in only marginal gains for artists and performers.
Applying the so-called 'Spanish model' to UK businesses, the researchers found it offered far less significant revenue shifting than other ER methodologies, but raised unanswered questions about whether it would make a 'material difference' to creators' profits.
The report warns that if an equivalent to the Spanish version of ER was introduced to UK streaming services it could seek to recoup “some or all” of the extra revenue they would have to pay from their deals with rights holders.
Reaction among UK music trade groups to the IPO findings was mixed.
Joe Twist, chief executive of trade label body BPI, said the report reinforced the record label's long-standing concerns about fair pay. Making such a change to how streaming rights are shared “would undermine the essential role record companies play in investing in and supporting artists,” Twist said in a statement.
The Music Creators Council noted that the IPO report “is inconclusive and decisions should not be made on the basis of its ambiguous findings.” The trade group said it would continue to work with all industry stakeholders on a “wider discussion” about paying creators from streaming and the various solutions that have been proposed.
Responding to the IPO inquiry, government ministers Julia Lopez and Viscount Camrose said that “in light of the risks” highlighted in the report, “the government does not intend to apply the 'broadcast model' of fair pay to on-demand streaming”.
Instead, the findings “give weight to the view that creators' concerns are best addressed through industry dialogue and, where appropriate, industry-led actions,” Lopez and Camrose said in an open letter to Dame Caroline Dinenagechairman of the Culture, Media and Sports Committee.
from our partners at https://www.billboard.com/business/streaming/equitable-streaming-royalty-sharing-model-report-uk-ipo-1235610681/
