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MMF publishes major report to inform the digital dollar conversation

By CMU Editorial | Published on Tuesday 13 October 2015

This morning the UK’s Music Managers Forum published ‘Dissecting The Digital Dollar’, a major new report produced by our consultancy unit CMU Insights.

Commenting on the report, its author, CMU Business Editor Chris Cooke, says: “The music business exists, first and foremost, the help artists turn what they do into money, so that they can give up the day job and make music full-time. The industry tends to shield artists from the day-to-day workings of the business, so that they can focus on writing and recording and performing great new music, and that’s as it should be”.

“However”, he goes on, “in the last decade there has been a fundamental shift in the recorded music industry, from a units-based CD business to a revenue-share subscription business, and that has required a new approach and new licensing models. Labels, publishers and collective management organisations have been busy honing those approaches and models, but as the industry further evolves, it’s time for artists and their managers to join the conversation”.

A survey of 50 leading artist managers conducted as part of the survey demonstrated that this is yet to really happen. Less than 10% knew the key elements of the deals struck up by all their artists’ labels with the streaming platforms, what charges and deductions labels were making from their digital income and how publishing royalties were being distributed. And less than a fifth had been invited to a briefing on digital income and royalties by their artists’ labels. Which is why the issue most managers would most like the government to assist on is forcing more transparency on the digital market.

But, Cooke adds, there is another problem. “Even if the music rights companies are willing to begin a conversation – and many labels, publishers and CMOs are now talking about the need for more transparency – the way streaming services are licensed is complex, partly because of the business model, partly because of legacy copyright frameworks. If the conversation is going to be productive it needs to be informed. Which is why the MMF commissioned this report”.

The report, based on nine months of research, explains how music copyright works and where performer rights fit in, reviews how traditional music products were licensed, and then explains how most streaming services do deals and pay the music companies, and how that money passes through to the different stakeholders. It then identifies the seven key issues that should form the conversation.

These are…

1. Division of streaming revenue
Is the division of streaming income between each of the stakeholders fair? This includes the split between the streaming services and the music community, between the recording and the song copyright, between the so called ‘reproduction’ and the ‘performing rights’, and between the artist and the label.

2. Performer equitable remuneration and making available
Performer rights in many countries say that all artists are due ‘equitable remuneration’ when their ‘performing rights’ are exploited. However, most labels argue that digital services exploit a specific and separate performing right called the ‘making available right’, and that equitable remuneration is not due on this income. Not all artists agree, while some acts with pre-1990s record contacts argue that labels cannot exploit this right anyway without their specific approval.

3. Digital deals and NDA culture
Labels, publishers and CMOs have created templates for streaming service deals, with revenue share arrangements, minimum guarantees, advances, equity and other kickbacks. Artists and managers are often kept in the dark about these arrangements; are rarely consulted on the merits of each component of the deal; and many feel artists are being unfairly excluded from profits generated by advances, equity and other benefits offered to corporate rights owners.

4. Safe harbours and opt-out services
While some streaming services only carry content provided by label partners, others – including YouTube and SoundCloud – allow users to upload content. Rights owners can then request that content be removed, or allow it to remain for promotional purposes, or in some cases – as with YouTube – choose to monetise it on the platform. These services rely on the so called ‘safe harbours’ in US and European law to avoid liability for copyright infringement while hosting unlicensed material users have uploaded. Some question whether the safe harbours were designed for this purpose, and whether the existence of ‘opt-out’ streaming services of this kind is distorting the wider digital music market.

5. Data
The music industry is now having to process unprecedented amounts of data, as revenues and royalties are increasingly based on consumption rather than sales. The lack of decent copyright ownership data also hinders efficiency, especially on the publishing side. There are almost certainly ‘big data’ solutions to these problems, the challenge is who should lead this activity, and will labels, publishers and CMOs share the crucial copyright ownership data that is in their control?

6. Collective licensing
The labels license most digital services directly, while the publishers often use their CMOs. For various reasons, both artists and songwriters often prefer money to go through the CMOs rather than their labels and publishers, though there is an argument that this is not always the most efficient way to process revenue and data. Either way, artists and songwriters often feel excluded from the debate over the pros and cons of collective licensing.

7. Adapting to the new business models
One of the biggest challenges for everyone in the music community is simply adapting to a new way of doing business, where sustained listening rather than first week sales matter, and where successful tracks and albums will deliver revenues over a longer period of time, rather than via a short-term spike. Adapting to this new way of doing business is arguably just a fact of life, though some stakeholders may be shielded more than others from any short-term negative impact.

You can get a free copy of ‘Dissecting The Digital Dollar’ from the MMF website here. The aim of the report is to very much kickstart the conversation, and the MMF will be leading the discussion with artist managers in the UK in the coming months.