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CMU’s submission to the UK Parliament’s inquiry into the economics of streaming
By Chris Cooke | Published on Monday 25 January 2021
Having spent the last five years working with the Music Managers Forum on the ‘Dissecting The Digital Dollar’ project, CMU’s consultancy unit – CMU Insights – made the following submission to the inquiry into the economics of streaming currently being undertaken by the culture select committee in the UK Parliament. Follow our coverage of the inquiry here.
1. INTRODUCTION
What is CMU and why are we qualified to speak about this issue?
CMU is a London-based company that helps people to navigate and understand the music business.
We do this through our media, including a daily news bulletin, weekly podcast and online library of resources and guides. We also run training courses for people working in the music industry, undertake regular research projects for music industry organisations, curate the UK’s biggest annual music conference, and are involved in various educational initiatives that support early-career and self-managed music-makers.
Our role is to help everyone working in or with music to understand how the music industry works, what role each person and company plays, how deals are usually structured, and how the latest trends and developments in music consumption impact on the business.
In 2015, CMU’s consultancy unit was commissioned by the UK’s Music Managers Forum to research the deals that had been done between the music industry and the streaming services like Spotify, Deezer and Apple Music. That project is ongoing and has resulted in a series of reports and guides, which have also been collated in the ‘Dissecting The Digital Dollar’ book. MMF has sent a copy of the book to each member of the committee.
The need for a “big picture view”
For various reasons we will outline below, there are a number of distinct different strands to the music industry.
Artists work with most of those strands, but many companies and people in the industry focus on just one. Those people will be experts on their own strand, but have less expertise and knowledge on all the others. Because we monitor, analyse and report on it all, one of our roles is to provide a holistic big picture view, to help people understand what’s going on in the other strands, and how everything fits together.
To properly debate the economics of streaming – and the various issues that have been raised about the current streaming business model – we feel it’s important for the committee to have that big picture view. The streaming business model only makes sense – and any issues can only be addressed – when you are able navigate all the different strands of the music industry and understand how they fit together.
Helping the committee take a “big picture view”
Each strand of the industry has its own viewpoint on the key issues of course, sometimes different strands agree, sometimes they disagree. We actively work with and support companies and organisations in every strand, and we know that representatives from each strand will be making their respective submissions to the committee. So, it’s not our role to communicate the viewpoints of any one strand of the music industry
However, we would like to offer any assistance we can to help the committee navigate and understand the structures, systems and conventions of the music industry, and how they impact on the economics of streaming, in order to inform your debate and deliberations.
We endeavour to do that in this submission, and would also be happy to provide evidence in person at your inquiry sessions, and also give committee members free access to the introductory webinars we offer on the music industry, music copyright and streaming.
2. NAVIGATING AND UNDERSTANDING THE MUSIC INDUSTRY
Artist businesses and the companies they work with
Sitting at the heart of the music industry are thousands and thousands of frontline artist businesses – each built around an individual artist, band or group. The founder of each artist business is usually the artist, who then – as their career progresses and their fanbase grows – forms a number of business partnerships. Those business partners provide skills, resources, contacts, investment and market access to help grow the business.
Most of those business partners focus on one aspect of the artist’s career and one revenue stream of the business. For example, recordings (label), songs (publisher), merchandise (merchandiser), shows (agent and promoter) and brand deals (brand partnership agency).
With recordings and songs, there are also the music industry’s collecting societies, PPL and PRS/MCPS respectively. Meanwhile, the artist’s manager runs the actual company day-to-day, while also identifying new commercial opportunities and potential future business partners. The artist’s lawyer and accountant also offer important support and advice.
The different strands of the music industry
Because frontline artists (or what the music industry traditionally calls ‘featured artists’) work with different business partners on different revenue streams, the music industry has a number of distinct strands, each focused on a different kind of activity and income.
These different strands include the record industry (recordings), the music publishing sector (songs), the merchandise business (merchandise), the live sector (shows), the brand partnership agencies (brand deals), and artist management.
Business partners usually share in the revenue streams they are directly involved in. Quite how that works varies from strand to strand, and according to each individual deal struck between an artist and a business partner. Those business partners involved in the creation and exploitation of intellectual property may also seek ownership or control of whichever rights they are involved in (eg recordings, songs, artistic works and trademarks).
Not all music-makers set up frontline artist businesses of this kind. Many musicians, songwriters and record producers pursue ‘portfolio careers’, working on a wide assortment of different creative projects. Sometimes they are hired by a frontline artist business. Sometimes by another kind of music company. Sometimes by an arts or media company, movie studio, games producer or ad agency that wants to create some original music.
The impact on these complexities on streaming
The complexities caused by having all these different competing strands of the music industry are most problematic when a revolution occurs in the way people consume music. So, for example, we shift from selling discs and downloads to a subscription-based streaming business.
A key question – for those leading the revolution, as well music-makers and the music business – is what strands of the industry need to be and should be involved in the revolution, what deals need to be done, and how will resulting revenues be shared?
3. DISSECTING THE DIGITAL DOLLAR
Navigating and understanding the streaming deals
As noted, in 2015 CMU’s consultancy unit was commissioned by the UK’s Music Managers Forum to research the deals that had been done between the music industry and the early on-demand streaming services. The initial streaming deals had been negotiated in the late 2000s, but it was around 2014 that managers started to notice that the revenues coming in from those services were starting to get significant.
Artists rely on managers to help them grow their individual artist businesses, to ensure they negotiate the best deals with the most appropriate business partners, and to make sure they are getting every penny they are due whenever their music is exploited. However, managers were not involved in the streaming deals that were negotiated.
That’s because the content that the streaming services needed access to and the rights they needed to license were controlled by record labels, music distributors, music publishers and collecting societies. Those companies worked hard with the first streaming platforms to develop a new business model and agree licensing deals to facilitate that model. However, in the main they did not communicate what was developed and agreed to managers. As a result, artists and songwriters, and their other business advisors, were also in the dark.
Our work with the MMF was to research and piece together how these deals worked, to give artists and their managers clarity on how money was being generated and shared out.
Educating the management community
Through various rounds of detective work, CMU and MMF were able to ascertain how those deals were structured and how royalties were calculated each month. The model is complicated because of copyright law, record contracts, publishing contracts and collecting society rules. Also, streaming services are global, but copyright law, and contractual and collective licensing conventions, often differ from country to country.
Therefore to help managers understand the model – and to debate the various issues that we also identified – CMU and MMF had to make sure managers were fully up to speed on all the law, the contracts and the collective licensing conventions. This was achieved through the series of reports and guides that were ultimately collated into the ‘Digital Dollar’ book.
Although the ‘Digital Dollar’ project was primarily about educating managers – and allowing managers to debate the issues and agree a position on each of them – we made sure every strand of the industry was consulted at each stage of the research. Therefore – where different strands of the industry disagree – the book presents all the different arguments.
Both MMF and CMU continue to share this knowledge widely with the whole music industry through a series of guides, courses, events and other resources.
Utilising this knowledge, the management community continues to debate the key issues – and the latest trends and developments – through roundtables organised by MMF. The conclusions of the latest round of those discussions are included in a joint submission made to the DCMS committee by the MMF and the Featured Artists Coalition
4. ADDRESSING THE ISSUES
As we say, we don’t see it as CMU’s role to present the viewpoints of any one strand of the music industry. Rather we want to help the committee to understand the bigger picture, and the context behind the various issues you will likely discuss.
However, we feel that addressing each and every issue that has been raised requires three key things to happen, as follows…
Transparency
Disagreements in the music community often begin with a lack of transparency about how a model works, how deals are structured and how monies are shared. Those with this knowledge may have commercial reasons not to share it with the wider community. Or they may not recognise the need. Or they may think the information is too complicated to share. Or they may simply not have the systems in place to share it.
But – in an industry where distrust between business partners is common – total transparency and the constant sharing of data is crucial. This would be best achieved by the music industry at large committing to a cultural shift, although Parliament could consider putting certain transparency obligations into copyright law, where a corporate entity or collecting society is exploiting copyrights that ultimately benefit artists and songwriters.
Efficiency
More transparency would likely put the spotlight on inefficiencies in the system. It’s understandable that companies and organisations in the music industry would prefer that these inefficiencies not be exposed. But with the streaming music model resulting in billions of micro-payments being made to an assortment of rights owners on a monthly basis, artists and songwriters need business partners that recognise just how important data management and transactional technologies are to a successful music business.
Therefore the move to greater transparency should be focused on identifying every link in the chain as recordings, rights and royalties flow through the system. What happens at each link? What data is at play? What monies are deposited and deducted? What business partners get involved and what value do they bring? It’s understandable that a community as creative as the music industry mainly celebrates creative endeavours. But day to day it also needs to celebrate brilliant data management and transactional systems.
Equity
Once we know what happens at every link in the chain – and that every efficiency has been employed so that as little money as possible is lost to the system, and we know that artists and songwriters are getting paid as quickly as possible – the trickiest questions remain.
At those links in the chain where decisions are made – where content is delivered, rights are licensed and monies are shared – are those decisions equitable? Obviously everyone wants a bigger cut of the money generated. Meanwhile, everyone has hidden costs, risks and challenges that those in the other strands of the music industry may not fully understand.
But inequities do occur, especially when the industry translates pre-digital rules, deals and contract terms in the context of each new digital business model. The committee will need to consider the best way to deal with each inequity. However, doing so is easier if you have total transparency and the most efficient systems in play.
5. CONCLUSION
A lot of the debate in recent months about the economics of streaming – both online and in the media – has focused on the Spotify business model. There are indeed issues to be addressed in that domain. But the digital music market is diversifying as we speak.
The model is different when music is used in videos on Instagram, TikTok and Triller. The podcast business is exploding, but music podcasts still need to be properly licensed and monetised. Live concert streaming has finally taken off as a result of the COVID shutdown. Meanwhile, could the lucrative karaoke platforms popular in China go global?
The danger is that issues with the Spotify model start to be addressed just as four entirely different business models start to gain momentum and fuel the next round of digital growth. But with total transparency and super efficiency – and systems in place to consider and tackle inequities as they arise – it should be possible to ensure that another inquiry into the future economics of streaming isn’t necessary in five years time.
And, as noted, all of that begins with navigating and understanding the complexities of a music industry that has many competing strands in it. As we said at the outset, CMU is more than happy to help committee members do just that.
