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Dissecting The Streaming Inquiry #06: Transparency

By Chris Cooke | Published on Monday 1 February 2021

We are currently reviewing and dissecting submissions made to the UK Parliament’s ongoing inquiry into the economics of streaming.

Based on the five years of research CMU Insights has undertaken with the Music Managers Forum as part of the ‘Dissecting The Digital Dollar’ project, we explain the background to the key debates, helping you navigate and understand each issue and the proposed solutions.

Alongside the digital pie debate we’ve already discussed, one issue came up time and again during the various interviews and debates that were undertaken as part of the ‘Digital Dollar’ project: the frequent lack of transparency regarding the inner workings of the streaming music business and the deals agreed between the services and the record labels, music distributors, music publishers and collecting societies.

Unsurprisingly, many of the groups representing artists, songwriters and managers raise the transparency issue in their submissions to the inquiry. As with the digital pie debate, there are actually different elements to the transparency debate here.

There’s the need for more transparency around the basic business models being employed, especially with newer services that use music in different ways to Spotify-style services, like Facebook/Instagram, TikTok and Triller.

Then there’s the need for more transparency around the specific revenue share agreements and minimum guarantees set out in each licensing deal, all of which are usually hidden from artists, songwriters and managers by non-disclosure agreements. And even from an artist’s accountant who is trying to audit their client’s royalties, and who can’t – really – without that information.

And of increasing concern, there is the lack of transparency around the algorithms employed by the streaming services to push and recommend music. Do those algorithms skew towards certain artists or genres? And how can artists and labels influence said algorithms?

In its submission, the Ivors Academy writes: “It is true to say that for many creators and those who represent them, there is a real challenge in understanding the business models of the service providers and securing any sort of transparency regarding their income, costs and profits. What we do know is that the platforms seem to be getting wealthier and more powerful, while at the same time the number of streams needed to generate even the smallest amount of royalties to the songwriter or composer keeps increasing”.

In its submission, the Incorporated Society Of Musicians states: “There is a lack of transparency around deal terms as a result of [streaming services] using non-disclosure agreements to suppress confidential commercial information. This is having a significant detrimental impact as it makes it impossible for musicians to know if they have been paid correctly for their work”.

And in its submission, the Musicians’ Union writes: “Streaming platforms license music from rightsholders and in general these deals include non-disclosure clauses, which make it impossible for creators, performers and their representatives to find out how much is paid overall in relation to the royalties they receive. Greater transparency is needed in order to assess the fairness of licensing systems”.

The 2019 European Copyright Directive introduces a transparency obligation for labels and publishers, obliging those companies to provide certain kinds of information to artists and songwriters whose work they own or control regarding the exploitation of those works.

To what extent that new obligation will overcome the various transparency concerns outlined above remains to be seen. But – with the directive not being implemented in Brexit Britain – artist and songwriter groups reckon something similar should definitely be considered here.

The MU argues that all the principles of that directive relevant to music should be incorporated into UK law, but adds: “We believe that the wording of the European directive could actually be improved upon so it is more effective and practical to apply”.

That includes incorporating into UK copyright law “transparency obligations for record labels, music publishers, streaming platforms and other licensing entities so that creators can effectively make use of their right to audit music companies they are signed to or who administer royalties to them. At present, it is very costly for artists to audit labels and it is ineffective because they are not able to gain access to details of licensing deals with platforms because of non-disclosure agreements”.

The Ivors Academy is calling for specific regulation of large rights-owning music companies, principally the majors. Such regulation would include rules to force more transparency on those businesses.

“Many of the current practices and behaviour of the major music groups would not be tolerated in other industries subject to regulatory oversight”, it states. “A code of conduct with ombudsman overseeing minimum standards of transparency should be embraced by the industry. The industry should have nothing to fear from such a requirement”.

The Academy also notes that collecting societies have specific transparency obligations via another earlier EU directive. These rules “should be implemented in the UK for the work of major music intermediaries”, it argues. “A code of conduct is required that sets out minimum standards of accountability and transparency”.

The submission from the Music Managers Forum and Featured Artists Coalition echoes the concerns of the Ivors, MU and ISM. However, it also hones in on the specific transparency issues around the newer services, and especially those that agree initial deals with the labels, publishers and societies which are primarily based around a very large upfront advance payment.

“A particular problem is the lack of transparency around advances and lump sum payments from streaming platforms (such as Spotify or Apple) or social media services that use music (such as Facebook or TikTok)”, it states.

With Spotify-style services, the advance is usually recoupable. Which means that the service reports usage on a monthly basis and calculates what would have been due to the label, publisher or society under its core revenue share agreement.

Those royalties are then deducted from the advance. Once the advance has been paid off, the label, publisher or society starts getting monthly payments again.

The main issue here is what happens if it turns out the advance was higher than what was actually due during the time period the advance covers. The label, publisher or society usually gets to keep the difference, and that sum of money is confusingly referred to as ‘breakage’. The big question is: do artists and songwriters get a share of that over-payment?

Initially, there was a lack of transparency regarding breakage payments. However, ultimately, most labels and publishers did commit to share breakage with artists and songwriters. Although it wasn’t always entirely transparent how that money was being shared out. Also, once a service gains momentum and can pay advances based on decent past usage data, the chances of their being significant breakage reduce somewhat.

The bigger concern now, MMF and FAC continue, is the new social media-type services that use music, where the advances work a little bit differently. “With some social media services that are still working out how they plan to actually use music”, MMF and FAC explain, “the advance may be a one-off lump sum payment covering a set period of time”.

In which case “no additional payments are made during that time period and what music has actually been streamed may not be reported”. So how does that money get shared out with artists and songwriters? “There is no industry consensus on if and how that money is shared out, and what systems are employed are rarely communicated”, MMF/FAC say.

They then make three specific transparency demands.

First, “labels, publishers and societies should, as a matter of course, explain in clear terms to artists and writers the structure of every deal they enter into with a streaming service which directly impacts its business relationship with each artist or writer”.

Secondly, “where you have monies not directly linked to specific usage of music, they should clearly publish the method they are using to distribute that money, and communicate how those payments will be reported”.

And finally, “an artist’s accountant should, on request but subject to NDA, have sight of specific deal terms where that information is required to properly audit an artist’s royalties”.

MMF/FAC say that Parliament could codify some or all of these transparency obligations into copyright law. They also cite the copyright directive but agree with the MU that provisions in said directive could be improved upon.

Noting the transparency obligations in the directive, they write: “That article was very much a compromise that did not go as far as most artists, songwriters and managers would have liked, but it provides a basic framework for how copyright law reforms might address the issues around transparency”.

You can follow all our full coverage of the Parliamentary inquiry into the economics of streaming via this CMU timeline here.