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Indie labels in the spotlight as Parliament’s economics of streaming inquiry continues

By Chris Cooke | Published on Friday 5 February 2021

It was the turn of the independent label community to be questioned by MPs as part of the ongoing economics of streaming inquiry in Parliament yesterday. Most of the same topics were brought up as when the major label bosses were grilled last month, which meant we got to see where majors and indies agree and disagree on the various different elements of the digital dollar debate.

Facing the questioning were Yvette Griffith of Jazz Re:freshed, Rupert Skellett of the Beggars Group, and Paul Pacifico, CEO of the Association Of Independent Music.

Among the topics where there is some consensus between the majors and the indies – and possibly a difference of opinion between the label community and many artist and songwriter groups – are user-centric royalty distribution, the definition of a stream, and the ins and outs of life-of-copyright record deals.

Although some of the differences between the majors and indies do possibly reframe those debates. The major label chiefs were keen to stress that they now offer new artists a much bigger variety of deal options and are much more flexible when it comes to deal terms. But that has been true of the indie sector for much longer.

And, as a general rule, many indies have been more generous and more consistent when it comes to interpreting pre-digital record contracts for the digital age, and in sharing the extra value of streaming deals that comes from things like advances and equity.

Nevertheless, let’s deal with each of those three areas of consensus in turn.

On shifting to a user-centric approach for royalty distribution – which we explain in more detail here – all three indie label reps expressed concerns, despite Skellett and Pacifico both conceding that such an approach does, on a basic level, seem fairer.

Pacifico also noted that a shift to user-centric could combat some fraud currently occurring on the streaming platforms.

However, there are issues with the user-centric system. Skellett highlighted the “cost of implementation” and the fact that user-centric payments are “very difficult to audit”. Expanding on the latter point, Pacifico pointed out that, in a user-centric world, a million streams could be worth £5000 one month and £500 the next.

Perhaps more importantly – while most research suggests that user-centric would redistribute some money from the superstars down the artist hierarchy – there’s also reason to believe that independent artist and labels would earn less with that approach.

Griffith explained: “I don’t think user-centric is going to work for the indie sector, because the type of people who are going to listen to a lot of indie label music are the people who actively want to discover new things – and they are going to be streaming quite broad amounts of music – meaning their £9.99 would be spread very thinly”.

Pacifico concurred. One issue with user-centric, he added, is that it “brings us to a place where music discovery and curiosity becomes devalued in the streaming economy”. And that will likely favour older music and heritage acts. “The winners would likely be the Eagles rather than Eagles Of Death Metal”, he added.

Not that there aren’t issues with the current royalty distribution model too, Pacifico admitted. In its written submission AIM has proposed what it calls the ‘artist growth model’, whereby the first million streams of any one track generate a higher rate. The per-play rate then declines as the streams mount up.

Next, how do we define a stream? Is it a sale or is it a licence? Is it closer to a CD or a broadcast? Or it is something completely different? Should we treat it more like a rental? These are loaded questions, of course, because the answers can impact on how artists get paid.

Either by influencing how pre-digital contracts should be interpreted when deciding on what royalty rate should apply to digital income. Or by fuelling the argument that equitable remuneration should be paid on streams, so that artists get automatic payments through the collective licensing system oblivious of what deals they agreed with their record labels.

Most indies, like the majors, see streaming as a form of sales income, and oppose the idea of ER being paid on streams. Obviously streaming is something entirely different to what went before – and therefore needs to be defined differently – but it’s wrong to simply classify it as a form of broadcast or rental, most labels – major and indie – would argue.

That said, Pacifico noted, this is a debate that changes somewhat if labels are more generous and consistent when it comes to dealing with pre-digital contracts.

Which is to say, they adopt policies like those employed by Beggars whereby one streaming royalty rate is applied across the entire catalogue, oblivious of what old contracts say. And any monies the artist still owes the label from past advances and other recoupable expenditure is written off after a period of time.

Beggars pays a 25% streaming royalty to all its artists and writes off unrecouped balances after fifteen years. “Our chairman, Martin Mills, has tried to persuade the majors over a number of years to adopt at least a minimum royalty rate for all artists”, Skellett said.

“It’s unconscionable that some artists from legacy contracts are getting less than a 10% royalty on digital”, he added. “We would urge the majors to adopt the Beggars company policy of having a minimum royalty rate and wiping unrecouped balances after a time”.

“If people cleaned up their legacy contracts and did the sorts of things Rupert has talked about”, Pacifico went on, “then the conversation about how to define a stream becomes easier to have, because there are less vested interests in what the definition should be”.

And finally, life-of-copyright record deals – another debate that possibly shifts if unrecouped balances are written off and company-wide royalty rates are applied.

A classic record deal sees the label become owner of the copyright in any sound recordings created for as long as that copyright exists, so that’s 70 years after release in Europe.

Actually, in the indie sector, many labels now don’t do life-of-copyright deals, and some never did, instead taking ownership or control of the rights for a fixed period of time. However, some indies, especially those that make bigger investments, do still push for life-of-copyright deals like the majors do.

And that includes Beggars. “We do still try and get life-of-copyright deals where we can”, Skellett told MPs. Beggars see themselves as being partners with artists for the lifetime of each copyright, he added, and the company’s business model relies of having the profits of catalogue recordings to pump money into new signings and new releases.

Under US copyright law there is termination right which means that creators who assign their rights to another party can terminate the assignment after 35 years, and get their rights back. That termination right has been brought up by MPs several times during this inquiry.

Though, what hasn’t really been discussed is that it is still of debate in the US whether that termination right even applies to record contracts, with two test cases involving Sony Music and Universal Music currently working their way through the courts. There’s also an ongoing debate as to whether that termination right allows artists and songwriters who signed deals in the UK to reclaim their US rights.

Skellett alluded to those legal ambiguities, although said that whenever a Beggars artist had sought to enforce the termination right, “we will not get into litigation with the artist – instead we will try and persuade them to say with us”. Given the termination right only applies in the US, a label can offer kickbacks elsewhere in the world if the artist keeps their American rights with the company.

But if a wide-ranging termination right was introduced in the UK, “that would be pretty disastrous for us”, Skellett went on, again stressing that its the profits from the Beggars catalogue that allows the company to keep on investing in new music.

Plus, whereas once a song copyright has been assigned that’s it, artists can always record new versions of old songs after their deal with any one label is done, albeit subject to any re-record restrictions in the original contract.

For Griffith, the introduction of a termination right wouldn’t make any difference to her business, as Jazz Re:freshed doesn’t do life-of-copyright deals, and generally has licensing arrangements with its artists.

However, she acknowledged the importance of labels having income from old deals to invest into new deals. And again, the debate around life-of-copyright deals shifts when labels are fairly interpreting old contracts in the new age by adopting those Beggars style royalty rate and recoupment policies.

Of life-of-copyright deals she added: “Providing the artist is absolutely clear of what they are signing up to – and you have full transparency – then I am fine with that”.

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