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Indies enter the breakage debate

By | Published on Monday 8 June 2015


It seems inevitable that this week in music will be dominated by the launch of an all-new music service by Apple. And Sony Music boss Doug Morris confirmed at Midem yesterday what we all expected, that the tech giant will indeed unveil its revamped iTunes at its Worldwide Developers Conference later today (even though some key label deals were still to be signed and sealed as of this weekend).

But before we all get over excited about all that gubbins (and given there’s little new to add to last week’s speculation), let’s have one last gander at last week’s big debate over ‘breakage’, ie what happens when the advance a label or publisher receives from a streaming service exceeds what the music rights company is actually due from the digital firm in any one year. The label or publisher keeps the money, we know that, but does it share the extra loot with its artists or songwriters?

So called breakage has been suddenly back in the spotlight since the leaking of that old Spotify/Sony contract that set out all the advances the major was set to receive from the streaming firm. Since then both Sony Music and Universal Music have insisted that they now share any breakage of this kind with their artists, while most people have agreed Warner Music has been doing that for ages now.

Though, as previously noted, it’s still not entirely clear what “sharing breakage” means, nor how far back that commitment goes, given that breakage is most significant when a streaming service is new, in that the established streaming platforms nearly always generate revenues in any one year in excess of any advance paid.

These were amongst the questions raised by the World Independent Network this weekend, which welcomed Sony and Universal’s sudden declarations on breakage – which, WIN says, simply echo commitments made by over a thousand indies a year ago via its previously reported Fair Digital Deals Declaration – but added that “it is telling that there are no specifics in these recent statements from these corporations”.

An open letter from Alison Wenham, boss of both WIN and the UK’s Association Of Independent Music noted: “We don’t know how long these policies have been in place, how much of the revenue they are actually sharing, whether this applies to all types of non-unit revenue, or how this money is distributed across their catalogues. We don’t know what analogue-era deductions are still getting made against digital income. As usual these facts are withheld”.

She then bigs up her organisation’s year-old declaration, which, she says, “makes it clear that signatory companies will share the benefits of dealing with digital services fairly and clearly with artists. This charter has been signed by over 1000 indie labels who all promise to ‘account to artists a good-faith pro-rata share of any revenues and other compensation from digital services that stem from the monetisation of recordings but are not attributed to specific recordings or performances'”.

It is true that much of the anger in the artist community over the lack of transparency in the record industry’s digital dealing is aimed at the majors rather than the indies, though artists and managers working with the latter don’t seem all that better informed on how digital monies are being calculated and processed. But that may be due to the NDAs insisted on by the digital firms, and which most agree the independents only reluctantly sign.

Though, actually, Wenham’s unsurprising claim that the indies are fairer than the majors isn’t the most interesting part of her open letter.

More interesting is when she asks about the many indie labels which are ultimately distributed, in part or in full, by a major label-owned distributor, whether that be a label services division of a major record company, or an independent distributor in which a major has a stake. The Spotify/Sony deal had pages dedicated to IODA, the digital distribution vehicle it owned at the time, and which was subsequently merged into The Orchard, which Sony also now owns outright.

Asks Wenham: “Where is the independents share of this money? For all those labels distributed by majors – either directly or through a major owned or controlled distributor – where is their share of advances, guarantees and breakage? Majors have been leveraging the market share of their third party distributed content when negotiating with [digital service providers] simply to inflate their market share and therefore their cut of the digital pie. We do not believe that these distributed independent companies are always getting their share of this income, which is rightfully theirs”.

This links into an issue frequently raised by Charles Caldas, boss of indie labels digital rights agency Merlin. He told CMU last year: “Each player’s market share is incredibly important when you are negotiating first deals with new digital service providers, because start-ups have a finite amount of money for advances, and equity to offer to rights owners, and the simplest way to divvy that up is by market share. Except if new DSPs take self-declared market share figures from each player, they’ll get to 111%”.

He went on: “It seems to me that when those first conversations take place, the majors present market share figures based on the record industry at large, even though these are start-ups operating in the streaming music market. And, as we’ve shown, if you take just the streaming music market, the indies come out with a bigger share. The majors can also skew the figures by including sales of the indie labels they distribute through their label services businesses, even though the long-term rights to distribute that content are often far from assured”.

You can read Wenham’s full open letter here. And once all the Apple hype has died down later this week, perhaps everyone can ask what Sony did with all that free ad space it received via its leaked Spotify deal. Assuming it was primarily used for ads promoting Sony albums, was that advertising given to the artist for free too, or did the major charge it to the artist’s account and, if so, is that a recoupable expense? Oh, there are plenty more eggs to break, if we’re still playing with the Music Managers Forum’s metaphor. And why wouldn’t we be?