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Performer ER in the spotlight at first parliamentary hearing on the economics of music streaming

By Chris Cooke | Published on Wednesday 25 November 2020

The first oral hearing as part of Parliament’s inquiry into the economics of music streaming heard from four music-makers yesterday who told MPs that the current model isn’t working for many artists. So much so, according to Elbow’s Guy Garvey, it is “threatening the future of music”. As for possible solutions, the stand out talking point of the day was good old equitable remuneration.

Parliament’s culture select committee announced it was launching an inquiry into the streaming music business last month, prompted by the artist and songwriter-led #brokenrecord and #fixstreaming campaigns.

Although none of the issues with the way music streaming works are new, those issues have come back into the spotlight this year as the COVID-19 pandemic has resulted in artists losing entirely their live revenue streams. The one revenue stream unaffected by COVID is subscription streaming, but – for various reasons – that is a revenue stream where artists and songwriters often see a minority share of the money.

As some artists and songwriters have gone public with their frustrations regarding the royalties they see from streaming, sometimes its the streaming services themselves that have taken the heat, and in particular market leader Spotify.

Some simply argue that the per-stream payouts are too low. Others – accepting that Spotify et al already hand over around 70% of their revenues to the music industry – argue that subscription prices are too cheap. Or that the ‘service-centric’ approach to dividing monies between tracks is unfair and favours already cash-rich superstar artists, and that a so called ‘user-centric’ system would be fairer.

Though, it seems, the longer any debate about the economics of streaming goes on, the more likely it is that attention will fall on what happens to the approximately 55% of streaming income that is paid to the record industry.

Which is to say, is the real problem for artists what happens to the cash as it flows through their record labels? Certainly it was the labels – and especially the majors – that seemed to get more criticism at yesterday’s oral hearing, which heard from musicians Tom Gray, Nadine Shah and Ed O’Brien, as well as Garvey, alongside music lawyer Tom Frederikse and music accountant Colin Young.

In the first part of the proceedings, Gray, Frederikse and Young explained to MPs how record deals work; how labels usually get to keep at least 80% of monies recordings generate; how artists must also pay back some of the label’s upfront costs out of their 20%; and how terms in record contracts written with CD sales in mind are still sometimes applied to streaming income.

Of course, every deal is different, and some artists may have much more favourable terms, especially if they are working with an indie, or they have set up their own single-artist label and work with a music distributor. However, the select committee was told, most successful artists are likely on more traditional record contracts where they earn a minority share of the money their recordings generate.

But, given that every record deal is privately negotiated between an artist and a label, what could MPs do if they felt it was the job of government or Parliament to reconfigure the streaming business model so that a greater share of the money went to artists. Enter equitable remuneration.

ER is a principle that already exists in copyright law and applies to monies generated by the record industry from broadcasters and public performance.

In those scenarios artists have a statutory right to payment at industry-standard rates, meaning record contract terms are irrelevant. For broadcast and public performance, monies are split 50/50 between labels and artists. The artist’s ER share is collected and distributed by their collecting society, which is PPL in the UK.

Frederikse noted that a number of the written submissions made to the select committee by the music community propose the extension of ER to streaming in some way. Gray backed that proposal. He acknowledged that the debate around the economics of streaming is multi-layered and complicated, creating a risk that MPs will get so confused that they conclude there is nothing that can be done. ER – however – he argued, is a simple solution.

“Equitable remuneration does what it says on the tin”, he told the committee. “It’s equal pay for equal work. Apply ER to some extent to streaming and suddenly, for the first time in history, money goes directly into the pockets of artists on the first stream, irrespective of any contract terms that have been agreed”.

ER also benefits session musicians as well as so called featured artists, with the 50% allocated to performers being shared out between all the performers who appear on a record. Applying the principle to streaming, therefore, Gray added, “produces an income from stream one for all artists – for our entire music community”.

Now, there are complications with applying ER to streams, and certainly such a proposal raises a bunch of questions. Would the 50/50 split that applies to radio be applied to streaming, so that – of the money paid by streaming services to the record industry – 50% would go to artists. That 50/50 split isn’t actually set in copyright law, rather it is industry convention. It seems likely that, if ER was applied to streaming, a different split would occur. But what split?

Also, how would the ER be administered? Would it apply to all streams – or just those delivered by radio-like playlists and auto-play functions? Would it apply only to streaming monies generated in the UK or to all streaming income that ultimately reaches UK labels? And what impact would it have on the streaming deals negotiated by the record companies?

Oh, and how would the ER money flow from service to artist? How would it work on a global basis? What extra admin costs would be incurred? How would that affect self-releasing artists who currently get most or all of the money their streams generate? And, assuming PPL administered ER, what would that involve, and would the labels that actually own PPL even allow it?

Because, one thing is for certain, labels generally oppose the idea that ER be applied to streams. No labels were involved in yesterday’s session, so MPs will have to wait for another hearing to discuss how that opposition is justified. Though MPs noted some of the arguments that have been made against ER on streams in the written submissions.

One such argument is simply that ER applies to broadcasts, and a stream isn’t a broadcast. Though both Frederikse and Young had comebacks on that point. Yes, on-demand streams are not broadcasts. But, Frederikse noted, the music industry has a long history of applying principles developed for one kind of music usage to newer kinds of music usage.

The concept of ‘mechanical rights’ was conceived by music publishers when self-playing pianos were invented in the nineteenth century, he said, but today mechanical rights still apply to streams. Record deals in the twentieth century were structured around the sale of CDs, but labels have managed to apply them to digital. There is precedent, therefore, for extending a principle created for broadcast to streams.

And on the publishing side of the music industry, you could argue that that has already happened, Young noted. After all, when it comes to songs, publishers license the mechanical rights when CDs are pressed, while collecting society PRS licenses radio stations that broadcast music. But with a stream, money is split between the mechanical rights of publishers and the performing rights of PRS. By applying ER to streams, you’d be doing something similar on the recordings side.

Young said: “In the UK, 50% of the publishing revenue derived from streaming is attributed to mechanical – physical record sale – and 50% is attributed to public performance – radio play. Why has 100% been attributed by the record labels to reproduction and nil to public performance? Why the inconsistency in treatment between recording and publishing?”.

We await to see how reps for the label community respond to all the ER talk at future oral hearings as the select committee’s big streaming inquiry continues.