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March 15, 2021

Rethinking Streaming economy: Music Industry’s Speaking

The UK has been buzzing about the streaming economy’s future. We’ve talked about the first developments of the hearings at the UK Parliament in our February article here. Now we’re here to give everyone an update on what has come out, involving streaming, record labels and majors.

Music streaming platforms’ UK Parliament Hearings

As arranged in February, members of the UK Parliament spoke to three executives of some of the largest music streaming platforms in the world: Spotify, Apple Music, and Amazon. Let’s explore what they said on the streaming economy.

Spotify’s executives were one of the first to speak up, following MP John Nicolson’s statement: “musicians are mostly miserable because of the system and the way it operates”. That got us started on a high note.

Spotify’s global affairs and chief legal officer Horacio Gutierrez stated, “I would take issue with the fact that every musician hates the model”. He continued with, “I think there are a number of data points that, when you look at it, you would actually see that on the whole the industry is at a point of growth and a point of recovery from a point that was brought about by online piracy”. Gutierrez offered some insights into Spotify’s experimentation of a user-centric model, “The initial research of the user-centric model doesn't really show a dramatic shift in the way that many thought that it might.

Apple Music and Amazon got to share their points of view as well, but let’s keep in mind that they are operating on a different scale. Spotify is an audio company (as they call themselves now), Apple Music and Amazon Music are supported by, well, Apple and Amazon. The streaming economy and their stakes are pretty different.

Apple Music had some interesting insights due to their particular business model. They operate without a “free” service and rely on paid subscriptions and pay higher royalties compared to other companies. Apple’s global senior director of music publishing stated, “From our standpoint, the most important thing is to have a healthy overall creative ecosystem that's sustainable into the long term. So something that will require some dramatic shift in the economics, such that it's no longer a viable business, I think would have a negative effect for all stakeholders. I'm not sure that's really what anyone should be aiming for.

Amazon Music’s streaming platform is bundled with their Prime membership as a bonus, and this has some interesting dynamics in how Amazon pays royalties. Amazon’s director of international music, Paul Firth, when asked about their low payout in revenue stated, “[the payout] about in line with what we've always taken as a retailer” and “It’s the customer experience that we have to invest in and that's where the risk is, and that's where the majority of that investment goes”.

Analysis and Opinions on Streaming Economy

So now that we’ve got the official statements, what are we supposed to do? There are big talking points being debated throughout the UK hearings, and there are now major voices speaking about these and offering their opinions--or lack thereof.

User-centric licensing is being discussed, and Warner Music UK has stated, “A user-centric model would not change the overall royalty pool and our analysis suggests that any changes in the allocation of payments to artists would not be significant.” They continue to state that this model would, “be far more complex and administratively burdensome for digital services to implement as it would require a tremendous amount of data.

Tom Gray in an op-ed speaks out about this with, “Even if the gains are marginal from user-centric, with its associated cultural diversification and reconnection of artist and fan,” and, “The current revenue-share model largely prevents this: it spits out wild, vast data about total streams with a bit of geography attached and, with its accompanying NDA-culture; even if the DSPs know who our fans are, [us artists are] prevented from expanding the offering”. 

One key point is changing streaming as a “sale” instead of a “rental” which would enforce a higher payout to artists. Sony Music UK states, “If streaming was treated as broadcast and artists received direct a material share of the fees payable, the balance payable to the label would not be sufficient to maintain investment in new signing, A&R and marketing”.

Tom Gray fires back with, “There is more than enough money to go around and a broader, economically secure, professional class of creators is easily achievable were there a willingness to change. The major rights-holders are making extraordinary profits while the platforms appear not to be. Warner Music’s stock bonus following its IPO – paid to just 6 executives – could have paid all 50,000 musicians in the UK around £12k each”. 

Tom Gray finishes off his op-ed with a strong statement, “I, like many of my peers, are tired of being listened to but ignored. We’re tired of testing the vagaries of contract law in the courts. Regulation is what we’ve been left with and I suspect it is what the industry fears the most.

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