Digital, Culture, Media and Sports Committee launches inquiry into the impact of streaming on the music industry

In response to the growing popularity of music streaming, on 15 October 2020 the Digital, Culture, Media and Sports Committee (“Committee”) announced the launch of an inquiry into the impact of the business models operated by platforms such as Spotify and Apple Music on the wider music industry. The Committee notes that whilst music streaming in the UK brings in revenue of more than £1 billion, artists can be paid as little as 13% of the income generated.

In 2019, UK consumer spend on music streaming surpassed the £1 billion spending mark, while spend on physical forms of music equated to just 17% (£318 million) of total spend on recorded music according to the Entertainment Retailers Association. However, with the leading music streaming service Spotify paying artists between £0.003 and £0.0038 per stream and its closest competitor Apple Music paying around £0.0059 per stream, there have been increasing calls from within the industry for fairer distribution of revenue. This sentiment appears to be shared by the public, with a recent YouGov survey finding that 77% of consumers believed that streaming services underpaid artists.

In exploring this issue as part of the new inquiry, the Committee will consider the following questions set out in the Committee’s terms of reference:

  • What are the dominant business models of platforms that offer music streaming as a service?
  • Have new features associated with streaming platforms, such as algorithmic curation of music or company playlists, influenced consumer habits, tastes, etc.?
  • What has been the economic impact and long-term implications of streaming on the music industry, including for artists, record labels, record shops, etc.?
  • How can the Government protect the industry from knock-on effects, such as increased piracy of music? Does the UK need an equivalent of the Copyright Directive?
  • Do alternative business models exist? How can policy favour more equitable business models?

The Committee has called on industry experts, artists, record labels and streaming services to submit written evidence by 16 November 2020, with the inquiry itself beginning in November.

Algorithmic music curation

Use of algorithms has become standard practice in streaming platforms, for example:

  • algorithms which take into account a consumer’s behaviour compared against the rest of the user base to suggest music; or
  • algorithms which analyse musical track data, such as pitch and tempo, to suggest comparable tracks.

Such algorithms can be viewed as a positive for the industry, increasing consumer choice and introducing them to artists and tracks they may not otherwise come across.

However, Committee Chair Julian Knight MP has been critical of streaming services’ use of algorithms stating that  “algorithms might benefit platforms in maximising income from streaming but they are a blunt tool to operate in a creative industry with emerging talent risking failing the first hurdle.” This may be the case where opaque algorithms exhibit bias (conscious or unconscious) in favour of more established artists.

Piracy and the Copyright Directive 

The advent of music streaming led to a change in the way the recording industry operates and individuals consume music. In the early 2000’s, peer-to-peer networks such as Napster and LimeWire enabled the widespread sharing of pirate .mp3 files causing severe disruption to the revenues of the music industry. Pioneer music streaming service Spotify and eco-system brands such as Apple Music, Amazon Music and Google Play have capitalised on technologies which, like the peer-to-peer networks of the early 2000’s, make music more accessible to the masses, however unlike the peer-to-peer networks, these new streaming business models have led to a reduction in music piracy. That said, platforms which facilitate and encourage user-uploading and sharing of content (such as YouTube and SoundCloud) still present a major piracy risk to the music and other content industries.

The Committee is attuned to the need to continue to protect the music industry from instances of piracy and poses the question of whether the UK should implement an equivalent of the EU Copyright Directive (which the UK has stated it will not implement). This could prove controversial, especially amongst the content sharing platforms mentioned above. Currently, platforms are not responsible for copyright infringement when users upload infringing material, but must remove the content when notified by the rights holder. However, under Article 17 of the Copyright Directive the EU is attempting to redress the balance for rights holders by preventing the unauthorised distribution of copyrighted material which they have not been fairly remunerated for. The Copyright Directive would require platforms such as YouTube and SoundCloud to obtain a licence from rights holders (subject to some exceptions) to avoid liability for copyright infringement. If the UK were to implement similar legislation it would have significant implications for streaming services and the wider media and technology industry.

Equitable business models

Spotify, Apple Music and most other streaming services pay music rights holders via a pro rata model. This means that all revenues of the streaming service are pooled and divided based on the popularity of the artists: artists with higher streams are paid a higher proportion of the revenues.

Some however have pointed at the potential unfairness of the pro-rata model, for example where a subscriber may listen only to a niche genre or artist, a proportion of the revenue generated by that subscriber would still go towards more popular artists the user has never in fact listened to. This has led to critics of the current prevalent music streaming business model advocating for a more “user-centric” payment system where if a subscriber listened to 100% of a certain artist that artist would get 100% of the revenue generated by that subscriber. This user-centric model is being trialled by streaming service Deezer. However, an issue with the widespread adoption of this model will be that it cannot be unilaterally imposed: a transition to a user-centric model would necessitate the re-negotiation of licensing deals between the streaming platforms and the record labels. This is unlikely to be straightforward. Record labels were early investors in streaming services like Spotify, shaping the streaming payment model system with their licensing deals. As record labels tend to possess large back catalogues, the pro-rata payment model has been extremely beneficial for them. It is possible that a transition to a user-centric model may have an adverse impact on record labels’ revenues under these agreements, in which case they are likely to be reluctant to agree to the new model.

In any case, the Committee can be expected to look at any payment model which may seek to address what is perceived as an imbalance between streaming platforms and artists by remunerating artists in a more “equitable” way.

Hayley Brady
Hayley Brady
Partner, Head of Digital and Media, London
+44 20 7466 2079

James Balfour
James Balfour
Senior Associate, London
+44 20 7466 7582

Rhianne Murray
Rhianne Murray
Trainee Solicitor, London
+44 20 7466 2874