In addition to the pro-rata and user-centric models discussed in detail in part 14, there are other alternative approaches to distributing streaming revenues among rightsholders. These models, as well as the concept of equitable remuneration used in the distribution of radio and TV royalties, will be examined in more detail in this part of the series on the economics of music streaming.
The Music Streaming Economy – Part 17: Alternative Distribution Models
Spotify has also announced a new distribution model for 2024. This model will apply to artists who generate more than 1,000 streams per year. Those who do not reach this threshold will have their shares flow into the general royalty pool. Billboard has calculated that two-thirds of the available catalogue will no longer be remunerated. This will result in a redistribution of royalties of 0.5 per cent of total revenues. While this may appear to be a relatively modest sum, it represents a redistribution of US $46 million in total revenues.[1] Spotify justified this change by arguing that it was a way to combat streaming fraud and push back non-music. To back this up, it has also introduced a EUR 10 fine for every track that is 90 per cent manipulated (e.g. by streaming farms). In addition, non-music tracks, such as recordings of rain and the sound of the sea, must be at least two minutes long to be remunerated.[2]
However, Spotify’s new distribution model is not a real alternative to the pro-rata model. It retains the pro-rata model and redistributes the streaming pie by introducing a lower limit on the number of streams. In an academic article,[3] Frederik Juul Jensen identified Spotify’s streaming cap model as one of five alternative payment models that can be combined with both the pro-rata and user-centric models. Another option would be to consider the different lengths of tracks when calculating the price. Currently, all tracks streamed for more than 30 seconds are charged at the same rate. This discriminates against longer tracks, such as those commonly found in classical music, jazz or even some rock genres (e.g. art or psychedelic rock). These could be charged at a higher rate depending on their length.[4] The context of streaming may also be important. It makes a difference whether music is actively searched for and streamed, or passively listened to, as on the radio.[5] It is precisely this distinction between curated passive music consumption and active music listening that Deezer has made in its double boost model, where tracks that are actively searched and streamed are rated twice as highly as those suggested by a music recommendation system. The model of paying for a song only from the second stream is similar. The idea behind this is that music consumers only value a song if they play it repeatedly. Therefore, music that is played only once should not be included in the distribution pool for streaming royalties.[6]
Finally, the Association for Independent Music (AIM) has introduced the “artist growth model”, whereby the music of artists at the start of their careers should be valued more highly than that of established superstars. The idea is to mitigate the winner-takes-all phenomenon that AIM believes has been amplified in the music streaming economy. This model is based on the concept of social and cultural support measures that many European music collecting societies have implemented by channelling part of the storage media remuneration into corresponding funds to promote young, local artists.[7] AIM has commissioned former Spotify chief economist Will Page and ASCAP vice-president David Safir to develop such a model for the UK. It proposes that the top 10,000 tracks streamed each month are divided into ten deciles, with the top two deciles devalued by 8 per cent. This 8 per cent is then redistributed to the next four deciles. The value of the bottom four deciles would remain unchanged.[8] It sounds complicated, and it is. That is why AIM compared this model with a digressive tax system during the DCMS parliamentary hearings on the music streaming economy, to make the concept understandable to the MPs.[9]
Musicians’ interest groups in the UK, which have joined forces to form the Council of Music Makers (CMM), have brought another remuneration model into the DCMS hearings, the concept of Equitable Remuneration (ER), which has already been tried and tested for radio royalties. In many European countries, including the UK, performers are remunerated for the performance rights in the sound recordings in which they appear. When these recordings are performed in public or broadcast on the radio, they are entitled to a fee, as are the music labels. These are collected by collecting societies such as Phonographic Performance Ltd. (PPL) in the UK, Gesellschaft zur Verwertung von Leistungsschutzrechten (GVL) in Germany or Leistungsschutzgesellschaft (LSG) in Austria and is distributed not only to featured artists but also to session musicians and background singers.[10]
In the United Kingdom, this remuneration is known as Equitable Remuneration (ER), as it is distributed in a 50:50 ratio between the rights holders (typically the labels) and the artists (32.5 per cent for featured artists and 17.5 per cent for non-featured artists) after the deduction of the collecting society’s administrative expenses. One advantage for the performers is that these royalties are excluded from the usual label contracts and therefore flow directly to the artists, rather than being subject to recoup the costs of a music production.[11] However, ER, which applies to broadcasting and online radio, was not extended to music downloads and on-demand music streaming due to pressure from the major labels. Consequently, studio musicians and background singers do not receive a share of the streaming revenue, and featured artists only receive their share if the costs of music production are recouped.
This situation was not only considered unsatisfactory by the musicians’ representative organisations in the UK, but also by the members of the DCMS parliamentary committee, who presented a critical final report on the hearings in July 2021. Among other things, the report called for the introduction of an equitable remuneration system for revenues from digital music sales and music streaming. In point 5 of the recommendations for action to the government, the MPs wrote in the final report: “The right to equitable remuneration is a simple yet effective solution to the problems caused by poor remuneration from music streaming. It is a right that is already established within UK law and has been applied to streaming elsewhere in the world.” And they followed this up with a strong recommendation: “We recommend that the Government legislate so that performers enjoy the right to equitable remuneration for streaming income.”[12]
Kevin Brennan, who sat on the DCMS Committee for the Labour Party, wanted to get down to business straight away and introduced the Brennan Bill, named after him, in the House of Commons, proposing the introduction of fair remuneration into the UK Copyright, Design and Patents Act 1988.[13] He met with fierce resistance, especially from the British Phonographic Industry (BPI), whose CEO, Geoff Taylor, summarised the rejection in a comment in Music Business Worldwide: “[E]quitable remuneration (ER) would, quite frankly, be a recipe for disaster – a black hole that would suck value away from music sector and towards the platforms.”[14] Given the pro-industry Tory majority in the House of Commons, it was hardly surprising that the Brennan Bill was rejected by a majority of MPs in December 2021.
This caused an uproar among fair remuneration advocates, prompting the government to commission a study from the Intellectual Property Office (IPO) to assess the impact of introducing ER into the UK copyright system. The IPO then commissioned music consultant Chris Carey to carry out the study, which compared different scenarios and evaluated the Spanish model of ER for streaming revenues. Those expecting a clear scientific statement for or against the introduction of a fair remuneration regime for streaming revenues in the UK were disappointed. Chris Carey remained vague and referred to the need for further research: “While this paper did not set out to conclude in favour or against any model, the one key conclusion that can be drawn is that ER does not offer a simple solution to the streaming conundrum. There are many unknowns and complex interdependencies within the modelling, and a range of further questions that merit deeper consideration. Importantly, this paper did not set out to determine what is fair and that important debate is outside the scope of this research.”[15]
The British government’s reaction was all the more surprising, as it interpreted the study as a clear rejection of the ER distribution system and the responsible minister, Julia Lopez, drew conclusions that are not to be found there: “Its findings suggest that applying the so-called ‘broadcast model’ of equitable remuneration to music streaming is likely to be extremely disruptive for the music industry with a high likelihood of damaging unintended consequences. That could include reduced investment in new artists and a reduction in choice for artists in how they negotiate with record labels.”[16] The representatives of the recording industry cheered loudly, as they were able to claim a major lobbying success in the UK government’s rejection of the ER model and saw in their statements the danger averted that Equitable Remuneration could undermine the ability of labels to invest in young talent and new music.[17] Given the massive profits that the major labels in particular are earning from the year-on-year growth in music streaming revenues, these statements seem almost frivolous when you consider how little of the music streaming pie the majority of musicians are getting. Although the DCMS committee was able to gain a detailed picture of the distribution of income in the music streaming economy during the hearings and saw fair remuneration as an improvement in the income situation of performers, supported by music greats such as Paul McCartney, Sting, Stevie Nicks and Chris Martin,[18] the UK government gave ER a first class funeral. However, it is doubtful that this will put an end to the debate about the distribution of streaming revenues in the UK, and it remains to be seen whether the Labour government elected in the July 2024 will put the issue back on the agenda.
Endnotes
[1] Billboard, “Everything to Know About Spotify’s New Royalties Model: How Does It Work & Who Will It Impact?”, November 20, 2023, accessed: 2024-10-07.
[2] Ibid.
[3] Frederik Juul Jensen, 2024, “Rethinking royalties: alternative payment systems on music streaming platforms”, Journal of Cultural Economics, 02 March 2024, https://doi.org/10.1007/s10824-024-09507-z.
[4] Ibid., pp 10-11.
[5] Ibid., pp 11-12.
[6] Ibid., pp 12-13.
[7] Ibid., pp 13-15.
[8] Association of Independent Music (AIM), 2021, “How to fix streaming–an introduction to the artist growth model”, YouTube-Video, July 5, 2021, accessed: 2024-10-07.
[9] Association of Independent Music (AIM), 2022, “SOLUTION: ‘Artist Growth’ Model for Fairer Streaming Outcomes”, Supplementary written evidence submitted by the Association of Independent Music for the DCMS Committee Hearings on the Economics of Music Streaming, February-March 2021.
[10] See Peter Tschmuck, 2021, The Economics of Music, 2nd edition, Newcastle-upon-Tyne: Agenda Publishing, pp 97-98.
[11] See Music Managers Forum (MMF), 2015, Dissecting the Digital Dollar, part 2. Ashford: Hartley Brothers, pp 42-43.
[12] DCMS-Committee, 2021, Economics of music streaming. Second Report of Session 2021–22, HC 50 incorporating HC 868 2019-21, published on 15 July 2021 by authority of the House of Commons, pp 103-104.
[13] Music Business Worldwide, “Record labels really, really don’t like a new Bill that could – eventually – change how artists get paid in the UK”, November 24, 2021, accessed: 2024-10-07.
[14] Music Business Worldwide, “Op/ed by Geoff Taylor: ‘Popularity is by far the biggest determinant of success in streaming, just as it has been for every recorded format before it'”, April 13, 2021, accessed: 2024-10-07.
[15] Chris Carey, “The potential economic impact of ER on performers and the music market in the UK”, Study commissioned by the Intellectual Property Office (IPO), published on February 19, 2024.
[16] Music Business Worldwide, “UK government confirms it has no intention to adopt ‘equitable remuneration’ payout model for on-demand music streaming”, February 20, 2024, accessed: 2024-10-07.
[17] Ibid.
[18] Music Business Worldwide, “Why are Paul McCartney, Led Zeppelin, Sting, Chris Martin and Stevie Nicks demanding the UK government ‘fixes streaming’?”, April 20, 2021, accessed: 2024-10-07.
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