The music-streaming business model has proved a major economic boost for the big record labels that own most of the music and the new streaming platforms that host it. This success is, however, at the expense of small independent labels and the majority of recording artists.
The Covid-19 pandemic brought a halt to most live music around the world and, by extension, most artists’ main source of income. Musicians are struggling to survive on the meagre amounts they earn from streaming platforms.
While these platforms and major record labels are making tidy profits, the United Kingdom’s Musicians’ Union (MU), which represents more than 32 000 professional musicians, said this growth in streaming revenue does not reflect in musicians’ earnings.
MU spokesperson Keith Ames reiterated that the Covid-19 pandemic has destroyed the income artists used to make from live music. “For many artists, work has just fallen off a cliff,” he said.
The union’s #FixStreaming campaign, which it launched in 2020 alongside other grassroots campaigns like #BrokenRecord, gained significant public support last year, said Ames. This resulted in a UK parliamentary inquiry into the economic effects of streaming on musicians and record labels, which is currently taking place.
According to a host of submissions before that inquiry, the failure of the streaming model to adequately compensate musicians is owing to numerous design flaws.
Some of the flaws stem from historical features of the music industry, like old recording contracts that were never intended to fit a new digital world and a remuneration system that rewards featured musicians to a far greater extent than session musicians. Others relate to whether the legal definition of an online stream in the current model is indeed correct.
Guy Garvey, the singer in UK band Elbow and a BBC disc jockey, testified before the UK inquiry that “tomorrow’s music” was at risk of being lost because many artists are unable to pay their rent or living costs.
Garvey told the inquiry that the streaming model was “almost a miracle” because listeners could access so much recorded music, but that it would only become a true miracle if musicians received equitable pay for their work.
Winners and losers
The International Federation of the Phonographic Industry’s Global Music Report for 2019 shows that the recorded music market grew by 9.7% worldwide in 2018, its fourth consecutive year of recorded growth. This was despite physical sales being down by more than 10% year-on-year and digital downloads decreasing by more than 20%. At 47%, streaming revenue made up almost half of the total revenue, growing by 34% on the year, with a reported 255 million paying users globally.
Benoît Machuel, the general secretary of the International Federation of Musicians, said this revenue growth is driving up the share prices of streaming platforms and making their shareholders a lot of money, while musicians are seeing little benefit. In light of the fact that the major record labels who licensed their back catalogues of music to streaming platforms are also reportedly shareholders in the same streaming platforms, this is a concern.
Machuel said the lack of transparency makes it difficult to know which major labels own shares in streaming platforms. Such labels draw revenue from two channels. “I doubt the profit the record companies are making as shareholders of streaming platforms is being shared with the artists,” he said.
The Beggars Group, an umbrella company for independent labels, said in its submission to the inquiry that the introduction of streaming has been a boon for labels with a rich catalogue, but not so for labels and artists who are just starting out.
“The benefit accruing to the major labels with their vast catalogues going back to the 1950s has turned them into multibillion-pound industries, immensely attractive to investors,” the group said. “This is a sea change from where they were in the pre-streaming era just a few years ago.
“However, for labels and artists starting out from new, the story is sometimes not so positive.”
Sale or broadcast?
One of the design flaws that was highlighted repeatedly to the inquiry relates to the legal definition of a stream.
Many stakeholders told the inquiry that treating the streaming platforms’ algorithm-designed playlists as a sale and not a broadcast has major consequences for artists in terms of the revenue they can earn from their music.
The Incorporated Society of Musicians (ISM), a UK organisation that has been representing musicians for the past 139 years with 10 500 current members, said playlists are becoming increasingly dominant as younger audiences move away from traditional radio. “The curatorial role of a deejay is becoming obsolete as algorithms and paid-for promotion determine which tracks are highlighted to the consumer.”
The #FixStreaming campaign in which the MU was involved last year surveyed a nationally representative sample of more than 2 000 music consumers in the UK. It found that 60% of streaming consumers felt playlist streaming is more akin to radio than listening to a CD.
“However, unlike with radio, royalties from streaming are not guaranteed to artists and performers through collective rights management,” said the MU.
It added in its submission to the inquiry that streaming services are essentially a “sophisticated version of radio” and this should mean that artists are compensated in the same way they are for radio broadcasts playing their music, with money being collected by a collecting society.
The MU said this is something the government could deliver for performers at no cost, which would show a significant return and benefit the UK economy.
The plight of the session musician
Machuel said this debate about classifying a stream as a broadcast or download is central to the issue of compensating session musicians because contractual practices in the music industry differ depending on whether you are the featured musician, the artist whose name is on the recording or a session musician.
When it comes to contracting with a record label, the featured musician usually receives a percentage of every sale, while session musicians usually receive a one-off payment for their role in the studio.
“This model comes from the record companies,” said Machuel. “It is the way it was designed in the first place. They established the business model with the principle that they shouldn’t pay session musicians.”
But he points out that session musicians did have another way of earning revenue and that is through their right to a performance royalty every time any song they were involved in recording is broadcast. The replacement of radio broadcasts with streaming playlists is now taking away this revenue stream from session musicians, Machuel said.
As things stand, the revenue generated when a song is played as part of a broadcast is split in half, with 50% going to the performers and 50% to the record label, the MU said.
An ideal model would be if the performers’ 50% is split, with 65% going to the featured artists and 35% divided between non-featured artists, like session musicians, who may have played on the recording.
The current streaming model ensures that 30% of the profit goes to the streaming platform, while 55% goes to the record label and the remaining 15% is paid to the songwriter via their music publisher, with the publisher usually taking a further 20% off the amount paid to the songwriter.
If the artist performing the song is the songwriter, then they receive an additional royalty from the record label, which can be as low as 15%. However, if the artist performing the song is not the songwriter, that royalty goes to the songwriter.
As revenue from broadcasts decreases each year and is not replaced with an equivalent level of compensation (with revenue from streams and online playlists), artists earn less and less. For the union, the impact this has on non-featured or session musicians is particularly dire, as they are not receiving any compensation for their work. This is despite 81% of consumers supporting the idea of session musicians receiving streaming royalties, as the #FixStreaming survey found.
There is already an attempt in Europe to address this, said the MU. European Union (EU) member states are dealing with it through the implementation of the Copyright Directive. The MU has called for the broad principles of the EU Copyright Directive to be enshrined in UK law as well.
New model, old contracts
Another problem area that received a lot of attention in the submissions before the inquiry was the use of non-disclosure agreements to protect licensing agreements between major record labels and streaming platforms.
The Creators’ Rights Alliance (CRA) is a UK-based organisation representing 17 member organisations and trade unions, with a total of 350 000 creators. In their submissions, they said that this lack of transparency has to be addressed to ensure fair remuneration for musicians.
Historical contracts signed between artists and major labels do not reflect the current technological and economic landscape, said the CRA, which questioned if they even allow for digital distribution. These contracts should not be used as is to license digital distribution deals hidden behind non-disclosure clauses, they need to be renegotiated, it said.
“It is the case that many signed artists will be on royalty terms that are supposed to reflect the costs of a physical-format release and thus reduce the artists’ share of gross income,” said the CRA. If there is no physical release, there is no justifiable reason for reducing the artists’ share to cover the costs of a physical release.
The MU reiterated the CRA’s point in this regard, saying that artists understood that the costs of manufacturing and distributing a physical product went some way to justifying the low royalty rate but that none of these costs are associated with streaming.
The ISM said it was particularly concerned with the number of historical contracts that are silent on the treatment of digital income, adding that without the ability to renegotiate contracts, musicians are being disadvantaged.
While the music industry has adapted to new and freer modes of production, release and revenue generation, old and exploitative terms persist for the musicians who create the music. And in the age of streaming, these terms are deepened.