Riding the Third Rails: Making the case at WIPO for performer streaming remuneration — Music Technology Policy

One potential solution to the crisis with performer compensation from streaming is an expanded remuneration right paid directly to performers and featured artists by streaming platforms. Remember–the session musicians and vocalists you hear on streaming platforms get nothing and all but a handful of featured artists get next to nothing.

Endless babble about how streaming saved music industry is unmoored from reality. And revenue has demonstrably resulted in lower pay to music workers. 

U.S. Recorded Music Revenues Are Still 46% Below 1999 Peaks https://t.co/wmyAiCV9iB— David C Lowery (@davidclowery) June 17, 2021

Thanks to the support of the American Federation of Musicians and the International Federation of Musicians, the World Intellectual Property Organization commissioned a policy study on this subject for consideration by WIPO’s Standing Committee on Copyright and Related Rights that I co-authored with the noted economist, Professor Claudio Feijoo.  (The study is available here.)  WIPO has never before commissioned a study on the economic effects of streaming on performers, and I think we should all be appreciative of WIPO’s response.

I was pleased to see the study quoted in the recent letter to UK Prime Minister Boris Johnson from the Rolling Stones, Sir Tom Jones and many others calling on the PM to support streaming remuneration according to the BBC.

We considered the pros and cons of a number of potential solutions, which are summarized in this table from the study. Streaming remuneration paid by platforms was the main recommendation for a number of reasons:

–streaming remuneration helps to balance the extraordinary growth in share price by companies like Spotify. (Apple is approaching a $2 trillion market capitalization and still pays session players nothing for streams on Apple Music).

–enterprise playlists are increasingly a substitute for radio by Spotify’s own admission yet pay nothing to non-featured performers.

–streaming remuneration does not expand the compulsory license and leaves private contracts in place.

SolutionProConFurther comments
Streaming Remuneration Paid By Platforms Through CMOsDoes not require additional transaction cost as matching and payment information already exists at CMOs; does not require renegotiation of licensing agreements or disrupt current licensing practices; platforms are already paying similar royalties in certain territories; recognizes value transfer from all performers to platforms; helps to preserve local culture by compensating both featured and nonfeatured performersPlatforms may seek to offset streaming remuneration payments against catalog license revenues; platforms may seek to expand compulsory licenses; additional operating cost for platforms; Flexible solution that Member States may elect to implement.  Benefits both featured and nonfeatured performers. Mandate may exclude deduction from existing licenses and may make payments non-waivable.
Status Quo—continue market-centric model unchanged with voluntary experiments in fairness-making royalty methods (SoundCloud and Apple, for instance)No disruption to streaming ecosystem, locks in market-centric royalty model, allows market forces to drive change (e.g., SoundCloud fan powered royalties and Apple messaging pro-artist royalty rates)Favors major labels and their featured performers, nonfeatured performers paid zero, does not respond to grassroots campaigns by featured and nonfeatured performers; burdens local repertoire and local culture (see concerns about streaming music raised by Heritage Canada and Canadian Parliament in current consideration of Bill C-10[1])Do not change and allow market forces to impact royalty rates through grassroots protests against streaming royalties like #BrokenRecord and #IRespectMusic campaigns and potentially litigation
Voluntary change in label streaming rate policy and Beggars (for instance) style forgiveness of unrecouped balancesFairness making move so that producer unilaterally updates all legacy contracts to current rates.  Simple to pay more than contract requires, can be implemented quickly, low transaction costs.  Forgiveness of unrecouped balance occurs after a fixed period of time.  (Beggars model forgives 25% after 15 years).  Does not change the underlying payments to featured performers, does not compensate nonfeatured performers. Might be arbitrary and subject to sudden changes.Labels should consider before legislation requires a change in response to grassroots protests (see DCMS Inquiry). Nonfeatured performers are not benefited. Compatible with other models. 
SolutionProConRecommendation
Mandate review of royalty statements and systems by independent accountants or “special masters”Biggest point of failure in royalty reporting is at the platform, so review of systems by independent accountants and experts would increase transparency and help to reduce third party fraud.  Expert review would be in addition to SSAE 16 type review.  At a minimum, public accounting firms should be required to publicly disclose systems reviews undertaken as part of audited financials.Biggest negative would be cost, but in the long run would potentially reduce the cost and increase the efficiency of individual audits.  Might be accomplished through disclosure and rebalancing of duties of public accounting firms.Member States may consider legislating transparency. Nonfeatured performers are not benefited. Compatible with other models.
Adjust corporate governance at streaming companies to make them more responsive to shareholders (such as eliminating dual class stock in publicly traded companies)Allows shareholders a meaningful voice in corporate governance denied by “supervoting” shares such as Spotify’s 10:1 insider shares, allows fans or users an opportunity to be heard by board of directorsDoes not by itself change underlying payment issues for either featured or nonfeatured performersMember States may consider as a general matter depending on existing corporate governance laws and exchange rules.  Nonfeatured performers may not be benefited. Compatible with other models.
Voluntary User Centric Share of Revenue Royalty methodsLikely to allow users to have transparency as to where their money goes; perceived greater fairness for featured performersCostly to implement due to transaction costs of renegotiating all licenses.  May just reallocate revenue without increasing the pie; does not recognize the value transfer from performers to platforms in market valuation and share price. Does not compensate nonfeatured performers.Allow platforms to experiment with different models.  Nonfeatured performers are not benefited under models tried to date.
Fan-to-performer Direct Digital GiftsDoes not require changing licensing agreements for services and producers; payments to performers can be made directly outside of recording or distribution agreements; if broadly established, could include both featured and nonfeatured performers. Excludes producers from compensation scheme; requires performers to sign up to accept payment; some services take a cut some do (like Tencent) and some (like Apple) do not take a cut if true gift and not disguised in-app purchase Allow platforms to experiment with different models.  Nonfeatured performers could be benefited.  Member States may consider legislation to curtail platforms taking a cut of digital gifts.
Extended collective licensing of the exclusive right of making available on demandRebalance relations between stakeholders; guarantee a remuneration for all categories of performers through collective managementLimited protection for performers when opt-out is possible; needs conclusion of new licensing agreements; will affect the perimeter of licensing agreements concluded between labels and platformsWould conflict with existing contracts, increasing litigation with uncertain results; non-retroactive application with limited effects
Compulsory collective management of the exclusive right of making available on demandRebalances relations between stakeholders; guarantees a remuneration for all categories of performers through collective management; protects all performers from unbalanced transfer of rightNeeds conclusion of new licensing agreements; will affect the perimeter of licensing agreements concluded between labels and platforms; deprives featured performers of their direct capacity to negotiate with labels through individual contractsWould conflict with existing contracts, increasing litigation with uncertain results; non-retroactive application with limited effects

[1] House of Commons of Canada, House Govt. Bill C-10 (43rd Parl, 2nd Sess., Nov. 3, 2020) available at https://www.parl.ca/LegisInfo/BillDetails.aspx?Language=e&Mode=1&billId=10926636&View=1

@drewjschwartz: The Way Streaming Services Pay Artists Is Broken. SoundCloud Is Trying to Fix It

[h/t to Jay Gilbert and Mike Etchart at Your Morning Coffee for tagging this explanation of SoundCloud’s “fan powered” royalties. My feeling about the SoundCloud version of user-centric is that it’s the beginning and not the end of the story. These things have a tendency to evolve over time, and SoundCloud may actually start negotiating instead of the usual “we’ll take it and you’ll leave it” attitude of Big Tech, particularly when it comes to independent artists. Remember when iTunes paid bigger labels at least 70¢ for downloads but indie labels and artists 65¢ for no good reason? That didn’t last. The most important part of this story is that it is happening at all and that suddenly a big music service has seen that being early on this trend is a competitive advantage. That may cause other services to react.

The next step will be when major artists get woke to the fact that if the dominant pro-rata model that user-centric rejects is unfair, they may be the beneficiaries of that unfairness. And then there’s the songwriters, who have a similar model applied to their share of the revenue. (And of course focusing on revenue alone completely ignores the valuation benefit that is easy to calculate for public companies like Spotify that has made CEO Daniel Ek a multibillionaire while paying scraps of scraps to artists.]

This week, SoundCloud announced it’s making a major change to the way artists on the platform get paid in an effort to help smaller acts make more money from their music. If you’re not someone who follows the jargony, complicated world of music streaming closely, the new system, which SoundCloud dubbed “fan-powered royalties,” might seem confusing. Allow us to break it down for you. 

When you pay for a subscription to a streaming service like Spotify, Apple Music, or SoundCloud, your money goes into a big pot, along with the money the streamer earns from every other subscriber and from advertising. A chunk of money from that pot goes to the company itself. Then, it divvies up the rest among artists, based on each artist’s share of total streams every month. The bigger slice of overall streams an artist gets, the more money they get from the pot.

All the major streaming services use that system, known as a “pro rata” royalty model—but there are problems with it, which musicians have been complaining about for years

Read the post on Vice

User Centric As Competitive Advantage: The Arc of the Moral Universe is Bending — Music Technology Policy

How long? Not long, because the arc of the moral universe is long, but it bends toward justice.

Reverend Dr. Martin Luther King, Jr., Our God Is Marching On!
March 25, 1965, Montgomery, Alabama

Everyone knows that streaming royalties are unsustainable. The question is what to do about it. The current system evolved from the early days of online music services and the advertising-driven madness of the Web 2.0 era. Over time, the interactive streaming revenue share model has been extended from advertising and applied to subscriptions. The terms have been tightened down again and again until it has become what it is today–the hyper-efficient market share distribution of revenue that completely ignores the vast wealth extracted from the public financial markets by companies like Spotify. It comes as a surprise to fans that when they think they are supporting the artists they love, the fan’s subscription revenues are being paid to artists that the fan never listens to. It also comes as a surprise to artists that their streaming royalty check is derived from their fellow artist’s work product. And this doesn’t address the session players and background vocalists.

It is this unsustainable model that has attracted great attention. Many alternatives have been proposed to connect fan listening to fan payments, often under the category of “user-centric” royalty methods. This was a topic at the recent hearings before the UK Parliament’s Digital, Culture, Media and Sport Committee where there was considerable testimony about user-centric in an effort to develop an equitable and fair model–the implication from the Members of Parliament being that if the industry didn’t fix the “market centric” structure, the government might fix it for them. 

etude-ecoute-en-continu-streaming-montants-spotify-apple-music-google

What was most interesting to me was that Amazon, Apple and Spotify were all essentially testifying that they knew the system was grotesquely unfair and seemed to accept that as a given. While Spotify’s representative put up the usual risible drivel about how poor Spotify cannot make a profit, he pretty much had to acknowledge that Spotify had to pay more (and do make direct payments to both featured and nonfeatured artists in a few countries like Spain). Which means that the pretense that streaming royalties would be adequate if it weren’t for the greedy labels had far less purchase with the Members than it did before. Which is what you would expect from any right thinking person who educated themselves about the situation on the ground. 

We’re a long way from here to there, but a journey of many miles starts with a single Parliamentary inquiry. I believe that the trick is going to be getting the market to drive adoption of a user centric model as a competitive advantage, and that brings us to the SoundCloud announcement about their new “fan powered” royalty offering

SC Fan Powered

The tone of SoundCloud’s announcement is definitely one of “look at me.” Although for once a streaming service is not saying look at me I have floors and floors of the most expensive office space on the planet while I pay artists a fraction of a penny, or look at me I’m a billionaire, or look at me I saved the music industry. Instead, and most remarkably, a streaming service is saying look at me, I’ve identified the problem of fans paying for music they don’t listen to and the embarrassingly low royalties for artists (and songwriters for that matter) and I’m doing something about it. As I read SoundCloud’s public messaging campaign, the company is putting it out there for a competitive reason–they want to attract artists because they are making an effort at treating people fairly.

In other words, SoundCloud is positioning user-centric as a competitive advantage to attract artists to opt in to the SoundCloud version of user centric. I think this is a very important development because it identifies the real choice for independent artists–to stream or not to stream. If you are driving your fans to a music service but the service pays you so little there may as well be no royalty at all, the question for you is not how many streaming services you can do free work for in fear of missing out. The question for you is whether any of it is worth it, particularly if you now have a better alternative. This may be a sign that the market is starting to drive the issue.

SoundCloud’s new program is also an indicator of another voice on the horizon–successful artists who get woke to the idea that this model causes them to take money away from the less fortunate artists. The day may easily arrive when an artist like Billie Eilish or Taylor Swift walk away from a service because she doesn’t want to be exploited in the “market centric” royalty model. When artists announce these decisions on the Grammy Awards. Now that would be quite a market force.

And if Daniel Ek doesn’t like windowing, just wait til he gets a load of what the arc of the moral universe has in store for him. It won’t be long.

@MicahSingleton: SoundCloud to Let Fans Pay Artists Directly

[Editor Charlie sez: The “virtual gift” is kind of old news and we’ve been covering it since 2018–but–it’s another market confirmation that streaming royalties are inadequate (nobody talked about virtual gifts with Tower Records or iTunes Music Store). It would be better if Spotify spent less time gorging themselves with their snouts in the public markets trough and more time figuring out how to pay performers a sustainable royalty.]

SoundCloud is preparing to introduce a new payment system that would allow fans to pay artists directly, multiple sources close to the situation tell Billboard, setting what could be a game-changing precedent for the streaming world.

The move would make SoundCloud the first major music streaming service to embrace a direct payment model, a strategy that has been popular with Chinese streaming services like Tencent Music’s QQ Music for years, and one that subscription services like Patreon and OnlyFans have built their businesses around, as musicians and fans around the world clamor for bigger digital music distributors to do the same.

Read the post at Billboard

Read Chris’s 2018 post about virtual gifts: Ethical Props–How Streamers Can Empower Fans on the Path to Sustainability