The House of Commons Digital, Culture, Media and Sports Committee (“Committee”) launched an inquiry in October 2020 in response to calls from stakeholders in the music industry for a review of the current applicable legal framework to ensure a more ‘equitable, sustainable and transparent model for royalty distribution in the streaming era’. The subsequent report highlights that, amongst other matters, the main issues relate to remuneration structures within the industry, lack of transparency, dominance by the ‘Big Three’ music players (Warner Music, Universal Music and Sony Music). The inquiry raised questions regarding fitness for purpose of the Copyright, Designs and Patents Act 1988 (the “CDPA”) and other regulatory frameworks in the context of online music streaming, leading to the Committee recommending a combination of legislative reforms and regulatory interventions by the Government to help re-structure the dynamics in the music industry.

This article considers the Committee’s recommendations and proposals (the “Report”) alongside the Government’s responses which were published in September 2021. The article further considers a draft bill currently being debated in the House of Commons; the ‘Copyright (Rights and Remuneration of Musicians, Etc.) Bill’ which is intended to amend the CDPA and seeks to address the issues raised in the Report.

Background 

Digital streaming is the dominant mode of accessing music in today’s world as digital technology and ready access to online platforms has made creating, sharing and streaming music easier and more available to consumers. The UK is the largest digital music market in Europe, and online music streaming is worth more than £1 billion to the UK economy. Major record companies are now experiencing levels of profit comparable to the pre-piracy peak with companies like Universal Music reporting anticipated profits of €1.5 billion, an increase from €507 million a decade ago due to the surge in digital streaming. However, the DCMS’ report notes that more than 90% of performers earn less than 5% of their income from digital streaming, and professional musicians earned an average of £23,059 in 2018 (well below the national average salary in that year) due to poor royalty rates and remuneration structures based on historic contractual packages, which account for the large overheads borne by record labels during the Vinyl / CD era, in relation to its manufacturing, storage and transportation - none of which apply to digital streaming.

Digital piracy and the proliferation of online file-sharing platforms led to a consolidation of the music industry where the Big Three merged and acquired a number of music companies that existed in the 90s. Today, the Big Three have a collective 75% market share and this has raised issues relating to a decrease in economic competition in the music industry. 

Further, Safe Harbour provisions (which have been transposed into UK law from the EU’s E-Commerce Directive) protect technology companies that host user-generated content (“UGC”) on their websites from an obligation to monitor copyright infringements unless they obtain ‘actual knowledge’ of the infringement, in which case they must act expeditiously to remove the infringing material. These companies are not required to negotiate licences for music hosted on their platforms until after it has been uploaded, in comparison to streaming services that are required to licence music prior to it being uploaded to their service.

Consequently, the Report highlights four major issues with the current music streaming framework:

1. Poor remuneration packages for performers, with royalties ranging between 2% for historic contracts to 20% for the ‘average modern artist’;
2. Pay disparity between song and record rightsholders – under the current framework, record labels get the largest share of revenue, leaving songwriters and publishers with the smallest share of the pot;
3. The Big Three’s dominance in the recording and publishing markets, which has raised issues regarding competition in the music market; and
4. The Safe Harbour exception afforded to companies that host UGC.

Recommendations and Responses

Remuneration 

1. Recommendation – The Right to Equitable Remuneration

The Committee’s proposed right to equitable remuneration is a non-waiveable, non-transferrable statutory right to payment when certain copyrights are exploited. Equitable remuneration is not subject to recoupment which means that performers will be paid every time their music is streamed or downloaded regardless of whether the initial investment has been recouped. The right is non-waiveable and non-transferable which means that performers cannot be coerced or pressured into signing away their right during the negotiation process. 

The argument within the music industry is whether music streaming constitutes ‘making available’ under the CDPA, in which case streaming will be classified as a ‘sale’ (in line with the current framework), or whether streaming should be classified in the same way as a ‘broadcast’ or ‘rental’ where performers enjoy the equitable remuneration right every time the copyright in their songs are exploited. The DCMS Committee supports the latter argument and proposes that the Government review the CDPA so that ‘making available’ does not preclude equitable remuneration.

2. Recommendation – The Right to Recapture Works and the Right to Contract Adjustment 

To address unfavourable royalty rates in historic contracts, the Committee also recommends the introduction of the ‘right to recapture works’ and the ‘right to contract adjustment’ in the CDPA to protect artists whose royalties are disproportionate when compared to the success of their music.

The Government’s response to the Report notes the disparity in revenue income between record labels, performers and songwriters, and expressed its intention to publish research regarding ‘Creators’ Earnings in the Digital Age’ which will corroborate the evidence given to the Committee regarding artists’ remuneration issues. However, the Government notes that the equitable remuneration right (as well as the rights to recapture works and contract adjustment) may have significant unintended consequences that are difficult to predict without proper research. The Response explains that further analysis is required to explore these models, as well as other solutions like the ‘artist growth model’ by engaging with stakeholder groups and researching into methods employed by other countries. A progress report is expected in 2022.  

3. Recommendation -  Revenue parity for songwriters and composers

The Report notes that the remuneration process for songwriters and composers is quite complex and outdated resulting in songwriters and composers not being properly remunerated for their contribution to the music making process. The recommendation is for the Government to work with creators and the independent music industry to bring forward legislative proposals that will ensure that remuneration is sufficient to allow new and upcoming songwriters to have sustainable careers. In its response, the Government accepts the Committee’s recommendation and notes its commitment to work with stakeholders to bring forward reforms to level the playing ground.

Transparency 

4. Recommendation – Provision of metadata, royalty chain information and established data standards 

The Committee urges the Government to compel record labels to provide metadata and royalty chain information to stakeholders. It further recommends that data standards be established within the industry and prescribes the idea of a musical works database where rights holders can provide copyright data that would be easily and readily accessible by all stakeholders.

In its response, the Government emphasizes the need to create awareness regarding the importance of metadata and has tasked the Intellectual Property Office (“IPO”) with commissioning an accessible guide ‘Music Data Explained’ to provide guidance regarding the use of data in the industry. The Government also noted that the IPO and DCMS will collaborate for the purpose of developing minimum data standards by looking at transparency standards in other countries, including those introduced under the recent Directive on Copyright in the Digital Single Market in the EU. 

5. Recommendation – Introduce a Code of Practice for Curators 

Curators play an important role in the context of digital streaming and this has led to collaborations between creators and curators. The Committee recommends that where a curator is paid or receives benefits for creation of a playlist, that curator should be subject to a code of conduct developed by the Advertising Standards Authority (“ASA”), similar to that which governs influencers, to ensure that their decisions are transparent and ethical.

The Government has accepted this proposal and notes its discussions with the ASA and OFCOM regarding introducing standards in regard to playlisting but notes that further investigation is required to determine what standards should be implemented and what organisations should be responsible for providing those standards. 

Competition  

6. Recommendation - Competition and Markets Authority’s (CMA) Investigation of the Music Market 

The Report urges the Government to refer a case to the CMA to look into the impact of the Big Three’s dominance in the music market and suggests that the Government provides the CMA with the resources and staffing to undertake the study.

7. Recommendation – Introduce legally enforceable obligations to normalise licencing arrangements for UGC’s

To address market distortions and the competitive advantage afforded to companies which host UGC, the recommendation is to introduce legally enforceable obligations regarding licencing arrangements for UGCs, and the Report suggests that the CMA should consider designating Youtube’s streaming services as having ‘strategic market status’ under the pro-competition framework for technology companies.

The Government’s Response notes that the CMA is an independent regulator that has full autonomy to decide how best to utilise its resources. However, it has referred these recommendations to the CMA and has noted its intention to provide the Digital Markets Unit within the CMA with robust powers and tough new fines to enforce the regime and protect competition within the digital market.

Draft legislation - ‘Copyright (Rights And Remuneration Of Musicians, Etc.) Bill’ 

Following the Report, the House of Commons is currently considering a draft bill’ the ‘Copyright (Rights and Remuneration of Musicians, Etc.) Bill’ which seeks to amend the CDPA by:

introducing the right to equitable remuneration for performers where the making available right has been transferred;

imposing transparency obligations similar to those under the Collective Management of Copyright (EU) Directive so that performers, composers and songwriters are provided with comprehensive, relevant and complete information regarding the exploitation of their works as well as revenues and/or benefits generated;

introducing the right to contract adjustment so that performers, composers and songwriters can claim fair and reasonable remuneration where remuneration is ‘disproportionately low’ compared to revenue derived from the exploitation of their works; and

introducing a right of revocation to provide performers with the option to revoke in whole or in part a transfer or licence of their work (to any person other than a collective management organisation) after a period of 20 years has elapsed.

A second reading of the bill took place in Parliament on 3 December 2021, and the debate is expected to continue in January 2022.

Conclusion

The Government’s recent publication suggests that many of the Committee’s recommendations will be taken forward in the coming months. By setting up and collaborating with music industry groups and stakeholder working groups, the Government has expressed its dedication to providing legislative, regulatory and practical reforms which are intended to level the playing ground in the music industry and ensure equable remuneration for musicians relating to online streaming of their material.  

The draft bill currently being considered in Parliament addresses and implements a number of proposals raised by the DCMS. If the bill becomes law, this will have a significant impact on the music industry and potentially lead to an increase in the   number of Copyright Tribunal claims as performers, composers and songwriters seek redress and more autonomy over their work.

 Written by Richard Hugo and Folusho Oyeleke