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Revenues from audio streaming: the figures don’t add up

The streaming business model

The fig­ures pub­lished by the indus­try are clear: since 2012, the music stream­ing mar­ket has been pro­gress­ing con­tin­u­ous­ly. This growth is accel­er­at­ing year after year, in a spec­tac­u­lar way. In the United States, streaming-​generated rev­enues for 2019 exceed­ed the total record­ed music mar­ket for 2017 (RIAA data). The trend is the same on the British mar­ket, where fig­ures for 2019 set new records: for the first time, the annu­al num­ber of streams exceed­ed 100 bil­lion (BPI data).

As the stream­ing econ­o­my devel­ops, the ques­tions grow as to the way in which rev­enues are divid­ed between the var­i­ous sec­tor play­ers. Music per­form­ers are not the only ones to ques­tion the eco­nom­ic mod­el adopt­ed by phono­graph­ic indus­try plat­forms. For exam­ple, the European direc­tives adopt­ed in 2011 (term of pro­tec­tion) and in 2019 (copy­right in the dig­i­tal sin­gle mar­ket) and the pri­or impact assess­ments are part­ly based on the find­ing that non-​featured musi­cians –i.e. the great major­i­ty of musi­cians– are forced to accept con­trac­tu­al con­di­tions that only give them a sin­gle lump-​sum pay­ment, which gen­er­al­ly does not amount to very much or is pure­ly sym­bol­ic.

Problems not­ed by the European leg­is­la­tor and WIPO Member States

The impact assess­ment pub­lished on 16 July 2008 by the European Commission prepar­ing the direc­tive extend­ing the term of pro­tec­tion for relat­ed rights thus recog­nis­es in its sec­tion 4.2.4.: “Session artists trans­fer their exclu­sive rights against a lump sum pay­ment, irre­spec­tive of the suc­cess of the work. The rights recog­nised to per­form­ers under the acquis do not result in con­crete ben­e­fits for per­form­ers.

The impact assess­ment of 14 September 2016 prepar­ing the direc­tive on copy­right in the dig­i­tal sin­gle mar­ket stip­u­lates in its sec­tion 5.4.1: “Weaker bar­gain­ing pow­er of authors and per­form­ers in con­trac­tu­al nego­ti­a­tions. The main under­ly­ing cause of this prob­lem is relat­ed to a mar­ket fail­ure: there is a nat­ur­al imbal­ance in bar­gain­ing pow­er in the con­trac­tu­al rela­tion­ships, favour­ing the coun­ter­par­ty of the cre­ator […]. The dif­fer­ence in bar­gain­ing pow­er can also cre­ate a “take it or leave it” sit­u­a­tion for cre­ators and there­fore full “buy-​outs” using catch-​all lan­guage that cov­ers any mode of exploita­tion with­out any oblig­a­tion to report to the cre­ator.

Several European Parliament reports have come up with sim­i­lar find­ings

Similar con­cerns are voiced by WIPO’s Group of Latin American and Caribbean Countries (GRULAC), in a work­ing doc­u­ment pub­lished in December 2015 with­in the frame­work of the Standing Committee on Copyright and Related Rights (SCCR): ” […] the low pay­ment of cre­ators, com­posers, song­writ­ers and per­form­ers is today the most vis­i­ble part of the impact caused by tech­no­log­i­cal advances in the use of pro­tect­ed works in the dig­i­tal envi­ron­ment. Particularly in the music indus­try, […] there are ques­tions about the impor­tance that has been attrib­uted to these cre­ators and per­form­ers and if it is enough.” GRULAC con­sid­ers that recourse to a right for equi­table remu­ner­a­tion “could ensure greater bal­ance in the rela­tion­ship between these artists and record com­pa­nies.

The stream­ing mar­ket can­not gen­er­ate decent rev­enues for artists so long as cur­rent prac­tices are not put into ques­tion

In addi­tion to the prob­lem of the unfair­ness of con­tracts, there is the lack of trans­paren­cy in the trans­mis­sion of exploita­tion data, which does not ensure per­form­ing artists that the roy­al­ties they receive actu­al­ly cor­re­spond to what is due to them. This prob­lem is exac­er­bat­ed by the fact that the roy­al­ty state­ments with which they are sup­plied only offer a very par­tial image of the val­ue chain and pro­vide no infor­ma­tion on the shares levied upstream by the var­i­ous mar­ket play­ers: plat­forms, bank­ing estab­lish­ments, tax depart­ments, aggre­ga­tors, authors and com­posers, labels…

User-​centric dis­tri­b­u­tion: a nec­es­sary con­tri­bu­tion to trans­paren­cy

Lack of trans­paren­cy also affects the way in which rev­enues from con­sumers are dis­trib­uted between right­sh­old­ers of the streamed tracks. According to the cur­rent­ly pre­vail­ing mod­el (pro-​rata), the por­tion of rev­enues asso­ci­at­ed with a track over a peri­od of ref­er­ence is cal­cu­lat­ed as the ratio of all the streams for this track and the total num­ber of all tracks in the cat­a­logue used by the plat­form. In prac­tice, such a sys­tem tends to exclude niche artists and pro­duc­tions, the rel­a­tive por­tion of which is too low to give rise to any pay­ment. In addi­tion, as the num­ber of times the same user lis­tens to one sin­gle track indi­vid­u­al­ly is tak­en into account in the cal­cu­la­tion, it is pos­si­ble to use auto­mat­ic process­es (“robots”) to gen­er­ate mas­sive lis­ten­ing from a sin­gle sub­scrip­tion, for a small num­ber of record­ings, whose rev­enues there­by increase arti­fi­cial­ly.

Going over to a “user-​centric” mod­el would make it pos­si­ble for rev­enues levied from the con­sumer to accu­rate­ly match the reper­toire such user will have lis­tened to dur­ing a month’s sub­scrip­tion. For exam­ple, if the con­sumer choos­es only to lis­ten to one artist for a month, his/​her sub­scrip­tion can­not be used to remu­ner­ate oth­er artists over this peri­od. From the consumer’s point of view, this rep­re­sents clear progress when it comes to trans­paren­cy. It is also a way of ensur­ing that artists receive what is due to them, no more, no less.

The Deezer plat­form is cur­rent­ly exper­i­ment­ing with this approach under the term UCPS (User Centric Payment System). Nevertheless, it should be not­ed that how­ev­er fair such a “user-​centric” dis­tri­b­u­tion may be for niche artists with a roy­al­ty con­tract and their labels, it has no effect on the remu­ner­a­tion of artists when their exclu­sive rights have been cov­ered by a buy-​out trans­fer. By high­light­ing the pos­i­tive impact of this mod­el on artists, Deezer is there­fore com­mu­ni­cat­ing on what is a very incom­plete image of the way things real­ly are.

The exclu­sive right of mak­ing avail­able is not adapt­ed to all ser­vices includ­ed in stream­ing sub­scrip­tions

As we have seen, in the immense major­i­ty of cas­es, the per­former receives (at best) a one-​off lump-​sum com­pen­sa­tion at the time of the record­ing. If it is a com­mer­cial phono­gram, com­mu­ni­ca­tion to the pub­lic and broad­cast­ing of such phono­gram also give rise to pay­ment by the user (broad­cast­er, dis­cothe­ques and oth­er venues receiv­ing the pub­lic) of a remu­ner­a­tion shared between the artists con­cerned and the pro­duc­er, almost always in equal shares. For per­form­ers, such remu­ner­a­tion has the advan­tage of being unwaiv­able and con­sti­tutes (with the remu­ner­a­tion for pri­vate copy­ing when such exists) the sole source of rev­enue after the trans­fer of their exclu­sive rights to the pro­duc­er. Making a phono­gram avail­able via down­load­ing –which cor­re­sponds to the exclu­sive right of “mak­ing avail­able”– gen­er­ates no rev­enue for artists with­out roy­al­ty con­tracts.

NB: for musi­cians remu­ner­at­ed by roy­al­ties, anoth­er prob­lem may arise for con­tracts drawn up before the dig­i­tal era since, in many cas­es, the exclu­sive right of mak­ing avail­able was not trans­ferred in the ini­tial con­tract nor is it cov­ered by a rid­er to the con­tract. Making avail­able by stream­ing or down­load­ing then con­sti­tutes an infringe­ment of the artist’s rights. In this way, Universal was sen­tenced in Finland in 2015 for the mak­ing avail­able online of albums from the Hurriganes band with­out obtain­ing autho­ri­sa­tion from the artists.

It is dif­fi­cult to ascer­tain to what extent stream­ing ser­vices com­pete with music broad­casts. According to the indus­try, dig­i­tal ser­vices have exclu­sive­ly sub­sti­tut­ed phys­i­cal sales, while the rev­enues col­lect­ed from radio ser­vices con­tin­ue to grow. Even if the lat­ter are increas­ing, one can still rea­son­ably con­sid­er that a share of this mar­ket is cap­tured by the plat­forms and the numer­ous playlists that they offer to their sub­scribers. It is also clear that it is the industry’s best inter­est to exploit a record­ing under the exclu­sive right regime (on plat­forms) rather than hav­ing to share its rev­enues with the musi­cians con­cerned on a 50/​50 basis (on radio ser­vices).

Broadcasters them­selves are grad­u­al­ly offer­ing their own con­tents in the form of par­tial­ly inter­ac­tive ser­vices, which are not sub­ject to the pay­ment of the “Equitable Remuneration” and, there­fore, deprive many musi­cians from the rev­enues they receive when their record­ings are played as broad­casts.

When it imple­ment­ed its stream­ing offers, the pho­to­graph­ic indus­try decid­ed uni­lat­er­al­ly to place the var­i­ous ser­vices offered to the con­sumer under the sin­gle ban­ner of mak­ing avail­able on-​demand, treat­ing them in exact­ly the same way as a down­load (here too, artists with­out roy­al­ty con­tracts do not receive any rev­enue for the exploita­tion of their record­ings via stream­ing).

Nevertheless, a sub­scrip­tion cov­ers at least four dif­fer­ent ser­vices:

1. Access to spe­cif­ic tracks, at a giv­en moment and from a place cho­sen by the con­sumer, cor­re­spond­ing to the orig­i­nal under­stand­ing of the “right of mak­ing avail­able”;

2. Access to playlists drawn up by third par­ties (human or machine), in the com­po­si­tion of which there is no inter­ven­tion on the part of the con­sumer, cor­re­spond­ing in prac­tice to a the­mat­ic radio enriched with a lim­it­ed dose of inter­ac­tiv­i­ty;

3. Passive recep­tion of tracks sent by the stream­ing ser­vice with­out any spe­cif­ic con­sumer demand, linked to their lis­ten­ing habits or for pro­mo­tion­al ends;

4. Storage of local copies of tracks for offline lis­ten­ing, with­in the lim­its of the subscription’s peri­od of valid­i­ty.

The use by indus­try of the con­cept of “inter­ac­tiv­i­ty”, instead of the notion of “exclu­sive right of mak­ing avail­able” and with­out mak­ing any dis­tinc­tion between the var­i­ous lev­els of inter­ac­tiv­i­ty (see ##1, 2 and 3 above), is aimed at jus­ti­fy­ing extend­ing the field of the exclu­sive right to all ser­vices pro­vid­ed, which, for the indus­try, has the advan­tage of exclud­ing the large major­i­ty of musi­cians from ben­e­fit­ting from any recur­rent rev­enue that might be asso­ci­at­ed with such ser­vices.

Although case #1 does cor­re­spond to exer­cis­ing the exclu­sive right of mak­ing avail­able in the mean­ing of arti­cles 10 and 14 of WPPT, this is far from being clear in the oth­er three cas­es which cor­re­spond to addi­tion­al ser­vices sup­plied in a bun­dle with the first.

The ser­vice referred to in case #2 is wide­ly used by sub­scribers, for whom the playlists con­sti­tute an enriched ver­sion of the­mat­ic radios. A playlist con­sists of a small frac­tion of the reper­toire exploit­ed by the plat­form, whose tracks have been select­ed depend­ing on cri­te­ria such as the type of music (jazz, fusion, pop, vari­ety, rock, clas­si­cal etc.), the peri­od (the 60s, 70s etc.), an activ­i­ty or par­tic­u­lar occa­sion (jog­ging, an evening spent with friends, relax­ation etc.) or a moment in the day. Selecting the tracks in the list may be done by an algo­rithm or by a per­son remu­ner­at­ed for this by the plat­form. Even if the con­sumer choos­es not to lis­ten to a track or jump direct­ly to anoth­er, these choic­es can only take place with­in the ini­tial list, whose con­tent and size are lim­it­ed, a pri­ori, by the choice of a third par­ty.

The lim­it­ed lev­el of inter­ac­tiv­i­ty offered to con­sumers in access to playlists can in no way be com­pared to the free­dom of their choice in cas­es of access to a spe­cif­ic title by down­load­ing or stream­ing with­in the platform’s whole cat­a­logue and this lim­i­ta­tion is not the result of con­sumer behav­iour but of the very nature of the playlist.

The consumer’s lack of choice is even more bla­tant in case #3.

In the light of all this, the ser­vices quot­ed in cas­es ## 2 and 3 should be sub­mit­ted to the regime of arti­cle 15 of WPPT (right of remu­ner­a­tion for com­mu­ni­cat­ing to the pub­lic and broad­cast­ing com­mer­cial phono­grams) and not to the exclu­sive right of mak­ing avail­able. In these two cas­es, it should be not­ed that the plat­form may high­light titles, for pro­mo­tion­al ends, when it has received pay­ment for such from the label (Spotify’s Marquee ser­vice, for exam­ple). What is sent to the con­sumer, in this case, is a forced pro­mo­tion­al track, and in no way a delib­er­ate choice on their part, and with­out nec­es­sar­i­ly being relat­ed to lis­ten­ing habits.

Case #4 is of a hybrid char­ac­ter. On the one hand, it intro­duces an act of copy­ing whose voca­tion is to come under an excep­tion known as “pri­vate copy­ing” On the oth­er hand, it enables the sub­scriber to have a copy of a phono­gram for a lim­it­ed amount of time (that of the sub­scrip­tion), which cor­re­sponds to the con­cept of rental.

The way in which record­ings are exploit­ed online by the record indus­try ful­fils a clear objec­tive: giv­ing prece­dence to the exclu­sive right over any oth­er pos­si­ble mod­el, which, giv­en the above­men­tioned con­trac­tu­al prac­tices, is tan­ta­mount to depriv­ing most musi­cians of a fair part of rev­enues gen­er­at­ed by their work and tal­ent. As we have just seen, ser­vices asso­ci­at­ed with a stream­ing sub­scrip­tion are of dif­fer­ent natures, come under dif­fer­ent rights and, con­se­quent­ly, must give rise to dis­tinct pay­ments depend­ing on the type of ser­vice. The stream­ing mar­ket can­not gen­er­ate decent rev­enues for artists so long as cur­rent prac­tices are not put into ques­tion.

Benoît Machuel, September 2020

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