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What do the world’s greatest music corporations actually take into consideration the economics of streaming?


The most important file corporations breathed a sigh of reduction final month on the final result of the UK competitors regulator’s ‘market research’ into the economics of music streaming.

Britain’s Competitors and Markets Authority (CMA) launched its research into the music streaming market again in January. The org stated that it aimed to “study the music streaming market, from creator to shopper, paying explicit consideration to the roles performed by file labels and music streaming companies”.

The CMA added that its research would assist it to “think about whether or not innovation is being stifled and if any corporations maintain extreme energy”,  including that, if it “finds issues, it is going to think about what motion could also be essential”.

Nevertheless, on July 26, the CMA confirmed that it was proposing not to pursue a full-scale investigation into the music streaming {industry} within the UK.

People or corporations had been invited by the CMA to touch upon the matter – together with on whether or not the CMA ought to make a market investigation reference.

What they submitted revealed a lot concerning the differing opinions – and confidential issues and desires – of a few of music’s greatest corporations.

Right here, we summarize what quite a lot of main international music corporations argued to the CMA, through a batch of filings that had been solely not too long ago made public…


BEGGARS GROUP

Beggars Group, one of many world’s greatest impartial music rights corporations and label teams, notes, in its nine-page response, that the shift to music streaming has opened the door for brand new enterprise fashions to thrive.

Title checking the likes of AWAL, Distrokid, CDbaby and TuneCore, Beggars argues that “the expansion of the music streaming market has made these corporations extra viable, profitable and interesting to sure artists”.

Among the causes cited by Imagine for the viability of such corporations are that they “provide brief time period offers to artists and writers, provide very aggressive royalty charges or in some circumstances an annual charge moderately than a share of income” and “typically present upfront funding monies on a repayable foundation, versus recoupable from royalties solely as with a standard label deal”.

“we suspect that the streaming companies present further advantages to the majors by way of entry, playlists, placements and information which they don’t present to anybody else.”

Beggars Group

Requested particularly about points “that restrict competitors between music corporations, both within the provide of companies to music creators or within the provide of music to music streaming companies”, the indie label large raises issues about what it argues is “the dominant place of the key labels and the way it impacts the streaming platforms”.

Beggars claims additional that, “we suspect that the streaming companies present further advantages to the majors by way of entry, playlists, placements and information which they don’t present to anybody else”.

In response to how thinks competitors could possibly be strengthened between music corporations working within the streaming financial system, Beggars says this: “We predict that the CMA ought to require the majors to divest themselves of labels and catalogs.”

Beggars provides: “We additionally assume there needs to be a ban on the majors buying additional catalogs and making further acquisitions.

“We predict that payola model guidelines prohibiting editorial placement or playlisting for pay, or contractual phrases would promote higher competitors primarily based on what the buyer desires to hearken to moderately than what the service must ship to a accomplice, or on how costly the content material is to the service.”


BELIEVE

In Imagine’s concise, one-page response, the publicly traded Paris-headquartered music firm argues that, in its view, the CMA is assessing two totally different markets: “The Shopper Market, and The Artist Market”.

Imagine explains that, it doesn’t “see a problem with the buyer market, however we do see a problem with the Artist Market, concerning potential unfair competitors”.

The corporate then breaks down what it perceives to be unfair competitors within the streaming market into three totally different components, considered one of which has been redacted.

The 2 components that haven’t been redacted within the doc printed by the UK authorities, are “Transparency round algorithm” and “Artist Information safety”.

“the shortage of transparency round how sure DSP algorithms are pushing sure content material, we really feel, is resulting in unfair competitors.”

Imagine

On the latter level, round ‘artist Information safety’, Beleive claims: “We’re seeing the abuse of Artist Information from sure Music Streaming Companies, with these DSP’s promoting this information to 3rd events with out the authorization or consent from the Artist. Our view is that sure Music Streaming Companies are exploiting this private artist information, producing monetization, and are usually not defending the artist information.

“Sure Music Streaming Companies, with these DSPs promoting this information to 3rd events with out the authorization or consent from the Artist. Our view is that sure Music Streaming Companies are exploiting this private artist information, producing monetization, and are usually not defending the Artist information.”

Commenting on the transparency round algorithms utilized by music streaming companies, Imagine argues that “the shortage of transparency round how sure DSP algorithms are pushing sure content material, we really feel, is resulting in unfair competitors. Our view is that these DSPs needs to be made accountable to offering info and readability concerning their algorithms.”

Imagine additionally claims that “sure DSPs [are] prioritizing content material primarily based on business phrases that the content material supplier has agreed to”.


Google logo

GOOGLE

In its response to the CMA’s questions posed to Google across the economics of streaming, the tech large, and proprietor of YouTube Music, presents the next abstract:

“Streaming generates substantial shopper advantages, together with a higher alternative of music – and alternatives to find new music – at a decrease price than ever earlier than.

“Streaming additionally generates important income for file labels and publishers, addressing piracy and contributing to file labels’ and publishers’ excessive revenue margins, which they will share with artists and songwriters/composers.

“Devoted music streaming companies face intense competitors: customers can select from a number of rival platorms, obstacles to entry are low, and the majors have substantial negotiating energy.”

“Dropping a licence for, say, Common’s music catalog could be deadly. Main labels due to this fact have substantial negotiating energy.”

Google

Google additionally argues that the key labels have “the upper-hand in negotiations’, as a result of, “having a full set of licenses from the key file labels is non-negotiable for streaming companies”.

Provides Google: “Dropping a license for, say, Common’s music catalog could be deadly. Main labels, due to this fact, have substantial negotiating energy. Whereas it is necessary for file labels to distribute their music on streaming companies, bargaining energy lies within the main labels’ favour.

“First, whereas all three majors maintain important rights to ‘should have’ music catalogs, streaming companies fluctuate considerably of their dimension and significance.

“Second, as outlined above, customers might rapidly and simply swap to different streaming companies if their present service misplaced entry to a number of of the key labels’ catalogs. Third, the truth that file labels – moderately than streaming companies – are making signicant income is in line with their having the upper-hand in negotiations”


MERLIN

Merlin, the worldwide rights company for the impartial label sector, argues in its response to the CMA that, “competitors within the provide of music to music streaming companies can greatest be strengthened by guaranteeing the continued competitiveness and additional development of the impartial sector”.

Merlin additionally believes “{that a} key alternative on this space” – the competiton within the provide of music to music streaming companies – “is the continued development throughout a wide range of various kinds of streaming service fashions” together with what it refers to because the “incremental companies” – companies resembling short-form audio-visual platforms that includes user-generated content material, (e.g. TokTok).

Answering the CMA’s request for what Merlin believes are components inhibiting competitors between music corporations within the streaming financial system, the indie label group summarises its views as follows:

“With the intention to achieve success, subscription streaming companies specifically want to supply all or most repertoire accessible available in the market – each again catalog and present repertoire.

“Given this want to supply a full vary of catalog, the big quantity of hit repertoire of the majors is must-have for music streaming companies.”

Provides Merlin: “This may have a knock-on impact as regards how music streaming companies negotiate with impartial file corporations, since music streaming companies might want to prioritise offers that safe entry to that must-have repertoire and consequently may have to supply lesser offers to impartial file corporations.”


PRS For Music logo

PRS for Music

British Assortment Society PRS, which represents the rights of over 160,000 songwriters, composers, and music publishers within the UK and around the globe, cites information administration as one of many greatest impacts of the expansion of the music streaming market.

In 2009, PRS says that it processed 3.8 billion traces of music makes use of. By 2020 this had grown to 22.4 trillion.

PRS additionally notes that the net streaming market has “supplied a neater path to marketplace for songwriters and composers”.

PRS provides that “that is very true on companies the place works might be uploaded by customers” and provides that the DIY market, “has been one of many key drivers of the numerous development of PRS membership over the previous decade”.

“The principle streaming companies have a major place available in the market, which means the business ramifications for rightsholders of not licensing are very excessive.”

PRS for Music

Commenting on competitors issues regarding “negotiations between CMOs and music streaming companies”, PRS notes “that the music streaming market is predominately populated by a comparatively small variety of giant worldwide corporations”.

Provides PRS: “The principle streaming companies have a major place available in the market, which means the business ramifications for rightsholders of not licensing are very excessive.

“This has led some within the {industry} to query whether or not it’s nonetheless doable to refuse a licensing request from the biggest companies. We due to this fact welcome the CMA’s assertion that, while limitations to copyright are a matter for Authorities, they’re basic to how the sector operates and will have a job in any competitors points recognized”.


Sony Music logo

SONY MUSIC ENTERTAINMENT

Sony acknowledges in its submitting that “the shift from shopping for albums to streaming particular person tracks has basically modified the underlying economics of the {industry}”.

This shift, argues Sony, has affected “remuneration fashions for artists, creators and songwriters, in addition to price and income constructions of labels and different gamers throughout the worth chain”.

Commenting on its relationship with music streaming companies, Sony calls the DSPs “essential and important buying and selling companions”.

“Sony Music’s non-controlling minority monetary investments in sure streaming suppliers doesn’t have any impression on the connection and negotiations with DSPs.”

Sony Music

Provides Sony: “With most music consumed through streaming, music streaming platforms now occupy a central position within the {industry}, and performance as the first gateway to customers. Whereas the key and established streaming platforms sometimes have extra leverage than newer or smaller platforms, our expertise is that it’s usually fairly troublesome to hunt meaningfully higher phrases even from smaller or newer gamers.”

Commenting on Sony Music’s personal investments held in music streaming companies, (Sony Music is believed to personal round 2.85% of Spotify inventory), the label states: “Minority investments in streaming suppliers doesn’t present any benefit for Sony Music”.

Provides the corporate in its submitting: “Sony Music’s non-controlling minority monetary investments in sure streaming suppliers doesn’t have any impression on the connection and negotiations with DSPs. We’d be glad to verify to the CMA that these don’t lead to any aggressive benefits for us.”


Elsewhere within the submitting, Sony additionally argues that “competitors between file labels is robust” and that, “this delivers advantages throughout the worth chain, together with higher phrases and elevated alternative for artists and creators and a extra various vary of music for listeners”.

The most important says that it additionally at the moment “instantly competes” in opposition to rivals Warner Music Group and Common Music Group, and in addition “faces intense competitors from impartial labels, A&L [Artist and Label] service suppliers and the DIY sector, together with a variety of latest entrants which are being underwritten by monetary buyers”.

Sony additionally disputes the suggestion made in final 12 months’s report into the economics of music streaming, “that bigger file labels’ ‘overwhelming market share’ permits them to extract extra beneficial phrases from music streaming suppliers”.

Sony argues that “this isn’t the case,” as a result of, “additional down the worth chain, the fast enhance within the variety of corporations getting into the sector as A&L service suppliers and DIY platforms (e.g. ADA, Imagine, Virgin, Ingrooves, Distrokid and TuneCore) implies that artists can ‘choose and select’ their stage of service and might (and do) bypass file labels altogether”.


Sony Music Publishing logo

SONY MUSIC PUBLISHING:

Sony Music Leisure (SME) and Sony Music Publishing (SMP) make it clear of their filings that they’re run independently as recorded music and music publishing divisions of Sony, and as such, SME notes in its submitting, that there “isn’t any coordination between the 2 divisions as a part of any negotiations with DSPs (that are performed bilaterally)”.

That is made all of the extra clear with SMP’s differing views on the music streaming financial system shared inside its submitting.

SMP notes that “innovation within the [music streaming] sector is strong” and agrees with what the CMA units out in its assertion of scope concerning streaming companies representing “distinctive worth for the buyer”.

SMP provides nonetheless that challenges stay “in guaranteeing that its songwriters and creators are compensated appropriately in circumstances the place the enterprise fashions (and ensuing business targets) of those platforms fluctuate significantly”.

“These tech corporations function in a method that creates distortions within the music subscription market which have contributed to a gradual erosion of the worth of music over time.”

Sony Music Publishing

The writer argues that “The tech corporations function complicated and diversified companies” and that it believes they “all share the next options,” which it provides, the CMA would “profit” from trying into:

  •  “They’ve important monetary and lobbying energy and important leverage when put next with any music {industry} members together with SMP;
  • “Music is a crucial, however not core, facet of their companies; and
  • “They don’t have to give attention to the optimisation of revenues from music choices (actually they might have incentives to supply music without cost or as cheaply as doable to assist optimise different worth creation alternatives inside their companies wherein rightsholders don’t take part).”

SMP suggests additional that “for the pureplay service(s) and for rightsholders, these tech corporations function in a method that creates distortions within the music subscription market which have contributed to a gradual erosion of the worth of music over time.”

Provides SMP: “This impact is exacerbated by the broad availability of Consumer-Generated Content material (UGC) / Consumer-Uploaded Content material (UUC) companies. These UGC / UUC companies provide a broader vary of content material to customers without cost than the paid for subscription companies that function on a totally licensed foundation.

“This usually serves to lower the buyer’s willingness to pay for a subscription service or to adequately worth a subscription service. Streaming service suppliers are additionally motivated to pay as little as doable for tune rights (as evidenced by their very public strategy to valuing these rights within the US).”

Regardless of these challenges, SMP admits that “its general revenues from streaming companies have grown over time because the streaming companies have elevated their consumer base and with that SMP’s funds to its songwriters from streaming companies have additionally elevated in mixture”.

It provides nonetheless that, “however this common pattern, at a person songwriter stage, the expansion in earnings doesn’t essentially mirror the industry-wide development”.


Universal Music Group

UNIVERSAL MUSIC GROUP:

Common Music Group writes in its personal submitting that, “the expansion of the music {industry} in the previous couple of years is trigger for optimism” and that “the digital period has finally resulted in a wholesome aggressive market”.

Like Sony Music, Common factors to the importance of the enterprise relationship between labels and music streaming corporations, noting that “file labels and the music streaming enterprise of DSPs want one another to achieve success”.

UMG provides: “From the attitude of file labels, DSPs have turn into indispensable as buying and selling companions for file labels given their significance, ever rising, as a path to market to customers.

“As a operate of this relationship of mutual interdependence, file labels and DSPs are strongly incentivised to agree phrases with one another in order to make sure an optimum expertise and inexpensive service to customers.

Continues UMG: “Furthermore, their respective incentives are fully aligned with these of artists, as a result of artists virtually universally need their content material to be accessible worldwide, and on as many platforms as doable.

“Consequently, file labels sometimes look to license to all DSPs and – in robust distinction to digital distribution in different markets resembling TV content material – there’s virtually an entire absence of unique licensing between file labels and platforms. This can be a mutual requirement, as, as a way to stay aggressive and profitable, DSPs want to have the ability to acquire licenses from all file labels as a way to present customers with a complete providing of the world’s music content material.”

“Rising the price of music streaming companies dangers rising the variety of customers that entry pirated content material.”

Common Music Group

Common additionally praises the position of licensed music companies in tackling music piracy, which it says “stays a big ongoing risk” to the music {industry}.

Elswhere within the submitting, Common means that elevating subscription costs might result in extra music piracy.

Common notes that “rising the price of music streaming companies dangers rising the variety of customers that entry pirated content material” and makes use of Netflix as a case research to clarify this.

Says UMG: “Netflix has admitted to reducing costs in nations the place piracy is extra widespread, and the latest leap in video piracy has been attributed partly to the upper shopper prices related to the more and more fragmented video streaming market.

“It’s due to this fact unsurprising that music platforms are considerably constrained by the existence and continued risk of piracy of their relationships with customers, and are very reluctant to lift costs. In consequence, the already-low retail costs for streaming companies have fallen year-on-year in actual phrases.”


Warner Music Group

WARNER MUSIC GROUP:

Warner Music Group means that, whereas music streaming has skilled explosive development, it’s nonetheless within the early phases of its potential international adoption and penetration.” It provides nonetheless, that “DSPs at the moment are important for the distribution, advertising and marketing and promotion of music”.

WMG additionally breaks down the proportion of income it earned from its agreements with DSPs in FY 2021: Spotify represented 18%, Apple represented 13% and YouTube represented 11% of WMG’s complete income.

The most important argues later in its submitting that “DSPs have important negotiating energy” and that “a small variety of DSPs management a lot of the reliable digital music enterprise”.

WMG writes that “the key DSPs both themselves or mixed with their associates are among the world’s strongest, commercially profitable entities and so they dwarf the recorded music {industry} by way of their financial weight”.

The corporate additionally factors to a handful of those corporations’ market caps (on the time the submitting was written. It’s dated February 17.) to contextualise their very own positioning within the international financial market, together with Apple ($2.82 trillion), Google ($1.82 trillion) and Spotify ($31.49 billion)

“Against this”, writes WMG, it’s personal market capitalisation is $19.05 billion.

Provides WMG: “These giant, subtle know-how corporations leverage their indispensable distribution, advertising and marketing and promotion place, financial heft and enhanced bargaining energy in negotiating licensing offers.”

“The most important DSPs both themselves or mixed with their associates are among the world’s strongest, commercially profitable entities and so they dwarf the recorded music {industry} by way of their financial weight.”

Commenting on competitors between file labels, WMG states that they “compete vigorously with each other (as music publishers additionally compete vigorously with each other) each to get shopper consideration for his or her artists and to strike the perfect offers with DSPs”.

On the subject of artist remuneration, which was mentioned in depth throughout the economics of music streaming research carried out by the cross-parliamentary Committee final 12 months, WMG notes that, “one of the best ways to develop artist royalties is to extend the income that file labels obtain from DSPs and, to do this, WMG works continually to optimise offers with present DSPs and different platforms and to drive incremental income from new platforms and licensing alternatives”.

WMG provides: “Any significant overview of competitors in music streaming should additionally study all the assorted means by which artists monetise their expertise. Artists’ revenue sources have advanced considerably in recent times. Many artists are doing nicely from streaming, though others complement their revenue from different sources, resembling touring, model partnerships, appearing or educating.

“The truth that some artists complement their recorded music revenue shouldn’t be new or significantly associated to music streaming. Even throughout the period of bodily items, not all artists made a residing completely from the gross sales of their recorded music, nor did all of them turn into commercially profitable even when they had been critically acclaimed.

“Shopper preferences play a big position; genres like rap, hip-hop and dance music profit vastly from streaming, whereas different genres, like jazz, rock, folks and classical, are streamed much less.”

 Music Enterprise Worldwide



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