"They have to keep commodifying things to keep the share price up, but in doing so, they have made all content, including music and newspapers, worthless, in order to make their billions. And this is what we want?" - Thom Yorke, Radiohead
The music industry has undergone a massive transformation over the past 20 years, as consumers and corporations increasingly favor digital distribution over physical music mediums. However, as CD sales dwindle and digital streaming services grow, music publishers and songwriters are paying the price.
Until 1998, digital rights were unregulated, resulting in publishers and songwriters receiving zero royalties for the use of their work on the internet, including downloads, audio streaming, video streaming, and satellite radio. The Digital Millennium Copyright Act (DMCA) was implemented to prevent internet resources and platforms from continuing this practice, to ensure that copyright owners were paid for the use of their work in digital formats. At the same time, the infamously low rates paid by streaming services continue to threaten the livelihood of songwriters, as they receive a minuscule fraction of the royalties they earn from traditional radio, television, and physical music sales.
The music streaming business has grown dramatically over the past few years, now passing the milestone of 100 million paying subscribers globally. Reports indicate that the U.S. music industry is on track to experience a second consecutive year of growth, which hasn't occurred since 1999. And this expansion shows no signs of slowing down. In fact, Goldman Sachs predicts that streaming revenues will almost double between now and 2020. However, the National Music Publishers' Association (NMPA) reports that for every $6 streaming companies pay to record labels, songwriters and publishers only receive approximately $1.
The Dangers of Safe Harbors
Another massive complication in the fair distribution of digital royalties is the exploitation of the DMCA's "safe harbor" provisions. The concept is to protect online service providers from liability for copyright infringements by their website users, provided that they promptly remove content when a copyright owner informs them of infringement. However, many music industry experts believe that YouTube, one of the largest purveyors of on-demand digital music, evades paying fair market rates for the use of copyrighted content by exploiting the DMCA's safe harbor. According to a report by the Phoenix Center for Advanced Legal & Economic Public Policy Studies, market-based royalties for subscription-based services are approximately eight times higher than those paid by YouTube.
Research indicates that music accounts for 40 percent of YouTube's views, clearly making it a vital component of its platform and advertising revenues. However, it appears that the music recording industry is losing out due to distortions in the market permitted by the current regulations. According to industry data, a subscription music service pays the recording industry approximately $0.008 per song play, while YouTube pays only about $0.001 for the same play. On-demand services like YouTube are taking advantage of safe harbor permissions to negotiate licenses at an unfairly low rate based on a split of advertising revenue, thereby treating music as a commodity and avoiding the fixed per-play royalties typically seen for streaming services.
Taking It To Court
While it's encouraging to discover that the U.S. music industry is experiencing growth if artists aren't paid fairly for the use of their work on streaming services and other digital platforms, how can they earn a reasonable living that will enable them to continue creating music? Fortunately, there may be a light at the end of the tunnel. The U.S. Copyright Royalty Board (CRB) is currently determining details of the country's mechanical royalty rates for the next five years, and the global music community is joining together to rally for a positive outcome. As streaming increasingly becomes a primary method for the distribution of music, the results of these proceedings are crucial for rights owners.
The NMPA, along with the Nashville Songwriters Association International (NSAI), are acting on behalf of a united music community in an attempt to increase the rates paid to artists by streaming services. On the other side, technology companies like Apple, Spotify, Google, and Pandora are presenting their arguments as to why these rates should be kept at such a low level. For streaming services, the NMPA and NSAI propose a determination based on a per-stream rate, or on a percentage of advertising/subscription revenues, or both. Following the completion of the hearings, the CRB has until December 15, 2017, to determine the rates that will be in place for the next five years.
Pledging to work "to achieve better, fairer royalty rates for all songwriters and music publishers," the NMPA is asking the CRB "to adopt a structure that recognizes the inherent value of a song, the value of a subscriber's payment to access those songs, and all of the revenue that digital services generate from offering your music."
The NMPA and NSAI urged songwriters to put their name on an open letter to the technology giants and big streaming platforms. "As songwriters, we count on you to deliver our music to the fans who love it," the letter says. "We appreciate the innovative platforms you have developed to do this. However we must voice our outrage at the way you are devaluing our work in the process. Currently, you are fighting to pay us as little as possible in the Copyright Royalty Board proceedings. This is alarming not only because it threatens our livelihoods and ability to continue our craft, but also because it tells us that instead of being our business partners, you choose to be our adversaries."
Over 4,000 songwriters have signed the petition to the CRB, including Bruce Hornsby, Herb Alpert, Paula Cole and Desmond Child.
Choose Your Partners Wisely
It's clear that some corporations use music to attract consumers, but unfortunately, they remain reluctant to pay royalties to support the music industry. Although the digital revolution is helping large technology companies and streaming services thrive, the distribution of digital royalties remains complex, with rights owners being underpaid for their work.
Although these industry realities may appear grim, fortunately, there are digital platforms and streaming services that are supportive of songwriters, making it essential to choose digital business partners wisely. Some of the publishing and distribution services that are known to help rights owners effectively track royalties and generate income include CD Baby, Kobalt, the Orchard and Tunecore, all of which are built on a model of transparency and fair rates for songwriters. And the success of the model is often determined by the technology behind it.
The recorded music industry is becoming increasingly multifaceted as digital platforms and streaming services rapidly take over the market, and it proves to be tough for regulators to effectively keep up with the evolving landscape. However, as the organizations representing songwriters bring the current data to the CRB to consider in their determination of future royalty rates, music creators can remain hopeful that the industry will be singing a merrier tune by the end of this year.
About Sergey Bludov, Senior Vice President, Media & Entertainment
Sergey Bludov is Senior Vice President of Media and Entertainment Practice at DataArt. In this role, he oversees key projects, manages major client relationships, plays an essential role in developing sales strategy and ensuring revenue growth. With extensive technical background and deep commitment to the media industry, Sergey shares innovative insights in various publications. In his 10 year career with DataArt, Sergey has held a variety of leadership positions, building exceptional client teams and ensuring immaculate execution and delivery of high-profile projects serving music technology, digital and book publishing services. Sergey earned his master of science degree in computer engineering from the prestigious National Aerospace University 'Kharkiv Aviation Institute' in Ukraine.
DataArt is a global technology consultancy that designs, develops and supports unique software solutions, helping clients take their businesses forward. Recognized for their deep domain expertise and superior technical talent, DataArt teams create new products and modernize complex legacy systems that affect technology transformation in select industries.
DataArt has earned the trust of some of the world’s leading brands and most discerning clients, including Nasdaq, S&P, United Technologies, oneworld Alliance, Ocado, artnet, Betfair, and skyscanner. Organized as a global network of technology services firms, DataArt brings together expertise of over 2,200 professionals in 20 locations in the US, Europe, and Latin America.