Artistic Remuneration for Online Content

Jim Shannon Excerpts

Wednesday 6th July 2016 Westminster Hall

[Kerry McCarthy]

I totally agree. A few years ago I went into BPI’s offices and the staff there showed me the impact of illegal downloading on record sales, using Adele as an example. It was quite startling to see, by the second, how many hundreds if not thousands of illegal downloads there were. I said to them, “Yes, that does make a certain point, but I want to see what impact it has on the income of a struggling indie band that is on the verge of breaking through.” It would be easy for people to say, “Well, Adele is selling millions.” Yes, she is clearly very wealthy and perhaps can afford for people to access her content for free, but it is the principle, is it not? That principle should apply across the board. I have always said that it is up to artists whether they want to make their content free. If they see that making their content free online is a good move for their career, that is their choice, but it is equally their choice to be paid if they want to be paid, and people should not download illegally.

Going back to the legal streaming services, if we are to secure the future sustainability of the sector and encourage vibrant new acts to come forward, it is vital that artists can earn a decent living in the digital environment. The problem will only become more acute in the years ahead, as digital music revenues will continue to outstrip those from physical formats such as CDs and vinyl. There is a bit of a vinyl revival, but that will always be a niche area. It is illustrative that when I was talking to my teenage and early twenties nephews and nieces the other day, I found that they had never bought a CD. I think it is on the verge of becoming a redundant format.

There is an issue about how Spotify calculates payments to rights owners. It is too complex to go into detail about here, but it means that the money that we as individual consumers pay for streaming does not directly go to the bands and artists we are listening to the most, and it penalises bands with strong fan bases.

The primary cause of the problem that artists face with streaming royalties, though, lies in the contract that they have with their record label. Those contracts continue to pay artists royalties for streaming as though the stream were a physical sale of a product. They are continuing with a royalty rate from the pre-digital era, so things such as the manufacture, storage and distribution of a physical product such as a CD or vinyl album are factored into the contract. That simply cannot be justified when there is no physical product on the market.

[Jim Shannon (Strangford) (DUP)]

Is not the case that the artists now have to accept that they need to be part of the digital streaming process whether they like it or not, and perhaps be dragged screaming and shouting into a new age where they do not want to be? That is the information that I am getting back.

[Kerry McCarthy]

It is always the choice of an artist how they want to market their product. Some artists are quite happy to do it on a part-time basis and just put their stuff on SoundCloud or whatever, or are happy just to be on the live circuit. It is clear that online content and streaming services are the future of the industry, but my point is that at the moment the musicians get only about 10% to 15% of what the label receives from the streaming service, because the physical cost of a product is built in. There are some contracts that are far more favourable to musicians, but by and large they are not, which the Musicians’ Union has been campaigning on.

In almost all cases, an artist will never see any of the online royalties at all, as their contract sweeps up the rights they have to royalties from the sale of recordings until they have paid back the advance they received from the label and any expenses incurred recording and promoting the artist. I argue that a fairer split of 50:50 would seem entirely reasonable, especially as this already exists for public performance and broadcasting income thanks to the equitable remuneration right. The Musicians’ Union has argued that when performers transfer their assailable rights, 50% should be a non-assignable equitable remuneration right, with the other 50% being an exclusive right assignable to the record company, to ensure that performers receive income from digital sales and streaming whether or not they still have an outstanding balance with their record label. For their part, record labels would be able to recoup their investment from royalties assigned to them under the exclusive right.

The Fair Internet for Performers campaign is taking this issue forward Europe-wide by campaigning for an amendment to EU copyright legislation. The hon. Member for Selby and Ainsty has already mentioned what the impact of Brexit would be and whether in a few years’ time we would be free to set our own rules. I would be grateful if the Minister clarified where we are in the limbo years, as we might call them. Will we adopt the EU copyright legislation as national legislation? Does he regard the EU legislation as a practical way of adequately rewarding artists in the UK for the streaming of their recorded performances?

It is vital to ensure that income streams actually reach creators, to ensure not only that performers can make a living from their art, but that corporations continue to have that talent to exploit, and for the future of new music and art, which I think all of us in this room would agree is incredibly important.

--- Later in debate ---

[Jim Shannon]

If the streaming services become over-regulated, which is what this debate is very much about, it could well be the case that, as the Financial Times has said:

“It is just as likely that consumers would sate their appetites for free content by returning to piracy instead.”

Does the hon. Gentleman share that concern that the Financial Times, and many of us in this Chamber, have?

[David Warburton]

I not only share that concern but think there is a concern that the streaming sites where the content is available for free are, in effect, pirate sites; they are providing the service that pirate sites would otherwise provide. Just because users might be pushed to other pirate sites, that does not mean we should not address sites that seem legitimate and are also providing the service for nothing.

Since YouTube is protected and shielded by safe harbour, other streaming sites find it harder to encourage users to cough up and pay for a subscription. Why would anybody pay if the content is available for free? Fundamentally, there is a clear transfer of value taking place from the content creator to the online provider. If there is an obvious transfer of value, it must be made clear that the online provider has a duty to compensate the creator accordingly. This is not much like the last time the industry faced the digital world. That time the industry closed its eyes, covered its ears and pretended it was not happening, but this time there is little doubt that streaming music is likely to be the key destination for consuming the products of much of the music industry.

The emerging business model is, of course, the subscription service, because it is the ultimate business model—it has clear, definable revenues, near certain cash flows and transparent growth. But as the streaming services see subscription revenues surging and advertising revenues bulging, the artists—the fundamental source of all that—become pretty much forgotten. That is patently wrong, and we must address it.

Government have their part to play. If the concept of active and passive content hosting is included in the Digital Economy Bill—I am sure we all look forward to hearing the Minister’s views on that later—that could well prove to be the answer, preventing active hosts from hiding behind safe harbour. Government must now work with the industry and the platform providers—the streaming services, the hosts and the content providers—to build a consensus and a model that is sustainable for all parties and that, crucially, allows those who uncork and create the joy, upon whose efforts the whole edifice is built and whose sound and fury draws us all in, to be properly rewarded and have proper control over all that they create for the rest of us.

--- Later in debate ---

[Jim Shannon (Strangford) (DUP)]

I just want to make a small contribution to the debate. I congratulate the hon. Member for Selby and Ainsty (Nigel Adams) on presenting the case here in Westminster Hall and I am sorry I was not here at the beginning of the debate; I had another engagement at 9 o’clock and it went on a wee bit longer than I thought it was going to. However, I am adding this small contribution to support what he and other hon. Members have said.

According to the chief executive officer of Sony, streaming services such as Spotify are the “final destination” for the music industry, if it is to survive. Some artists are vehemently against Spotify and the like, but the reality is that, if they do not move with the times—this is the point that I tried to make in my intervention—they will be left behind. There are some concerns about that. I am not saying that we must accept the inevitability of everything in this world, swallow hard and move on, but sometimes the hard facts are in front of us and we have to look at them.

Global music sales slipped by some 0.4% in 2014 to £15 billion. The industry body, the International Federation of the Phonographic Industry, reports that download sales, largely through Apple’s iTunes, slumped by 8%, which shows that there have been changes in the industry and to how music is delivered. Total digital revenues rose by some 6.9% to £6.9 billion, with streaming services such as Spotify and Deezer increasing by 39% and delivering £1.6 billion of revenues.

Artists who are unhappy with the development of digital streaming services will have to accept the reality sooner or later. They must—and I say this with great respect—get into the tent and influence their relationship with streaming services, rather than having no input from a position of protest. If the emerging streaming services become over-regulated, as the Financial Times said,

“It is just as likely that consumers would sate their appetites for free content by returning to piracy instead”.

The purpose of this debate—as it often is in Westminster Hall—is to get a balance and to see whether we can find a way forward. It is about solutions and not about negativity. Government statistics show that 26% of users have accessed content illegally. Those are the facts. It must be unbelievably easy to do so and it suggests that the Financial Times’ prophecy would be fulfilled should those in the music industry, and in the new media and streaming services, fail to strike the right balance and find the right way forward.

It is only right that all people are compensated for their labour. Even the richest of artists deserve to have intellectual property and copyright rights respected under the law. It is important to strike the balance, for there is much to lose for either side if they fail to do so.