Artists and Record Companies Need A Fair Digital Marketplace
Frances Moore, chief executive, IFPI
There has been much debate recently around the payments that artists receive when their music is played on streaming services. Critics have argued that artists are receiving less money than they did a decade ago in royalty payments. This is sadly true, but it needs to be placed in the context of a decline in the value of the recorded music industry of more than one-third over that period.
IFPI wanted to bring some data to the debate and undertook research – independently verified by BDO LLP – to better understand what is going on. It found that record producers have actually safeguarded artists’ incomes as best they can as they have rebuilt their businesses for the digital age.
IFPI found that while payments to artists have declined over the past five years, the decline was substantially smaller than the reduction in corresponding sales revenue. This means that artist remuneration has actually increased as a proportion of record companies’ revenues in the last five years.
The IFPI research covered payments to locally signed artists by record companies in 18 markets worldwide. It found that industry revenues in those countries declined by 17 per cent over from 2009 to 2014, while corresponding payments to artists declined by only 6 per cent. That meant the proportion of record companies’ revenues paid to local artists in those markets increased by 13 per cent over five years.
The issue is not that artists are getting lower royalty payments from digital services – they are not – but that the overall recorded music market has shrunk, which means smaller revenues for all involved.
Record producers have been anything but complacent in the face of this situation. The industry has reinvented its business models and licensed more than 40 million tracks to over 450 digital music services worldwide.
Subscription services are today the fastest growing sector of the digital business, and where these are most successful, artists are benefitting. In Sweden, where paid subscription predominates, local artists have seen payments increase by 111 per cent while corresponding record producers’ income increased by 47 per cent. A revived market is seeing payment to artists increase in absolute terms.
Second, the true value of the record company as the primary investor in artists remains too often forgotten. Record companies have maintained their vital role of upfront investment in artists. And, contrary to what some suggest, these costs have not significantly diminished in the digital age.
According to IFPI’s public data, the proportion of record companies’ income invested in A&R and marketing slipped marginally from 28 to 27 per cent between 2008 and 2013. Despite the pressure on their income, record companies have ring fenced the proportion of their revenue they spend on discovering, nurturing and promoting artists.
No other player takes the financial risk that record producers do in backing new artistic talent. In a fiercely competitive market, where the majority of recordings do not prove to be commercially successful, their investment is essential to help performers cut through to a mass audience. That is why most unsigned artists – 70 per cent in the latest survey we published – want a record deal.
Some have quoted a figure of 50 per cent of revenues from streaming services ending up with record companies, but this takes no account of the record companies’ costs. The figures quoted from French recording industry body SNEP show that after costs the producers’ share is less than that of the artists.
It is true however that artists and record producers are not being paid fairly for the use of their music. This is because user upload platforms, such as SoundCloud and YouTube, are taking advantage of exemptions from copyright laws that simply should not apply to them.
Laws that were designed to exempt passive intermediaries from liability in the early days of the internet – so-called “safe harbours” – should never be allowed to exempt active digital music services from having to fairly negotiate licences with rights holders. There should be clarification of the application of “safe harbours” to make it explicit that services that distribute and monetise music do not benefit from them.
Aside from piracy, this “value gap” is the biggest single issue affecting artists’ and producers’ income today.
The music industry has changed beyond recognition in the last decade, responding to the transformation in the way that consumers access music. However, getting a fair value for our music remains the greatest challenge facing us all.
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