Safeguarding the Income of Musicians

By Horace Trubridge, Assistant General Secretary, British Musicians’ Union, London, United Kingdom

In the mid-1990s, technological changes started to transform the way we access and consume music. It became clear that creators operating in the digital marketplace needed additional safeguards. To this end, authors, performers and record companies (“phonogram producers”) were granted the exclusive right to authorize or prohibit the use of their works “through interactive networks such as the Internet.” The so-called “making available right”, as contained in the WIPO Copyright Treaty (WCT), the WIPO Phonograms and Performances Treaty (WPPT) and more recently the Beijing Treaty on Audiovisual Performances, seeks to enable new uses of protected content in the digital marketplace and to help right holders fight piracy.

But despite the best of intentions, many believe the way this right is now being applied is failing performers because of the dynamics of the music industry. A growing number of musicians are calling for the right to be reviewed to ensure it serves its intended purpose, namely to deliver an income stream for artists in the same way that the very successful right to equitable remuneration does.

Legislators and academics have long held the view that the most valuable rights afforded to performers are exclusive rights, such as the right to reproduce and distribute a work. These rights have value, can be traded and, until recently, had to be specifically assigned to allow third parties to exploit them.

The problem for featured artists is that once these exclusive rights have been assigned to a record label, they are subject to the terms of their recording contract with the record company.

Artists are not getting their fair share

In almost all cases, no money flows to artists from the exploitation of their exclusive rights until they have paid back – through royalties from the sale of recordings – all of the money that the record label has either advanced to them or paid out in recording costs. The grim reality is that most artists never recoup these sums and never see any artist royalties. That, however, does not mean that the record label does not make any money from this arrangement.

In simple terms, if the artist is advanced GBP100,000 to cover recording costs and a personal advance, and goes on to sell 50,000 records earning a royalty of GBP50,000, the artist still owes the record label GBP50,000.

The record label’s share of proceeds from sales will typically be three times greater than that of the artist. So while the artist still owes the label GBP50,000 the label has earned GBP150,000 and is GBP100,000 up on the deal.

The jewel in the artist’s crown

In 1996 performers in the UK were granted the right to equitable remuneration for the public performance and broadcast of their recordings (often referred to as “fixed performances”). This right cannot be assigned to a third party and cannot be swept up in recording contracts. As such, performers enjoy royalty payments from the very first airplay of their recordings. In the UK, this right is administered by the music licensing organization PPL. The money that PPL collects from license holders and distributes to performers has become an essential income stream for featured and non-featured artists alike.

In the early years of their careers, artists are extremely vulnerable to third parties seeking to bind them to long-term contracts requiring them to sign away all their rights. The balance of power in the negotiation between a fledgling artist and a major record company is so heavily weighted towards the record company that the artist rarely comes out with a favorable deal. The record company typically sweeps up all assignable rights in the recording contract to recoup any and all expenses associated with making and promoting the artist’s recordings. Any personal advance received by the artist is often swallowed up in repaying loans and buying better equipment. This leaves them reliant on the income from live performances and from the right to equitable remuneration to survive. The equitable remuneration right has become the jewel in the crown of performers’ rights because it is non-assignable under the law.

New business models throw up unforeseen issues

The valuable making available right was granted to performers and producers in 1996 through the WPPT, and introduced in the European Union in 2001. Streaming services such as Spotify and Deezer did not exist back then. No one could have predicted that they were on the horizon, let alone that they would become so popular.

The making available right was implemented when music lovers were turning to iTunes and other digital platforms to purchase and download their music. It was brought in to deal with this change in consumer behavior, and did so effectively. Many countries (including the UK) implemented the making available right as an exclusive right, assignable to a third party.

Record labels throughout the world assumed that the making available right was among the rights normally included in their contracts with artists, paying them the same royalty rate as that paid for a physical sale. Whether the record companies have a legal right to assume such assignment of the making available right is questionable and the subject of ongoing legal challenges in the Scandinavian courts.

Agreements between record companies and artists traditionally include clauses conferring “all rights existing now or that come into existence in the future in all territories of the world, the universe and its satellites” to the record company. The labels are relying on this wording to defend their assumption of ownership of the making available right.

The cost of sending a sound file to a digital platform is miniscule, yet labels maintain it is fair to pay artists the same royalty as that paid on CD sales.

Exclusive rights versus non-assignable rights

Had the right to equitable remuneration been implemented as an exclusive right, doubtless the assignment of that right too would have been assumed by the labels. Leaving aside this question, paying an artist the same royalty for the sale of a digital download and for a physical sale is clearly unfair. A record company incurs substantial costs in selling physical products, including manufacture, storage, transportation and distribution, but in the sale of a digital download these costs disappear. The cost of sending a sound file to a digital platform is miniscule, yet the labels maintain that it is fair to pay artists the same royalty as that paid on CD sales.

And poor royalty payments become an even bigger problem when the making available right is applied to streaming services.

The rise of streaming services

Streaming is a phenomenal success. It offers music lovers the opportunity to access an enormous catalogue of music either free (supported by advertising) or at a very low price (GBP9.99 a month in the UK). Moreover, there is growing evidence that at last, these platforms are leading people away from illegal sites and helping to reduce music piracy. This is all very good news for the music industry. But of concern to performers is the fact that record labels are now applying the making available right to streaming services.

Music streaming is a very different service from download-to-own services like iTunes. It is also a very different consumer experience.

In reality, streaming services are a sophisticated version of radio; radio for the new generation, if you like. Consumers using Spotify do not feel they are purchasing the music they listen to in the way they do when using iTunes. The experience is more akin to listening to a broadcast and yet, because listeners can tune in at any time and any place, the law treats streaming as a form of making available.

Lawyers tell us that the fact that the listener can pause, skip, and so on means that streaming cannot be classed as a broadcast, only as making available. Hmm, really? The fact is that the most popular services on Spotify are the curated playlists where the listener chooses, for example, “dinner jazz” or “fitness” and a selection of music is then streamed to their device. The listener only knows the type of music (not the specific tracks) he or she will be listening to. Is that any different from listening to Jazz FM or Planet Rock or even the chart show? When you listen to the chart show on the radio, you may well know exactly what songs you are going to hear, you just don’t know the order of play. As a consumer experience, is that any different from listening to the curated REM playlist on Spotify?

A fair share for musicians

Another important point to consider is the impact of streaming on radio as we know it today. As mentioned above, the right to equitable remuneration has become a significant source of income for performers whose work is broadcast over the airways. But with young people increasingly turning to YouTube and streaming services to listen to music on their portable devices, will the popularity of radio wane? If it does, the license fees collected by PPL from broadcasters and others will decline over time, as will the money due to performers from the right to equitable remuneration.

A future where record companies continue to put streaming royalties on a par with those for physical sales, and where income flowing from the right to equitable remuneration diminishes, is very bleak for performers.

A fifty-fifty solution

How do we fix this? There is growing pressure to change the way the making available right has been implemented in various countries. In late 2014 unions representing performers, featured artist coalitions and performers’ collecting societies met in Budapest, Hungary, under the auspices the International Federation of Musicians (FIM) and agreed to lobby for a fairer share of digital income for performers. This group believes that if the making available right is to deliver a guaranteed income stream to performers – the underlying reason for its creation - it needs to be changed.

We believe that 50 percent of the making available right should be an equitable remuneration right, non-assignable and administered by a collecting society, with the other 50 percent being an exclusive right assignable to the record company. This would ensure that performers receive income from digital sales and streaming regardless of whether they 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 major record companies have lost a huge amount of money as a result of piracy and illegal file sharing. But now that consumers are choosing streaming instead of “free” sources, it would be a crying shame if the majors were allowed to continue to claw back their losses from the pockets of performers.