World Intellectual Property Organization looks at streaming remuneration for performers
Streaming described by some as having ‘saved’ the music industry, but performer compensation – particularly for session musicians and featured artists – is either paltry or non-existent.
A new study from the World Intellectual Property Organization (WIPO) offers insights on how this might change.
Guest post by Chris Castle of Music Technology Policy
One potential solution to the crisis with performer compensation from streaming is an expanded remuneration right paid directly to performers and featured artists by streaming platforms. Remember–the session musicians and vocalists you hear on streaming platforms get nothing and all but a handful of featured artists get next to nothing.
Thanks to the support of the American Federation of Musicians and the International Federation of Musicians, the World Intellectual Property Organization commissioned a policy study on this subject for consideration by WIPO’s Standing Committee on Copyright and Related Rights that I co-authored with the noted economist, Professor Claudio Feijoo. (The study is available here.) WIPO has never before commissioned a study on the economic effects of streaming on performers, and I think we should all be appreciative of WIPO’s response.
I was pleased to see the study quoted in the recent letter to UK Prime Minister Boris Johnson from the Rolling Stones, Sir Tom Jones and many others calling on the PM to support streaming remuneration according to the BBC.
We considered the pros and cons of a number of potential solutions, which are summarized in this table from the study. Streaming remuneration paid by platforms was the main recommendation for a number of reasons:
–streaming remuneration helps to balance the extraordinary growth in share price by companies like Spotify. (Apple is approaching a $2 trillion market capitalization and still pays session players nothing for streams on Apple Music).
–enterprise playlists are increasingly a substitute for radio by Spotify’s own admission yet pay nothing to non-featured performers.
–streaming remuneration does not expand the compulsory license and leaves private contracts in place.
| Solution | Pro | Con | Further comments |
| Streaming Remuneration Paid By Platforms Through CMOs | Does not require additional transaction cost as matching and payment information already exists at CMOs; does not require renegotiation of licensing agreements or disrupt current licensing practices; platforms are already paying similar royalties in certain territories; recognizes value transfer from all performers to platforms; helps to preserve local culture by compensating both featured and nonfeatured performers | Platforms may seek to offset streaming remuneration payments against catalog license revenues; platforms may seek to expand compulsory licenses; additional operating cost for platforms; | Flexible solution that Member States may elect to implement. Benefits both featured and nonfeatured performers. Mandate may exclude deduction from existing licenses and may make payments non-waivable. |
| Status Quo—continue market-centric model unchanged with voluntary experiments in fairness-making royalty methods (SoundCloud and Apple, for instance) | No disruption to streaming ecosystem, locks in market-centric royalty model, allows market forces to drive change (e.g., SoundCloud fan powered royalties and Apple messaging pro-artist royalty rates) | Favors major labels and their featured performers, nonfeatured performers paid zero, does not respond to grassroots campaigns by featured and nonfeatured performers; burdens local repertoire and local culture (see concerns about streaming music raised by Heritage Canada and Canadian Parliament in current consideration of Bill C-10[1]) | Do not change and allow market forces to impact royalty rates through grassroots protests against streaming royalties like #BrokenRecord and #IRespectMusic campaigns and potentially litigation |
| Voluntary change in label streaming rate policy and Beggars (for instance) style forgiveness of unrecouped balances | Fairness making move so that producer unilaterally updates all legacy contracts to current rates. Simple to pay more than contract requires, can be implemented quickly, low transaction costs. Forgiveness of unrecouped balance occurs after a fixed period of time. (Beggars model forgives 25% after 15 years). | Does not change the underlying payments to featured performers, does not compensate nonfeatured performers. Might be arbitrary and subject to sudden changes. | Labels should consider before legislation requires a change in response to grassroots protests (see DCMS Inquiry). Nonfeatured performers are not benefited. Compatible with other models. |
| Solution | Pro | Con | Recommendation |
| Mandate review of royalty statements and systems by independent accountants or “special masters” | Biggest point of failure in royalty reporting is at the platform, so review of systems by independent accountants and experts would increase transparency and help to reduce third party fraud. Expert review would be in addition to SSAE 16 type review. At a minimum, public accounting firms should be required to publicly disclose systems reviews undertaken as part of audited financials. | Biggest negative would be cost, but in the long run would potentially reduce the cost and increase the efficiency of individual audits. Might be accomplished through disclosure and rebalancing of duties of public accounting firms. | Member States may consider legislating transparency. Nonfeatured performers are not benefited. Compatible with other models. |
| Adjust corporate governance at streaming companies to make them more responsive to shareholders (such as eliminating dual class stock in publicly traded companies) | Allows shareholders a meaningful voice in corporate governance denied by “supervoting” shares such as Spotify’s 10:1 insider shares, allows fans or users an opportunity to be heard by board of directors | Does not by itself change underlying payment issues for either featured or nonfeatured performers | Member States may consider as a general matter depending on existing corporate governance laws and exchange rules. Nonfeatured performers may not be benefited. Compatible with other models. |
| Voluntary User Centric Share of Revenue Royalty methods | Likely to allow users to have transparency as to where their money goes; perceived greater fairness for featured performers | Costly to implement due to transaction costs of renegotiating all licenses. May just reallocate revenue without increasing the pie; does not recognize the value transfer from performers to platforms in market valuation and share price. Does not compensate nonfeatured performers. | Allow platforms to experiment with different models. Nonfeatured performers are not benefited under models tried to date. |
| Fan-to-performer Direct Digital Gifts | Does not require changing licensing agreements for services and producers; payments to performers can be made directly outside of recording or distribution agreements; if broadly established, could include both featured and nonfeatured performers. | Excludes producers from compensation scheme; requires performers to sign up to accept payment; some services take a cut some do (like Tencent) and some (like Apple) do not take a cut if true gift and not disguised in-app purchase | Allow platforms to experiment with different models. Nonfeatured performers could be benefited. Member States may consider legislation to curtail platforms taking a cut of digital gifts. |
| Extended collective licensing of the exclusive right of making available on demand | Rebalance relations between stakeholders; guarantee a remuneration for all categories of performers through collective management | Limited protection for performers when opt-out is possible; needs conclusion of new licensing agreements; will affect the perimeter of licensing agreements concluded between labels and platforms | Would conflict with existing contracts, increasing litigation with uncertain results; non-retroactive application with limited effects |
| Compulsory collective management of the exclusive right of making available on demand | Rebalances relations between stakeholders; guarantees a remuneration for all categories of performers through collective management; protects all performers from unbalanced transfer of right | Needs conclusion of new licensing agreements; will affect the perimeter of licensing agreements concluded between labels and platforms; deprives featured performers of their direct capacity to negotiate with labels through individual contracts | Would conflict with existing contracts, increasing litigation with uncertain results; non-retroactive application with limited effects |
[1] House of Commons of Canada, House Govt. Bill C-10 (43rd Parl, 2nd Sess., Nov. 3, 2020) available at https://www.parl.ca/LegisInfo/BillDetails.aspx?Language=e&Mode=1&billId=10926636&View=1
