Findings Points to Market Imbalances in the Use and Remuneration of Music by Digital Platforms
A new report titles “Fair Compensation for Music Creators in the Digital Age” has added evidence supporting songwriters’ call for fairer rules and greater transparency in the distribution of royalties by digital music services. The report has been released today by the International Council of Creators of Music (CIAM), with the support of the International Confederation of Societies of Authors and Composers (CISAC), Music Creators North America (MCNA) and the Society of Composers, Authors and Music Publishers of Canada (SOCAN).
Unveiled last night at CIAM’s 2014 Congress in Nashville, Tennessee, the study was written by Pierre Lalonde, an economist with extensive experience in cultural and copyright issues. It presents comprehensive, empirical evidence suggesting that an alternative to current business practices is urgently needed. The report is available in four languages.
The study reveals key findings about the structure of the digital streaming market.
1. Music is undervalued by digital music platforms.
The current level of revenues paid by music-streaming services to rights holders is between 60% and 70%. According to the author of the report, Pierre-E. Lalonde, this amount undervalues music. With these services poised to become the predominant model for music consumption in the future, the remuneration paid out needs to be re-balanced in favour of rights holders, concluded Lalonde. He indicated that the current level of remuneration is inadequate given the dependency of these services on music content.
The study recommends that no less than 80% of gross revenues from all sources paid to all rights holders would offer fairer compensation for the overall use of music by streaming services.
2. The split in revenues between the different sets of rights holders is imbalanced
A combination of regulatory constraints, market imbalances and situations where major record labels negotiate with digital services for all categories of rights holders, has led to a significant disparity between the revenues paid to record labels and to creators. In the business of streaming, the split of monies from streaming platforms is geared more favourably towards record labels and performers vs. songwriters and music publishers.
The study recommends a more equitable division of revenues between the various rights holders, with a 50/50 split between recording and composition.
3. Licensing deals with streaming services lack transparency
The lack of transparency in the negotiating process between record companies and streaming platforms, and the opaqueness of many other aspects of the current value chain, leaves artists and songwriters in the dark about much of their current situation.
The study recommends that all parties should have total access to any and all pertinent information that could impact remuneration.
The study concludes that a more balanced business model is needed in order to ensure the sustainability of digital distribution services for music and guarantee a fairer remuneration to all rights holders.
Without sufficiently supporting the very group of people who provide them with the creative content that drives their business, these streaming services may be undermining their future sustainability. – Pierre Lalonde
The study also proposes a departure from a reliance on government agencies and policymakers to ensure equitable compensation and suggests that a negotiation process between all stakeholders is the way forward.
Inspired by the Fair Trade movement for goods and services, the study states that a similar model could be applied to the digital music distribution sector. Through its success in the coffee industry, the Fair Trade movement has clearly shown that, when provided with the possibility to participate in an equitable compensation model that remunerates people who produce consumer goods at a fair market rate, end-consumers will opt for ethically produced goods, even at a slightly higher cost.
To provide more equitable remuneration for creators, the Fair Trade Music movement should be based on three main principles:
- Inclusiveness – All parties subjected to the outcome of the negotiations with digital music platforms – creators included – must be fully involved in the process.
- Fair compensation – If streaming is to be sustainable for the platforms themselves, those who provide the content, songwriters, composers, performing artists, music publishers and labels should be properly and fairly compensated.
- Transparency – Openness and transparency between all parties trading with digital music platforms is necessary to ensure a fair system that does not discriminate against creators.
The author states that a more equitable future lies in the application and acceptance of simple ethical practices by all who inhabit the music landscape — from creators to consumers and all those in between. The success of the “Fair Trade” movement has demonstrated consumers’ willingness to make ethical choices when given a simple, understandable option to do so.
“We creators believe that a non-governmental approach, such as the Fair Trade Music Project, could stimulate studies and awareness of the issues related to fair compensation in the digital field,” said Lorenzo Ferrero, chair of CIAM. “The conclusions of this study are extremely important for us. They are not pipe dreams, but represent the findings of a comprehensive economic study and we hope that music lovers will soon be allowed to make educated choices that reflect the commercial and cultural value of music creation.”