It was billed as the final session for the DCMS Committee’s inquiry into the economics of streaming with the three big DSPs all giving evidence. However, Culture Minister Caroline Dinenage was forced to pull out so will now appear for an encore at a later session.
Many of the same issues were raised with Spotify, Apple Music and Amazon Music, including a fair deal for artists and songwriters. Here’s our round-up from the parliamentary session…
Purely coincidentally, Spotify staged a lavish virtual event 24 hours earlier in which artists including Khalid, Mxmtoon and Lauv spoke about the life-changing impact of the streaming platform. That was in contrast to evidence heard previously at the DCMS Committee inquiry from Nadine Shah.
MP John Nicolson opened proceedings in the latest session by suggesting “musicians are mostly miserable because of the system and the way that it operates”.
“I would take issue with the fact that every musician hates the model,” said Horacio Gutierrez, head of global affairs and chief legal officer, Spotify.
“I think there are a number of data points that, when you look at it, you would actually see that on the whole the industry is at a point of growth and a point of recovery from a point that was brought about by online piracy. If you look at membership of PRS For Music, the membership has grown from 65,000 songwriters to 140,000 songwriters [in a decade]. And if you look at the revenue that has been generated [from streaming], it’s billions of dollars of revenue.”
Gutierrez also highlighted the growing pool of artists making up 90% of streams: 16,000 in 2015 to 57,000 in 2020. He suggested that the streaming economy works “because of discovery, because of the ability of artists of all kinds to find an audience on the service”.
All the execs had the benefit of previous sessions to prepare, and they could also make the case that it’s largely up to the labels how they share streaming revenues with artists (although the DSPs determine the payments model).
“I know streaming is having a positive economic impact on artists,” said Gutierrez, who suggested that the real issue is how revenues “trickle down” via the various intermediaries.
When he was probed about a 2017 licensing deal that meant UMG would give the DSP a royalty discount if it hit growth targets, Gutierrez coolly suggested that artists would benefit from the investment that flowed from that deal and enabled global expansion.
“On the whole they are economically better off by having done the deal,” he said in response to that question, which Universal Music UK boss David Joseph faced at the opening of the major labels’ session.
I know streaming is having a positive economic impact on artists
Gutierrez was grilled on Spotify’s failure to achieve profitability, and whether it would look to cut costs on its royalty payments in future.
“We really don't look at that as an opportunity for us to squeeze margin, we look to create new opportunities to create wealth for everyone in the system,” he said.
He also rebuffed suggestions that the majors’ shareholdings in Spotify – current and historic – was a concern.
But there will still questions about whether artists were getting an “equitable” return based on the revenue market share model. Should Spotify embrace user-centric payments?
“We would definitely be open to looking at alternative models,” said Gutierrez. “In the case of the user-centric model, it is one that we are open to [discussing]. We recently participated in a study of the model. The initial research of the user-centric model doesn't really show a dramatic shift in the way that many thought that it might.
“But on the other hand, if musicians and artists in general prefer the model, we would support doing the initial research and moving into that.”
But what Gutierrez appeared to give, he then took away.
“Just keep in mind, a transition to a model like that would require not only a decision on the part of Spotify,” he said. “Every licence agreement that we signed with every rights-holder all over the world would have to be transitioned into that model. So it is not a trivial transition. But if people felt that it was a model that would be more equitable and more beneficial, we would absolutely be open-minded about it.”
Despite Spotify’s market leadership, Gutierrez referred to the challenges the DSP had faced in getting the industry on board and took aim at main rival Apple Music and its tech war chest.
“Not every music streaming company is fortunate enough to have Apple’s economics,” he said. “So for some of us, we're struggling to turn a profit. If you think of SoundCloud, who participated in the prior hearing, or some of the other pure-play streaming companies like Deezer, I think it is important that whatever solution is developed is not based on the economics of other companies who can afford to subsidise the music industry, because they have profits coming from unrelated industries.”
When MPs raised the ad-funded free service – which is unpopular with parts of the industry – Gutierrez said it was “crucial” for Spotify’s growth, as the company could not rely on sales of iPhones or Prime membership like its main rivals.
“The balance that we have to strike is one in which music doesn't become unaffordable to consumers and that we are pushed back into online piracy scenarios,” he said. “Obviously, the economics of every market are different.”
As Music Week reported this week, Spotify has just confirmed it plans to launch a higher-priced HiFi tier for audiophiles.
Overall, it was an assured performance by Gutierrez, who even amused the committee by referring to Spotify podcast duo Prince Harry and Meghan Markle as an “act”.
Apple was in a fairly strong position ahead of this hearing. It’s on record as paying the highest streaming rate, based on calculations of its royalty payments, and it doesn’t operate a free service with paltry returns for rights-holders. It’s also been at the forefront of digital music since 2003 with iTunes.
Elena Segal, global senior director of music publishing at Apple, made these points eloquently from her spotless kitchen.
However, the question of Apple running a music service as a loss leader simply to sell iPhones has come up during the inquiry. When Damian Green MP asked if there was scope to switch to a different licensing model comparable to radio, Segal countered that it would “dramatically affect the economics of our service”.
“From our standpoint, the most important thing is to have a healthy overall creative ecosystem that's sustainable into the long term,” she said. “So something that will require some dramatic shift in the economics, such that it's no longer a viable business, I think would have a negative effect for all stakeholders. I'm not sure that's really what anyone should be aiming for.”
When Green asked if Apple’s finances were really that delicate, Segal stressed that it’s a “narrow margin business” and “we already pay more than other services”. According to widely circulated figures, Apple Music pays about £0.0059 per stream (0.59 pence), while Spotify pays up to £0.0038 and YouTube pays just £0.00052.
In a previous session and written evidence, YouTube made the startling claim that its global payments to the music industry suggested it was on a level footing with Spotify as a source of revenue for the music industry. However, the committee heard that YouTube paid UK labels £35 million last year, compared to Spotify’s £474m for the UK music industry in 2020.
“It's challenging to compete with free,” Segel told MPs. “It's always been challenging, whether it's legitimate or illegitimate. And it's challenging to compete on an un-level playing field.”
Asked to explain her objections to YouTube, Segal said: “The fact that they don't necessarily have licenses for all the music that they use and they don't need to. And even when they do have licences, the amount they pay, because of the way their business model is set up and the way the tarrifs work, is less. “
The most important thing is to have a healthy overall creative ecosystem that's sustainable into the long term
Apple is such a giant within music, that Segal had to point out several times that she was not responsible for the areas under discussion. But she acknowledged concerns about unlicensed music apps on Apple’s App Store.
“We have a very large number of people whose responsibility it is to review every app, before it goes up,” she said. “They check for compliance with our app store guidelines, which require that people have licences for any music that is used. There's a very large number of apps that do not go up, because they are found not to comply with those guidelines.
“There's also a monitoring process to check that apps haven't been changed without us knowing, and any update to an app gets checked as well. And then on top of that, we also have a robust notice-and-takedown process. So we're trying to hit it as hard as we can from both ends. It's something we care greatly about. And I think we're doing a great deal to prevent a lot of harm.”
Committee chair Julian Knight tried to suggest that Apple (and other DSPs) have now been playing the saving-the-industry-from-piracy card for years. But Segal insisted that Apple believes in a “healthy creative ecosystem”.
“We want creators to be able to create, we've always said that music is in our DNA and we really mean it,” said the Apple veteran.
While Apple Music and Spotify sent senior execs, the most familiar face for the UK industry was Paul Firth – a former Music Week cover star, no less.
In fact, some of his arguments may well be familiar to Music Week readers, as Firth has made the case for streaming since Amazon Music Unlimited launched in 2016. Amazon’s director of international music told MPs about company’s ambitions to make a subscription service more accessible, so that it could appeal equally to his teenage son and 82-year-old mother-in-law.
While questions were raised about Amazon’s motives to simply buttress its Prime membership model with music (a subscription is just £7.99 for Prime customers), Firth insisted it was a “meaningful business”.
“I'm convinced there's still space in the marketplace,” he said. “We came into streaming with a different approach. Yes, of course, we do compete head on for the same subscribers with other streaming services, but our approach from the outset was: can we take music streaming to a different group of customers, can we act to try and extend the overall market segment, so that more and more people can go into streaming and so we can grow the overall pie. So our view was that you can take music streaming to a much more mainstream music fan.”
Knight questioned what the risk is for Amazon in this streaming space and the 30% cut that platforms take from subscriptions. Firth suggested that is “about in line with what we've always taken as a retailer”.
“A customer will only remain a streaming subscriber if they enjoy the experience, if they can find the music they want easily and are able to enjoy it,” he said. “That's the way they stay a subscriber the following month and the following month, that's how we grow our business, so that’s how we grow the total amount of money that we pay into rights-holders. It’s the customer experience that we have to invest in and that's where the risk is, and that's where the majority of that investment goes.”
While MPs questioned Amazon Music’s potential market power given its competitively priced Alexa-enabled devices, Firth stressed it was an entirely separate part of the company (though he acknowledged Amazon Music was the default setting on Echo devices).
It’s time that we did look at how other models might work
Later in the session, Firth made the case for the role of DSPs in music discovery and how that’s been transformed compared to traditional retail.
“When we are a retailer, we still sell CDs and vinyl, but really we are fulfilling a demand that's created elsewhere,” he explained. “So the marketing and discovery that drives someone to look for that artist generally happens somewhere else; someone else carries the cost for that.
“But actually, with a streaming service we're part of that process too. So streaming services are very much about driving discovery, they're very much about marketing artists as well as marketing their own service. I think as a streaming service, you play a much more active role in helping an artist break than we ever did as a retailer. We play a much more active role in helping music lovers discover artists that they’ll love, and also helping artists connect with their maximum fanbase possible. Those are the things we aim to try and do.”
Firth also suggested everyone in the industry needs to consider whether alternative royalty payment models such as user-centric were fairer for artists.
“It’s time that we did look at how other models might work,” he said.
The other DSP execs almost got on board with the proposal, although Spotify’s Gutierrez stressed that it “has to be a model that works at scale”.
There’s still that session with the Culture Minister to go, but the key arguments have now been laid out for MPs from across the music industry. After many hours of evidence and hundreds of pages of submissions, their report has the potential to reshape the UK streaming economy.