A year on from his appointment, Warner Music UK CEO Tony Harlow appeared before MPs on the DCMS Committee’s streaming inquiry last month.
For anyone who didn’t tune in, it was a lively session with the majors, although the Warner boss managed to get his arguments across about his commitment to artists.
In an extensive follow-up document, Tony Harlow has now written to the committee on several issues raised during that session and underlined the company’s focus on breaking British talent.
“At WMUK, we are proud to be strategic partners with our artists and to help them realise their creative vision,” he said. “In an increasingly complex environment, labels like ours have the scale and reach to break through the noise and build long-term careers.
“We invest significant time and resources in a wide portfolio of artists, sometimes working with them for years before their careers blossom. Record labels are the primary investors in new artists and we bear the risk associated with that investment.”
However, he acknowledged that the volume of music being uploaded by artists (40,000 tracks a day) means that “many will not be commercially successful, even if they become critically acclaimed”.
“Streaming is still a nascent model that continues to evolve rapidly,” he added. “Private contractual negotiations offer an efficient approach to address issues as they emerge. Our interests are completely aligned with those of our artists as we constantly strive to optimise our licensing deals with existing digital services and seek new, innovative opportunities to license our catalogue.
“Binding the industry’s hands through static regulation – which could never evolve as fast as the technology – would limit our ability to find the most effective solutions to ongoing concerns.”
Here are five key takeaways from Harlow’s written evidence…
Tony Harlow outlined a series of proposals for the government to support the music sector, including a limit on so-called safe harbour laws that protect platforms such as YouTube from any liability for copyright infringements from user upload content (read our report on YouTube’s streaming inquiry session here). He also called for a ‘notice and stay-down’ requirement for platforms to ensure that infringing material does not re-appear after being flagged and removed, and urged greater enforcement efforts to combat newer forms of piracy such as stream-ripping.
We invest significant time and resources in a wide portfolio of artists, sometimes working with them for years before their careers blossom
Harlow also wants a government-backed Covid-19 reinsurance or indemnity scheme to “give the live music sector the protection it needs from fluctuating lockdown measures that can be implemented with little or no notice”.
Further proposals include expansion of the Music Export Growth Scheme, visa-free touring for UK artists in the EU, strong copyright provisions in free trade agreements being negotiated with the US, and an extension of the term of copyright protection to 95 years (in line with the US).
During previous sessions, MPs picked up on the #BrokenRecord campaign for “equitable remuneration”, which suggested that streaming should switch to the broadcast model of an even split between artists and labels. PPL CEO Peter Leathem was quizzed about the proposal during his appearance.
But that relies on the argument that streaming does not qualify for the “making available” right – and Harlow insisted that on-demand streaming is different to broadcast. He also suggested that streaming rates could actually be lower under any collective negotiation, in the way that broadcasting licensing is managed.
“With an exclusive right such as streaming, the rights-holder can determine whether and under what conditions the work may be used, including the right to refuse to make the work available,” he said. “Licensing terms for ‘making available’ rights are subject to individual commercial negotiations that are not possible with mere remuneration rights. Because rights-holders can refuse to license their content, licences are agreed at market rates as determined by the parties and the rates tend to be higher than for collectively managed remuneration rights such as in broadcasting.”
Harlow’s evidence on A&R costs has been largely redacted. But the interesting section is the amount that Warner Music will typically spend on TV performances for artists.
“Apart from A&R investments, there are many other costs that the label incurs that are not recoupable,” said Harlow. “…Physical production costs, distribution (physical and digital), product design, and promotional and marketing costs are non- recoupable.”
As an example, he noted that it can cost as much as £375,000 to produce a performance for the BRITs, or £25,000-£50,000 to support an appearance on BBC One’s The Graham Norton Show.
Life of copyright deals came up during a previous session, when Beggars Group’s Rupert Skellett said that the US Copyright Act’s provisions allowing artists to recapture rights would be damaging if applied to the UK.
While details of the number of acts taking that action against WMG in the US were redacted, the evidence described it as a “very low number”. Harlow said that was “indicative that, after partnering with WMG, the vast majority of artists believe that continuing to work with WMG represents the best way to maximise the commercial exploitation of their recordings.” The major’s catalogue division is currently seeing strong streaming growth.
But he acknowledged the trend away from traditional deals.
“Our recording contracts in the UK typically include the assignment of copyright to us for the life of copyright,” he said. “However, that model has been changing over the past several years…”
Warner Music UK’s boss has come out against the user-centric royalty payments model, despite MPs pointing out its merits.
Handily, last month the Centre National de la Musique in Paris published the results of its study of the user-centric model which was “inconclusive as to whether it would be more efficient or fairer than the current model”, noted Harlow.
“We have explored the concept of a user-centric model and have frequent conversations with digital services about it,” said Harlow. “It is always our goal to ensure that any business model implemented is reliable, fair, transparent, and underpinned by accurate data for artists and rights-holders. A user-centric model would not change the overall royalty pool and our analysis suggests that any changes in the allocation of payments to artists would not be significant.”
The study found that beyond the 10,000th most streamed artists, the impact of the transition would be a maximum of a few euros per year on average per artist. The study also acknowledged the significant costs involved, which may be harder to absorb for smaller digital services.
Harlow added: “A user-centric model would be far more complex and administratively burdensome for digital services to implement as it would require a tremendous amount of data – it is likely that digital services would want to pass off some of the associated costs to rights-holders and therefore to artists. In addition, implementing a user-centric model would be very difficult because it would require all of the licensors to a digital service to modify their licence agreements.”
Elsewhere in his evidence, Harlow hailed this country’s “vibrant, well-functioning music market which has propelled it to become the second largest music exporter in the world after the US”.
WMG’s A&R investment increased by 68% between 2015 and 2020, and Harlow noted the rise of UK acts including Griff, Maisie Peters and Pa Salieu.
“As the UK asserts its international independence post-Brexit, British artists are among this country’s greatest ambassadors,” said Harlow.
According to his evidence, WMG companies had 676 employees in the UK – the second-largest employee population after the US – and none were furloughed during the pandemic.
The other majors also submitted evidence, which is available here.
Read our report on the DSPs’ appearance at the DCMS streaming inquiry here.