Reed Smith's Nick Breen & Gregor Pryor on equitable remuneration and the economics of streaming

Reed Smith's Nick Breen & Gregor Pryor on equitable remuneration and the economics of streaming

The DCMS Committee’s inquiry has raised key questions over the future of streaming and MPs have heard evidence about the potential of introducing equitable remuneration – a move favoured by the #BrokenRecord campaign.

Here, Nick Breen, partner, and Gregor Pryor, co-chair of Reed Smith’s Global Entertainment and Media Industry Group look more closely at the issue…

For those who have been following the DCMS Committee’s inquiry into the economic impact of music streaming, you may have noticed that the topic of ‘equitable remuneration’ is proving to be divisive among stakeholders.

What’s all the fuss about?

Equitable remuneration is a direct payment owed to performers whenever a sound recording of a performance is played in public (eg in a shop) or broadcast to the public (eg by radio). While the concept of equitable remuneration (sometimes referred to in the music industry as neighbouring rights income) has been enshrined in international law, its treatment continues to differ from territory to territory.

With the aim of striking a balance between performers, labels, and broadcasters, the legal basis for equitable remuneration emerged in the 1960s. Authors of international law recognised that performers deserved compensation for publicly played recordings. Record labels also argued that public performance of recordings was negatively affecting their sales. To address this, an international convention was enacted that created the equitable remuneration regime, under which remuneration was payable to artists, producers, or both. When the UK ratified the convention at that time, it chose not to adopt the equitable remuneration regime. It was not until the 1990s, when equitable remuneration was more broadly adopted under European law, that it became mandatory for the UK government to implement it domestically.

Performers in the UK typically mandate the collection society, PPL, to collect equitable remuneration on their behalf from the various shops, broadcasters etc. PPL then distributes the income directly to performers in accordance with its distribution rules. Importantly, performers’ equitable remuneration does not flow through performers’ agreements with labels and rather is managed by PPL and other collection societies in other countries.

The issue of on-demand streaming

On-demand performances are treated differently under English law to broadcast transmissions and linear streams. Currently, equitable remuneration is not payable to performers for on-demand streams. Equitable remuneration will still be payable for performances on pure linear internet radio services, but if that stream becomes interactive (for example, you can choose which recordings to listen to), then the law will treat this activity as on-demand usage and equitable remuneration will not be payable.

Labels, collecting societies, unions and performers have offered differing views on the efficacy and fairness of equitable remuneration

Nick Breen & Gregor Pryor

There is an important legal distinction to be made between linear transmissions and broadcast on one hand, and on-demand streaming on the other. While performers do not enjoy the exclusive right to control the public performance or broadcast of their recorded performances, performers do enjoy an exclusive right to control the so-called ‘making available’ of their recorded performances (frequently referred to as the ‘on-demand right’). In theory, this means performers have the exclusive right to authorise or prohibit others from making recordings of their performances available on-demand. That negative right to control exploitation (and therefore royalties payable) can be freely negotiated by performers. By contrast, performers do not have the right to control linear streams – instead, they only enjoy a right to be paid a prescribed amount. The legislators’ thinking here was likely that the on-demand right was likely more valuable to performers, and therefore their rights should be stronger.

However, unlike the unwaivable, non-assignable right to equitable remuneration given to performers for public performance and broadcasting, the making available right enjoyed by performers is a personal property right and can be assigned and licensed to others without restriction. This assignment or licensing is typically what happens in practice; when a performer signs to a record label or distributor, they typically assign or exclusively license their making available right. It is then for the performer and label/distributor to negotiate between them how to split the royalties that arise from their exploitation of this right. Often royalties are first offset against any advances that have been paid to the performer.

Could change be around the corner?

Although issues concerning the payment to artists of royalties arising from music streaming are nothing new, the global pandemic has brought these issues to the foreground because performers have lost a core income stream from live performing.

The committee is hearing views from industry stakeholders and considering whether the government should be taking action to protect the livelihood of performers.

Several written submissions have been made proposing to extend the equitable remuneration regime to on-demand streaming activities. Organisations representing performers have argued that this would give performers a guaranteed, undiluted source of income to help with cashflow. Instead of having streaming royalties filter through the labels and be subject to deductions and applied against recoupment of advances, performers would be paid in a similar way to how they are paid for public performance and broadcasting. Labels, collecting societies, unions and performers have offered differing views on the efficacy and fairness of this proposal.

We await the committee’s findings and recommendations. If extension to the equitable remuneration regime is recommended, we expect that working out how it will be implemented in practice and how it may affect future deals between labels and performers, and labels and DSPs, will be a big challenge for the industry.

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