The House of Commons Digital, Culture, Media and Sport Committee has recently published a significant report on its inquiry into the Economics of Music Streaming. During the inquiry, the Committee heard from key players in the industry, including streaming services, artists, music companies and collecting societies. The aim of the inquiry was to examine the impact of streaming on the music industry, with the report declaring that “streaming needs a complete reset”. The report recognises that while music streaming has now become the dominant mode of music consumption, its benefits have not been proportionately felt across the industry. In particular, performers, songwriters and composers are receiving poor royalty rates from streaming – an issue highlighted by the loss of live performance revenues during the Covid-19 pandemic. Meanwhile, music companies continue to report growing profit margins and increased consolidation.

The report provides a comprehensive analysis of the current state of the music industry and contains over 20 recommendations for legislative reform and regulatory interventions. Many of the recommendations, in particular those addressed at creator remuneration, are specific to copyright law reforms. However, as we have previously highlighted (e.g. here), a number of potential competition concerns have also been identified in the music sector. This is recognised by the report, which includes a number of key recommendations relevant to competition law:

1. Referral to the CMA

The “major” music companies (Universal Music Group, Sony Music and Warner Music Group) hold a global market share of 68% in the recording industry , according to the report, with the rest accounted for by independent music companies. Market shares are becoming increasingly concentrated due to vertical integration, cross-ownership between the majors, and acquisition of competing independent companies. The report identifies the majors’ collective dominance in the market as a concern and therefore recommends that Government refer a case to the CMA to undertake a market study into the economic impact of the majors’ dominance. (Meanwhile, the Department for Business, Energy and Industrial Strategy is currently consulting on reforms to competition law which will significantly expand the CMA’s powers to conduct such market studies.)

The report highlights ongoing concerns about the majors’ position in negotiation, both with individual artists as well as in direct licensing deals with streaming platforms which allows them to benefit at the expense of independent labels and self-releasing artists. There is a concern that the overwhelming market share of the majors puts them in a strong position to negotiate preferential terms, including streaming rates and playlist access.

The report analyses evidence demonstrating playlisting of songs on streaming platforms as an example of where the majors are represented at a disproportionately higher rate than the independents. This is considered to be due to the majors’ strong negotiating power which gives them preferential playlist access, as well as their direct and indirect ownership over the platforms’ playlists. Streaming services give users access to an unprecedented amount of music, and playlists make that content accessible and manageable to users. Being featured on a popular playlist therefore has a significant impact on the reach and revenue of artists. If the majors dominate the editorial and algorithmic playlists, then major-owned music will be featured, streamed, remunerated and featured again due to its success – at the expense of self-releasing artists and those signed with independent labels.

Separately, the report recommends that curators who create these playlists should be subject to a code of practice developed by the Advertising Standards Authority to ensure that decision making behind playlists is transparent. This would bring the industry into line with other online services which ‘rank’ results, and which are covered by the EU Regulation on promoting fairness and transparency (EU 2019/1150 – retained law in the UK).

The report also recommends that the CMA consider whether contracts between majors and streaming services are stifling innovation, as for example platforms cannot develop and use new payment models without modifying the accounting methodologies included in the agreements. The report further suggests that the CMA specifically consider how the majors’ position has influenced the relative value of song and recording rights, as the majors also dominate the market for song rights through their publishing operations.

2. Music Export Growth Scheme

To offset the majors’ dominance and to support independent labels, the report recommends that the Government expands its support for the Music Export Growth Scheme which provides grants to independent music companies when they introduce UK artists abroad. The report suggests that such grants should include clauses that a company or artists’ rights cannot be acquired by the majors for a period of time. The aim is again to “prevent the further acquisition of successful rights by the majors and ensure greater competition”.

3. Strategic market status?

According to the report, copyright safe harbours have profoundly impacted the market for digital music consumption, with streaming services covered by safe harbours dominating the market. Safe harbours limit the liability, subject to certain conditions, of service providers which host user generated content (‘UGC services’) for copyright-infringing content on their platforms. The report states that certain UGC services may have a competitive advantage over other streaming services due to the broad limitations of liability which allow them to host user-uploaded music for free without having to necessarily obtain licences for it. Such UGC services are therefore able to negotiate licences for music that users are already providing through their free, ad-funded, services, whereas other streaming services negotiate the licence before being able to make it available to consumers. The report also speculates that the impact of readily available free music via UGC services has led to prices for paid streaming services remaining static for over a decade. One potential solution proposed by the report is to designate certain UGC streaming services as having ‘strategic market status’ under the CMA’s new Digital Markets Unit (‘DMU’). The DMU will have the power to hold platforms with strategic market status to a new code of conduct to ensure their practices are pro-competitive (see more on this here).

Conclusion

The report is clear in its view that the dominance of the majors in the market has had a negative impact on their competitors (i.e. independent music companies), as well as on artists and creators. The growth of streaming has, if anything, highlighted these issues while also introducing new concerns. The recommendation that the CMA conducts a market study is consistent with recent developments across Europe and the push for greater regulation of digital markets.

The Government has 60 days to respond to Select Committees’ recommendations, so we are likely to see some more movement in this area before the end of summer.