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Streaming, Apples and Oranges

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The animated debate about Article 13 and the Value Gap shows that music matters. All engaged speakers and writers do care for the artists and their audiences. Some more for the artists, some more for the audiences, and most are committed to serve both. By the nature of their businesses, producers tend to speak for artists, and distributors tend to speak for audiences. Guess what. They fight in the defence of their assets.

If only life could be so simple.

Flashback. 17 August 2017. Lyor Cohen, YouTube’s head of music, published an optimistic blog post about the company’s relationship with the music industry. 18 August 2017. Cary Sherman, Chairman of the Recording Industry Association of America, responded with a post of his own and asked, “Is this how a true partner values music?” before concluding, “We don’t think so”. Five stubborn truths against five observations. Tit for tat. We did expect that, didn’t we?

19 December 2017. Universal Music Group and YouTube confirmed their new global licensing agreement. Sir Lucian Grainge, CEO of UMG, said, “This important step forward provides our recording artists and songwriters improved content flexibility and growing compensation from YouTube’s ad-supported and paid-subscription tiers, while also furthering YouTube’s commitment to manage music rights on its platform”. Susan Wojcicki, CEO of YouTube, added: “We’re thrilled to strengthen our partnership with Universal Music Group. This agreement means we can drive more value to the industry, break and support more artists and deliver an incredible music experience to fans around the world”. We did not expect that, did we?

YouTube, Article 13

A love-hate relationship? No, it’s subtler than that.

Apples and oranges are different fruits

The first argument of the debate. As people spend more money on music, tech companies increase their wallet share more than music producers do. Only tech companies? Which tech companies? Ask urban youth how they spend their music budget. A big chunk for live concerts, from pub gig to stadium events, not tech. Another chunk for data packages they subscribe from telcos, not from Google, Apple, Facebook or Amazon. The rest of their music budget: peanuts.

The second argument. Some streamers pay more royalties than others. They do, as Jordan Bromley, Partner at Manatt, masterfully describes in his infographics “U.S. Streaming Royalties Explained”, whereby the content owners’ revenue depends much more on the type of streaming – paid subscriptions vs. ad-supported – than on the streamers. And he concludes with a strong caveat, “Even though you keep more of each dollar if you self-release, you are likely to earn a lot more with a labels’ marketing $$ behind you”. Consider all labels and streamers’ dollars before reaching a conclusion.

YouTube

And it goes on. The third argument focuses on that distinction between ad-supported streaming and subscription services. Here come justifications. Ad-supported streaming would be good for discovery, subscriptions would be good to listen to your favourites. But then, some say there is no such thing as a discovery effect. They cite an Ipsos research. 82% of YouTube’s 1.5 billion users use it for music, 81% of whom listen to music they already know. Even though these 81% also discover music on YouTube, bear in mind – just for the sake of this argument – only the 19% of the 82%, the 235 million of primarily discoverers, worth considering, aren’t they? Out of their context, statistics can prove anything. Technical facts? Why do young people use YouTube rather than Spotify to discover music? Because on YouTube, the song is only one click away, and because the service reduces the dependence on a wall socket, as it consumes less power than the Spotify app.

But wait a minute.

Why are we comparing apples with oranges? Shouldn’t we also look at the strawberries – the digital radios and their podcasts – and rejoice in front of the fruit basket? Some cannot afford the subscriptions and stay on the first step of the freemium ladder. Some prefer the comfort of an ad-free service. Some relish the cutting-edge of a music genre they find only on a niche radio. Some like user-generated content and community playlists. Some are amazed by algorithmic prowess that produce bespoke music programmes. We enjoy a rich and complex music scene. Music has an eclectic and segmented audience. Artists and their producers never had such a variety of different channels to connect with enthusiasts. Measuring their added value cannot be reduced to a single performance indicator. It will require more analytical monitoring and less heated discussions.

Trials and errors characterise a lively marketplace

Digital channels are not only diverse and numerous, they are also highly dynamic. Their technical capabilities and business models change all the time. Not only a banana can be added to the basket, but the green apple may turn red.

A technical device – the phonograph – gave birth to the recorded music business. Technical innovations – radio, television, cassette, internet, iPod and smartphone – continue to shape it at an increased pace. Distribution novelties, from small start-ups or large companies, progress through a series of trials and errors. Most channel innovations fail, few break through. Each one includes some kind of (new) royalty mechanism.

Royalties

Some providers are more prone to hiccups than others. Take two types of ad-supported streaming services, one broadcasting user-generated content, the other distributing producers’ albums. You cannot control the first one as easily as the other. Facebook and YouTube are confronted with fake news and abusive content. They address the problems and take a hit on their profit & loss account. Revenues decrease with advertisers’ exodus and de-monetisation, costs increase with the hiring of thousands of moderators. Royalties are impacted.

All digital service providers try to go through ad-blockers with non-intrusive ads, product placements, etc. They try to increase the ad value through brand partnerships or fan engagement. Royalties are impacted.

They all tweak the price structure of their freemium models. They all tinker with new entertainment products. Royalties are impacted.

What happens?

At the beginning, only the artists were creative. They still are. Then, the channels became innovative. They are increasingly so. Finally, the fans are morphing from consumers to participants. More and more will. The music marketplace is lively, bubbling with energy, more emotional than rational. Music matters. It touches all hearts and souls. The internet transformed each one of us into a music stakeholder – influencer and decider. Stakeholders weave a web of relationships. Music and money flow on that web – more, quicker and in ever changing ways. Royalty management regulates the traffic of music and money. Its dynamism and volatility are here to stay.

Relationships are positively complex and dynamic

So, the basket contains many different sorts of fruits, apples, oranges, strawberries, bananas, etc. And, the basket composition changes with seasons, tastes and hypes. Is all well?

No!

The present royalty administration cannot cope with the increased complexity and dynamism of the music marketplace. The current regulations, agreements, fulfillment processes and supporting systems were not designed for that. Thus, royalty distribution became inherently slow, cumbersome, inflexible and partially unfair.

The deal between music stakeholders has been sealed 70 years ago with Article 27 of the Universal Declaration of Human Rights –

#1 Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits

#2 Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which she is the author

The internet has been and remain instrumental to realise the noble intention of #1. What about the moral rights of work attribution and integrity? What about the material interests associated to copyrighted music? The internet was made to share, not to protect.

Only open, inter-operable, secure and reliable technical platforms, which enable #1 and #2 considering the current and foreseeable technologies to access and distribute music, will allow an adequate royalty management. Then, meaningful and sustainable business models will emerge to empower #1 and #2, responding to the needs and supporting the responsibilities of audiences, artists and value-adding intermediaries. Finally, simple, transparent and enforceable intellectual property policies will be formulated to realise #1 and #2, fostering music – free of constraints.

Ten years ago, this was a dream. The technology was not available. In the meantime, fundamental progress has been made. Engineers have developed efficient digital fingerprinting systems, YouTube has implemented Content ID, the Open Music Initiative has defined a first API to improve the flow of compensation to music creators and contributors, and numerous laboratories and start-ups are working hard on smart contracts and related applications of block-chain technology and artificial intelligence. The dream is coming true. It needs a push.

You cannot solve a hidden problem. The Value Gap argument put the spotlight on the royalty issue. Everybody got the message. Everybody is aware. No need to shout and compare apples with oranges anymore. Now is the time to put the horse of sectorial dialogue in front of the cart of legislation. Now comes the time of the problem solvers – at the technology, business and policy levels. They will use brainy approaches nurtured by their passion for music, a matter of heart and soul.

Philippe RixhonPhilippe Rixhon is an engineer, manager, artist and philosopher researching on copyright at the Centre for Blockchain Technologies (University College London).

 

 

 

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