Spotlight on streaming

M logo 2As summer arrives, the debate surrounding royalties from streaming services shows little sign of abating. Fuelled by a flurry of unanswered questions and confusion around differing rates paid by the bevy of digital platforms out there, music creators are rightly voicing their concerns.

Now PRS for Music has joined the fray, helping to ensure the voice of the creator rings out loud and clear. By continually assessing the effectiveness of copyright in the digital economy, the society can help ensure songwriters and composers continue to receive vital payment for their work as the streaming model takes off.

PRS for Music members will be familiar with the legal concept of copyright, which exists to encourage and enable creative endeavour. It does that by rewarding those who invest time, money or energy into creating original content with controls over how it is used, distributed and exploited. But how does this actually work in the streaming world? Here, we examine some of the key issues being discussed…

The back story

Taking 1998 as the starting point, we saw the first murmurings of the new digital music economy with the arrival of eMusic and Napster. In those first five years of digital music, many larger rights companies – and particularly the major record companies – resisted, opting instead to protect their lucrative CD businesses.

Then Steve Jobs came along, iTunes launched and exploded in the US and UK. Suddenly, if you arrived at a record company with a download store, they’d licence you. But there was a problem – the major labels insisted on having Digital Rights Management (DRM) technology on their audio files. This meant they wouldn’t work across all devices, including the iPod – and the download service would eventually fail.

Around 2008, record companies and rightsholders started to change their approach to licensing. Physical music sales were still a big part of the business, but the industry began to accept that digital would be the future. They also understood that iTunes probably wouldn’t be the exclusive offer and they knew something else was going to happen…

Enter streaming – a listening or watching experience that is neither bought nor owned by the consumer. The market – currently led by the likes of Spotify (which actually dates back to 2006), Rdio and Rhapsody – has adapted rapidly over the last few years and streaming has come to evolve three distinct categories: User Generated Content (UGC); subscription services; and ad-funded or freemium music services.

The future

Streaming services which have both subscription and ad-funded free options have done a decent job in offering a competitively priced platform for access to millions songs. And so far, the average £9.99 subscription price point has attracted early adopters, tech savvy web users and music aficionados. But these services haven’t yet penetrated the mass market. If they’re going to reach millions of customers they have to educate people and look at offering different models: the standard all-you-can-eat subscription and £9.99 price tag won’t suit everyone.

The licensing

Music licensing is a complex business and rights are controlled by a number of different societies, publishers and rightsholders. This has led to what is often called a ‘fragmentation of rights’, which, in simple terms, means that a music service has to negotiate multiple licenses with multiple parties to obtain permission to use music. A solution to simplifying this process is creating one-stop shops for global licensing, which should ensure more music services become properly licensed. In this area, PRS for Music is committed to supporting innovative music services to launch and develop as it believes this is where the success of future music industry lies. This includes the creation of our new online licensing and data processing ‘hub’, but more on that later.

The ownership model

We’ve long been hearing about the decline of CD sales, but 2014 was something of a tipping point. It was the first time PRS for Music’s online revenues eclipsed physical royalties, while streaming revenues (£38.8m) also overtook download revenues (£26.7m). Elsewhere, recorded music industry body the BPI announced that 48.8 percent of the UK’s overall music consumption came from physical album sales, with 51.2 percent from the digital market. Looking further afield, IFPI figures show a similar trend, with digital revenues now representing 46 percent of global music sales.

It’s clear then that the future is all about access to music rather than ownership. This impacts rightsholders in several ways, not least because the ownership model was built around consumers paying upfront for the music they wanted to hear. Still today, for writers of million-selling albums, the going is good. But we’ve now moved to a situation where those kinds of sales figures are increasingly rare – even though music consumption as a whole continues to grow. And, where a CD purchase was a one-off injection of cash for songwriters, legitimate, mass market streaming has the potential to keep giving over time.

These new market characteristics have also changed the notion of the album and the income it can provide for rightsholders. Where an LP might contain a smattering of hits, in the ownership model all songwriters involved are paid the same regardless of the songs they had a hand in. With the shift towards the access model, only the most popular songs get picked up, so songwriters whose tracks aren’t individually downloaded or streamed, get nothing. In this brave new world, curated playlists are becoming increasingly powerful – and crucial to an artist’s success.

streaming infographicThe royalties

So, can streaming ever deliver a meaningful income for songwriters and composers? Many in the industry will agree this depends on one key criteria: will paid-for subscription models become the dominant form of access to streamed music? If they do, then the answer could be yes.

This is why businesses like Spotify and Rdio have become so important. They use the freemium ad-funded model to encourage consumers to become premium paid-for subscribers. Around 25 percent of people using Spotify’s free tier have converted into paying users. While this might not sound like a lot, it’s extremely promising for a business that is still in its infancy. Elsewhere, services like Tidal can offer lossless, higher fidelity audio files for an improved listening experience, which could also tempt consumers. But it’s not all plain sailing – these services compete with UGC, which is often under-licensed or unlicensed. In fact – at the moment – most UGC services provide access to music for ‘free’ to the consumer with either little or no payment being made to the rightsholders.

The amount of royalties that collecting societies like PRS for Music can generate from ad-funded services alone isn’t sufficient or sustainable in the long term. So the market needs a broad mix of appropriately licensed services based on different business models. As we know, the music industry has changed dramatically in the past 10 years: streaming doesn’t replace CD sales like-for-like and the songwriter profile on these services is extremely diverse.

The data

There are a number of key industry challenges with online music tracking, namely data volumes, quality and a fragmented rights marketplace. There’s an assumption that if a person writes music they are automatically entitled to online music royalties. But payment of online royalties is reliant on a number of steps and third parties:

  • Rightsholders need to accurately register their music with their chosen collecting society.
  • The streaming service must then accurately track the music played and report it to the collecting society. At this stage, reporting periods can range from three months to over a year.
  • The music played must be validated within the collecting society’s song database, with any differences reconciled between the society and the streaming service.
  • It is only then that the collecting society can raise an invoice and distribute the royalties to rightsholders.

Volumes: The amount of data PRS for Music handles to process royalty distributions to members has grown exponentially over the years. In 2013, the society processed over 130 billion usages of tracked music but in 2014 this jumped to 250 billion uses. Data processing on this level remains a challenge, but one that PRS for Music is meeting through investment in cross-society initiatives like the hub with European collecting societies STIM and GEMA.

Data quality and integrity: When record labels provide content to streaming services they don’t necessarily include all the metadata collecting societies would like them to – particularly songwriter and composer information. Metadata is a way of digitally identifying or coding music works and, even when it is included, sometimes music services themselves don’t maintain the data properly or send it to the collecting society.

To resolve this, PRS for Music is actively engaging in many initiatives like DDEX to improve formats and quality of data. DDEX is a consortium of leading media companies, music licensing organisations, digital service providers and technical intermediaries, focused on supporting the automated exchange of information along the digital supply chain.

This article appeared in the latest issue of M magazine.