Artist revenue and “equitable remuneration”

One of our members’ jobs is to earn as much money as possible for their artists. This is part of what labels do that’s indispensable alongside risk taking, providing stability, scale, investment, brand, experience, as well as the all important “belonging“ or identification with what a label stands for which adds huge value to creators. It is vital that the role of these structures in today’s music ecosystem is understood. As mostly small businesses, they need the right market and financial conditions to grow.

The whole question of remuneration for artists is key and we are very engaged in the debate around streaming. We want to see reform of streaming to help improve revenues, but it doesn’t mean we agree with all proposals put forward by the artist community. In April 2021, we published a ten-point plan (infographic here, full plan here) with various recommendations: 

  • We ask all record labels to pay artists a fair contemporary digital rate.
  • Our plan rejects so-called “equitable remuneration” (for performers to negotiate with services for a parallel fee), in line with the outcome of the EU copyright directive. We believe it runs counter to our job of earning more for our featured artists and hampers our ability to take risks with emerging artists (see more below).
  • Differentiation in rates by services is one of our main priorities. There are several proposals for services to explore, which would shift how revenue is generated and allocated – Pro Rata Temporis, Active Engagement, Artist Growth, User Choice (all explained in point 3 of the plan).
  • Coming out clearly against reducing royalties for plays or privileged treatment in algorithms or other features is also there, because we see this as payola.
  • Our plan is underpinned by a call for an end to safe harbour privileges and to avoid new loopholes. With the EU copyright directive being implemented at national level, we don’t want any new value gaps through short clip exceptions for example. We urge countries to “protect their creative artists – not timidly, but fiercely.”
  • We also have a whole host of other recommendations for services to really boost local markets in Europe. 
More on “equitable remuneration”
The debate in some countries around performer remuneration tends to centre around whether artists should have a new right to “equitable remuneration”.  As explained above, this is something we don’t support because our assessment is that it would deplete value from the commercial market, would reduce capital for investment in new artists and projects and would certainly not result in greater pay-outs to artists. The model on which equitable remuneration is based pays up to 200 times lower than streaming. The system would be far from equitable, especially for emerging artists. For more on this, read our note on performer remuneration. Proper royalty deals is the answer, plus differentiation by streaming services to reallocate revenues meaningfully. Streaming is core business, not radio!
 
The results from a study in the UK done by economic experts Will Page and David Safir for AIM and co-funded by IMPALA are also interesting. The study focusses on the Artist Growth Model (a proposal put forward by AIM, which is also one of the suggested approaches in IMPALA’s streaming plan). The authors summarised their conclusions on impact of this model alongside the status quo and the likely impact of equitable remuneration in the table below.
 
They concluded that equitable remuneration would lead to:
  1. Significant upside for DSPs with less value flowing through the industry and to artists
  2. Increased administration costs to be borne by industry – and ultimately artists
  3. A decrease in transparency for artists
  4. A decrease in investment in artists – and particularly new artists
  5. A potential loss of choice for artists – particularly if equitable remuneration results in a drift towards blankets
This assessment was substantiated by the findings of a significant AIM member who submitted an outline impact assessment of equitable remuneration on streaming. 

Option Appraisal 

Status Quo

Equitable Remuneration

Artist Growth Model

Impact on Label Return on Investment

Investment likely to increase in line with UK revenue growth

Less investment in UK artists as ROI falls and foreign competition increases

Increased investment in more diverse and niche content

Impact on DSP Cost of Goods

Likely to edge downwards (increasing DSP leverage)

Increased downside risk for labels under compulsory blanket licensing

Negligible – labels will have marginally different agreements with DSPs

Impact on Economies of Scale

Indie share increases with prominence of Merlin and DIY

PPL licensing shifts costs but mainly benefits larger labels

More equitable allocation of costs and benefits

Impact on Transaction Costs

Likely to fall as systems are re-engineered

Likely to increase due to legal implications of ‘switching costs’ 

One-off increase in transaction costs to calibrate scales

Impact on Artist-Label Contracts

More transparency as artists negotiate more confidently

Less transparency accompanying increased switching and auditing costs

Potential for less transparency as complexity increases

The UK study is based on real data supplied by the Entertainment Retailers Association on the top 10,000 tracks over 4 months. The figures are taken from March 2021. You can watch here a recording of the webinar organised by AIM where Will Page and David Safir presented their research results. On the same page, you will find links to the experts presentation and to an extended Q&A.
 
 The UK DCMS parliamentary committee has been looking at streaming and the question of remuneration. Its report was published on 15 July 2021, and recommends equitable remuneration and other proposals. IMPALA reacted in a statement entitled “IMPALA’s reaction to UK parliamentary committee on streaming – right conclusion, but other reforms better adapted for independent sector’s work with emerging artists”.  Our view can be summarised as follows:
  • The report is a set of recommendations, not legislation.
  • It is normal that the UK is looking at these issues, because it is not reforming its copyright in line with the EU directive following Brexit. That is why the DCMS report also looks at certain Article 17 type questions. The rest of Europe already concluded on these issues.
  • The question of equitable remuneration was examined in the negotiations on the European directive and was rejected by all three institutions in favour of other reforms (which IMPALA supported in agreement with featured artist organisations). Our one pager on performer remuneration is here.
  • We do not agree that revenues between different parts of the sector should be reviewed (including for example publishing and recording) without a change as regards risk taking. 
  • We ask UK decision makers to fully map the question of how risk works in the music sector as well as the key role of labels in the ecosystem before any further decisions are taken.
  • Our members continue to be inundated more today than ever before by artists looking for label partners to believe in them and take a risk. Our job is to make sure we can continue this work and get our artists the best deals, earn them the most money and ensure their creative works are properly recognised.
  • That is why we believe IMPALA’s streaming plan with multiple proposals is the answer. Whilst it is tempting to believe that there is a silver bullet, the reality is we need cumulative action on multiple levels to achieve real equitable reform of streaming revenues. If you are interested in working with us on this, please let us know! 
Other work to boost artist revenues

Other areas we work on to improve artist remuneration include performance rights. Here we have various working groups, including one looking after the vital question of whether countries that don’t have their own performance rights can claim revenues from European performers and labels. This could cost 125m euros a year just for the USA, see more here

Finally of course we have the WIN Fair Digital Deals Declaration where labels committed to sharing new types of revenue with artists without any contractual obligation. This is another example of the independent sector leading the way on reform of artist remuneration. 

IMPALA – Independent Music Companies Association

Coudenberg 70, 1000, Brussels, BELGIUM

+32 2 503 31 38

info@impalamusic.org