Interview: Helen Smith “In The Hot Seat” with Larry Leblanc – copyright, Tencent, Brexit, IMPALA turning 20...

9th January 2020

Interview first published in Celebrity Access (available here)

 

This week In the Hot Seat with Larry LeBlanc:  Helen Smith, Executive Chair, IMPALA.

Helen Smith’s name almost certainly draws curses in Shenzhen, China (the headquarters of Tencent Holdings),  and with highfliers in the boardrooms of media, streaming, label, and music publishing giants around the world.

And the likelihood of this fiercely intelligent Scottish firebrand receiving a holiday card recently  from Sir Lucian Grainge CBE,  chairman, and CEO of Universal Music Group, was…well, don’t ask.

You see bully boy streaming giants, and celebrated major label and music publishing lions don’t much like her.

With a staff of 4 full-timers and one part-timer in Brussels, Smith drives IMPALA’s key strategies as executive chair, covering off everything in the political, commercial, and promotional worlds.

IMPALA, with nearly 5,000 members, was established in 2000 to represent independent music companies. IMPALA’s mission is to grow the independent music sector, return more value to artists, promote cultural diversity and entrepreneurship, improve political access and modernize perceptions of the music sector.

Last March, Smith and her IMPALA colleagues led the cheering section during a historic vote when the European Parliament finalized a new Copyright Directive for the user-generated digital age in a way that IMPALA fought hard to be fair and sustainable.

EU’s member states now have 24 months to adopt the new rules into their national legislation.

Smith and her IMPALA colleagues are now out to hinder Chinese technology company Tencent Holdings from buying a 10% stake in Universal Music Group, with an option to buy a further 10%. because of concerns of how the transactions will fit into Tencent Holding’s portfolio, and what synergies will come in play.

So the chance of Helen Smith receiving a holiday card from Sir Lucian Grainge in 2020?

Alas, I think not.

As much as 2019 was a challenging year for IMPALA, 2020 appears to be more so for the organization. Apart from its 20th birthday in November, there’s the two-year race of running down of the clock to modernize EU copyright; gauging how the music industry in Europe, specifically the UK, will be affected by Brexit; and opposing French media conglomerate Vivendi’s 10% sell-off of Universal Music Group to a consortium led by the Chinese tech company Tencent Holdings. You have a busy 2020 in store.

Yes, indeed. I hope so. It’s good to be busy.

Is that a fair evaluation of the year?

Yes, it is, and also we have a new board that just been appointed. We are starting 2020 with a new set of directors for two years. Also it’s a very special year for IMPALA because we are now 20.

It’s IMPALA’S 20th anniversary this year?

Yeah, yeah, yeah. It’s good to have a 20th birthday in the ‘20s. The last 20s were the roaring 20s, but full of creativity and vision. We just have to make sure that we can avoid a crash at the end this time. The difference with these ‘20s is that the (industry) crash is behind us.

Nevertheless, we can still view that crash in our rearview mirror.

Yeah, and we have to learn from that and work out what kind of landscape we feel that we want to be responsible for in the next 10 years.

How many members does IMPALA have?

We are at 5,000 members now. There have been a lot of new members joining. We have had a big increase in representation from Central and Eastern Europe. So we are now about 5,000 members.

Where do you work from?

I work out of Brussels. The organization was set up here because the independents felt that they needed to have a (European Union) voice.

IMPALA’s stated mission is to grow the independent music sector, return more value to artists, promote cultural diversity and entrepreneurship, and improve political access and modernize perceptions of the music sector?

Yes, absolutely.

You were previously the director of business affairs at the Assn. of Independent Music (AIM), the non-profit U.K. trade organization for independent record companies and distributors.

Yes, indeed I was at AIM when Alison (former chairman/CEO Alison Wenham) set it up. It was around the same time as IMPALA, in fact. So we are more or less the same age. I moved to Brussels in 2003.

(AIM was launched in 1999, when numerous indie labels broke from BPI, arguing that Britain’s recorded music body did not represent them properly. Prior to AIM, legendary independents’ advocate Alison Wenham was founder and longtime managing director of the classical label Conifer Records (later BMG Conifer), the largest independent record and distribution company in the specialist music field in the U.K.

After 12 years at the helm of the Worldwide Independent Network (WIN), the global trade organization for the independent music industry, Wenham stepped down as Chief Executive in 2018, and has since been appointed Non-Executive Director at Funnel Music.)

Let’s take you back to March 26th (2019) as you witnessed the crunch vote in Strasbourg, France for the EU Copyright Directive vote in the European Parliament; when you only had to follow three votes to get the final result. Far simpler than in September 2018 when the voting debate went on and on, each amendment one at a time.

The final wording of EU’s overhauled copyright rules includes the controversial Article 13 (Article 17 in the final text), which would require internet services with at least 5 million average monthly users to “demonstrate that they have made best efforts” to prevent the upload of content flagged as copyright-protected by rights holders. When there are no licensing agreements between an internet platform and right holders, platforms will need to make best efforts to obtain an authorization.

The intent of Article 17, according to IMPALA and others, is to let creators and rights holders in the entertainment space have more control over the use of their content uploaded by users on these platforms and be remunerated for it.

(The last message from the united front of the cultural and creative sectors including music, books, newspapers, photography, and others all pulling together before the vote was: “If you are thinking there might be a better way to pay creators, please remember that this is not just about money. It’s also about making sure creators can have a meaningful say in their negotiations with platforms, while citizens are free to share their favourite music, memes etc. That is why it’s taken three years to find a compromise.”)

It must have been exciting watching the final vote come in because, as expected, there was a last-minute attempt to get rid of Article 17.

It certainly was a bit of a cliffhanger. I don’t know if you saw the photos that emanated from the Parliament, but the room itself is pretty huge. People like us were in the viewing gallery, and we looked down, and in front of us, there was this giant screen which was really, really impressive. You had so many people voting, and you had to follow it on this giant screen. You had the green “pluses” that were “for” and the red “minuses” for against. As you can imagine, it was quite an intense moment. But the result was fantastic. A fantastic outcome.

There was opposition right up to the end over Article 13 from groups representing the likes of Google, Facebook, Twitter and other organizations that sought to ensure that the EU Copyright Directive wouldn’t put too many new obligations onto their members. That pressure will now continue over the two year ratification period.

Submissions by both the Computer & Communications Industry Association, and the Internet Association, for example, as part of the United States Trade Representative (USTR) review of barriers to U.S. exports, are particularly critical of this new European Copyright Directive.

So the opposition continues.

Of course, because the opposition to copyright is really fundamental. We can see that now. It will be the case at members’ state level where there will be anti-copyright positioning to try to influence the legislation. Also, at the moment, we have a copyright stakeholders’ dialogue going on with the Commission because they will be issuing guidelines on best practices, on co-operation between rights holders and platforms, on how to implement the actual rules.

So there is a debate that continues.

But I think definitely, from our perspective, what was very important to IMPALA and its members, was to ensure an outcome that was balanced, and is balanced for all invested parties including artists, consumers, fans, platforms–the very established platforms and start-ups–and the outcome had to contain an incentive for everybody to want to grow a digital market, and to find solutions together. And this is what the real challenge was about. There was a lot of noise, white noise, around whether or not the (Copyright) Directive was going to be bad for innovation. There was a lot of positioning by certain players on their own platforms using the Directive to send out political messages to those who were responsible for making a decision. But, I think that in the end, some of those tactics were counterproductive. The result is one that we feel is balanced, and we can carry forward to the national legislations with an element of pride, and expectation. I think it is an inspiring result considering the pressure that these (European) parliamentarians were put under.

The Copyright Directive can only achieve its aim with ratification by the individual members. And member states’ national legislative implementations must be faithful to the Directive, and its objectives. If it gets watered down with any of the members, it will lose its effectiveness. The focus now is keeping to the letter of the Copyright Directive. If any of the member legislations says, “We’re are going to change it for this market or that….”

That’s right. The overriding aim with the members is that this Directive has to help establish a single digital market. So the aim of the legislation at the end of the day is really harmonization, to ensure that a single market can be created in a digital world. So the incentive is for members to try to stick to the text as closely as possible.

Tech lobby groups, representing the likes of Google, Facebook and Twitter, would much prefer it if the American government puts pressure on foreign governments to ensure that new copyright laws don’t put too many new obligations onto their members. That, it could be argued, the Copyright Directive as it increases the liabilities of user-upload platforms which host copyright-infringing material as a result of the safe harbor reform, lobbied for by the music industry and contained in article 17 of the final Directive. Has that pressure yet surfaced from Americans trying to put pressure on individual European countries?

It’s interesting that the trade deals that were struck recently they (the Americans) really tried to take on the safe harbour principle, and that obviously is another way of trying to exert influence because the whole principle of the Copyright Directive is to clarify the circumstances in which platforms can and cannot enjoy a safe harbor when it comes to copyright. What was important in the European legislation was to confirm if you are in the business of distributing copyright, and you are active in that field then you need a license in the same way as other music services like Spotify or Deezer, for example It is very important to ensure that user uploaded platforms have to compete in the same licensing framework as other services. It is really important for us as independents.

People tend to overlook how many streaming services are available today.

Yes, especially when there is a massive weighting toward certain players. YouTube was clearly the biggest distributor of music so it was important that it played by the same licensing framework as their services.

You’ve likely have been following the ongoing legal battles between the RIAA, and the internet service provider Charter Communications in the U.S. It is one of three cases being pursued by the American labels who argue that certain ISPs should not enjoy safe harbor protection from liability for their customer’s infringement on the basis that they have had deliberately poor systems for dealing with repeat infringers. The RIAA wants to hold Charter liable for both contributory and vicarious copyright infringement. 

What’s interesting though is the notion of safe harbour. We can get a bit emotive when we talk about safe harbors, but the fundamental concept of a safe harbor is totally sound. We absolutely need that.

Within any discussion of music copyright or music industry structural changes in Europe, IMPALA  has a place at the table because probably 80% of the independents in Europe are members and they represent a huge slice of the music marketplace. IMPALA has to be listened to.

Yes, in terms of volume of releases, that was helpful in the Directive debate; for decision-makers to realize that we are talking about a community of individual creators and small actors whose music livelihood is affected here. It was also interesting because what the critics didn’t tell you was that the Directive was a package of reforms that made big inroads into a number of areas of copyright that were totally going towards consumers reinforcing their rights. Making sure that clearly that the responsibility was with the platform, and that platforms couldn’t say anymore, “Oh it isn’t me. I’m not responsible. It’s this citizen over there who uploaded it (illegal music)” So there was benefit from clarification on exceptions. That they would benefit from a provision now in European law that if there is a license in place, that covers citizens’ uploads.

There are loads of provisions, loads of positive elements in there (in the European Copyright Directive) for consumers. It was really important for us to see those provision being delivered because for a sector like the independent sector which has totally embraced the user-generated economy, it is very important for us that there was no freezing or chilling effect, on the ability of citizens and fans to continue to create, and to use music in a way that facilitate the total unique relationship with the user platforms. It was very important for us that it was able to continue. A big proportion of revenues for the independent sector comes from user-generated content that doesn’t come from official content.

Despite the majority of music on streaming services being sourced from independents, content from the three majors dominate the top tiers of popular tracks.

Yeah.

The majors still have the digital muscle.

Yes, absolutely. We will probably see an effect there which is exactly the same as the Top 10 or Top 40 at the national level at radio and in the charts where the natural concentration effect will be compounded as we move toward a more singles vision of music; although, as the digital services see potential for developing more national markets, and they have a more national focus, we will also hopefully see more emphasis put on more national repertoire in each country.

A fundamental obstacle to Europe as a single, if diversified, music market is that it is a one-language (English) region, plus local languages—a factor that tends to favor Anglo repertoire. So if you control English repertoire, you are controlling a lot of chart and media space.

A 2012 report by Emmanuel Legrand, commissioned by the European Music Office and Eurosonic Noorderslag, first recognized the problem and concluded that artists from one European country had difficulty  playing in another European country. As a result, It’s easier for an English-speaking North American act to play throughout Europe than an act from Germany or France.

Yeah, absolutely. That is what led the Commission to intervene in the first place.

English remains the primary language of music through Europe and, in fact, most of the world.   

And that is going to be one of the keys to really steering a digital market in continents like Europe where you have you have multiple languages because you can really have an amazing effect if you not only focus on a single language, English material, but you also boost the local repertoire. One doesn’t necessarily compete with the other. They are complimentary.

Aligned with the borderless power of streaming, services like Spotify are now showcasing multi-language music leading to unprecedented global opportunities for non-English artists. Today we can discover music from almost any region in the world online.

Like the latest Fado artist. The trick is the balance between…it’s the balance of ensuring that services are boosting both the international repertoire and also  local repertoire as much as possible. I think that one of the keys for digital services to find new revenue streams is to work with both (repertoires) and to really boost sales.

Meanwhile, local repertoire in countries like Germany, Italy, and the Netherland has climbed in popularity in recent years.

Yep, absolutely. Local language hip-hop. Love it or hate it.

Europe generates over one-third of global recorded music revenues. European recorded music revenues totaled $6.02 billion in 2018. You have two of the four major music markets in Europe according to the International Federation of the Phonographic Industry (IFPI), the United Kingdom (#3), and Germany (#4), which is somewhat undervalued as a music market.

Yes, it’s incredible, the statistics. The statistics will obviously continue to evolve and develop, yes, but for Europe to have two of the leading national markets is a real success story.

With he results of the recent UK general election as well as with British lawmakers signing off on Thursday (Jan. 9th), on legislation to take their country out of the European Union at the end of the month, Prime Minister Boris Johnson can now enact his Brexit plans. With Brexit a certainty, there are concerns over an array of potential challenges to the UK’s live music and entertainment sectors.

While Brexit brings a real risk of increased costs, the removal of freedom of movement may lead to touring artists returning to the pre-EU days of carnets, where every item taken on tour needs documenting and accounting for. The time costs for this may be huge for major artists trying to get through the border checking process. With merchandise, artists touring will probably have to pay a fee upfront, and then claim money back afterward on anything not sold. So that becomes a cash-flow issue.

For younger artists, and the smaller acts that are, maybe not as well known, they may have some issues The bigger acts will be able to sort things out. It is really the upcoming artists that will probably be the ones that suffer first if there are any restrictions or difficulties when it comes to touring and supporting.

Brexit may also lead to a decrease in both the number of artists and productions visiting the UK from Europe, and a decrease in “music tourism,” whereby EU residents visit the UK specifically to attend live music events.

In November 2019 UK Music released its annual Music by Numbers report, which shows that the British music industry generated $6.72 billion) in 2018, with live concerts generating $1.42 billion of this amount. Music tourism is a large source of revenue in the country, contributing $5.81 billion) to the British economy in 2018.

Still, there is optimism now that with the majority win of Boris Johnson’s Conservatives that change is afoot.

(Commenting on the election result, the boss of record industry trade group BPI, Geoff Taylor, said: “This clear result should help move the country beyond the Brexit impasse and provide the UK with a much-needed period of political stability. We hope the government will use this platform to deliver a trade deal with the EU that minimizes barriers to trade, including simple travel arrangements for UK performers, and new trade deals with third countries to boost our music exports.”

Added Paul Pacifico, CEO of the UK’s Association of Independent Music (AIM), which represents over 800 UK independent music companies,  “We know from this result that the process towards Brexit will now accelerate. It is AIM’s priority to ensure our members are as prepared as possible. The unfortunate truth is that the grassroots SMEs and entrepreneurs of our economy face the greatest impact on their businesses, so we call on this new government to give our members the support they need to ensure we avoid a Brexit that just suits big business.”)

Obviously, a trade deal has to be sorted out as quickly as possible. Music Managers Forum chief executive Annabella Coldrick and others are pushing the UK government to ensure British musicians’ “immense cultural impact” will be protected in the post-Brexit world.

Oh yes. It’s interesting because the whole debate around Brexit is one that touches so many different issues in politics, in how people see the world today, and the music sector is an important example. We have new companies that are dealing with artists working with a publisher in one country, and session musicians in another country. There are distributors, and music companies working together from different counties. It is a really great example, certainly in Europe anyway, of the diversity that goes into the whole process of making music, and celebrating what an artist can offer the world. So we see from our members what is really important with this trade deal is making sure that there is a real sector-specific approach because we have in Europe totally unique options when it comes to music. We are great (music) producers, wildly diverse, and it is very important for the UK, and for Europe, to have a good trade deal with a sector approach that will facilitate and continue to allow the European music market to operate in the same way as all of the other markets in Europe operate which are not constrained by the membership or non-membership of the EU.

We mustn’t overlook the fact that the UK recorded music market is among the strongest in the world. It just had its 5th consecutive year of growth. According to the BPI and Official Charts Company data, consumption across all formats was up 7.5%  year-on-year for volume in 2019.

As Geoff Taylor, chief executive BPI & BRIT Awards recently said, “British music proved once again in 2019 that it has a bright future. Strong demand for streaming music and vinyl, fuelled by the investment and innovation of UK labels in discovering and promoting new talent, boosted music consumption to levels not seen for 15 years.”

But also the UK’s music exports are strong. Much of the UK music business is centered on trade.

Absolutely. Yeah, yeah, yeah. Absolutely.

As the UK breaks away from the EU, there will be the challenge of transforming applicable EU law into UK law. Have you had any indication of what the British government plans to do about adopting the EU Copyright Directive?

It depends on who you speak to. If you are talking about the Copyright Directive and whether or not that will be implemented, obviously for the UK they have to prioritize with what is going to get their attention now. It would be idiosyncratic to imagine that the UK would allow itself to fall behind when it comes to one of the most successful economic sectors.

In many areas, the UK largely works to European-wide standards, and so one would expect that the UK will adopt the EU Copyright Directive.

You wouldn’t expect the UK to want to be the dustbin of intellectual property.

It is interesting that Merlin—the independent label organization with more than 900 members, representing more than 20,000 labels and distributors in over 60 countries–is moving its registered headquarters from Amsterdam to Dublin as part of a corporate restructure, but will still operate under EU regulations. Still, the bulk of its European workforce remains in its London offices which now officially operates as its main European base.

Merlin is not moving out of the UK. It does have a registered business in the Netherlands, and it is moving to Ireland. Merlin, in terms of its operations, is really split across different continents. Their principal operations will remain as they have been. So the UK, America, Japan, and South America. This is really a kind of organizational structure change that will evolve as circumstances change, but definitely it is moving certain of its operations from the Netherlands to Ireland.

(Merlin has just appointed Jeremy Sirota as the organization’s new CEO. He joins from Facebook where he led the company’s efforts to license and acquire recorded music rights from independent record labels and distributors around the world. Sirota previously held senior positions at the Warner Music Group, culminating in his appointment as SVP and head of business & legal affairs for both Warner-Elektra-Atlantic (WEA), and Alternative Distribution Alliance (ADA), Warner’s indie distribution arm. Sirota succeeds Charles Caldas who had served as Merlin’s CEO since the agency’s founding in 2007).

With entertainment conglomerates continually trying to buy each other up, IMPALA must feel like the Dutch lad with his finger in the dike to restrict the flow. Now French media conglomerate Vivendi has signed an agreement to sell a 10%  stake of its wholly-owned Universal Music Group to a consortium led by Chinese tech company Tencent Holdings for roughly $3.3 billion, following regulatory approvals, and other closing conditions. Tencent Holdings has a one year window to buy another 10%. Of Universal Music Group under the same terms.

That’s funny because just before Christmas there was a report in Reuters (Dec. 18, 2019, “Tencent taps GIC, sovereign funds to rescue Universal Music deal: sources,” by Pamela Barbaglia, Kane Wu, and Gwénaëlle Barzic) saying that Tencent Holdings was going to buy up to 30%. Now it looks like they have definitely bought the10% which we expected, and they have another year to go on the same terms. I guess they can buy another 10%. Will it be more? Obviously, they have an interest in buying more judging by the report in Reuters. Will there be others involved?

Tencent is loaded with cash.

And I read that they even want more cash. I read that Tencent wants to buy back its own shares. Looking for more control of its own company

There’s been little mention so far of the other consortium minority shareholders aligned with Tencent that would stump up the cash other than the news that Tencent turned to Singapore’s state investor GIC and other sovereign funds to help rescue the deal after others walked away.

Exactly.

Vivendi indeed has publicly said it seeks to sell 50% of Universal Music Group.

It could go higher. It could go anywhere. This is why we are talking to regulators early because the regulators know that when this type of deal-making starts they have to decide at some point whether or not to intervene. So that is the rationale for us talking to the regulators in the key European countries, and talking to the EU as well. Quite a few (countries) have specific rules on minority shareholders. So they can look into this. They (Tencent) don’t need to have control if they have influence. The U.S.A. has rules on minority shareholding, as well. This particular scenario with the Spotify angle is very interesting as well. I would imagine the regulators at some point will be thinking, “Hold on a minute there are so many cross-links and connections here. Is it really going to lead to consumer welfare gains? What is going on here?”

(In 2018 Spotify bought a 9% stake in Tencent as part of a share swap; and Tencent Music owns nearly 10% of the Swedish streaming giant.)

Normally, there’d be little objection to any one company acquiring 10% of another company but here it depends on how the acquisition fits into Tencent Holding’s portfolio, and what synergies will come in play.

Yeah, it depends on the jigsaw, doesn’t it? They are already aligned with Spotify. That is something that when we are speaking to regulators that they are obviously very interested in, and they want to know more about the connections with Spotify.

The additional agreement would allow Tencent Music to acquire a minority share capital of UMG’s subsidiary Greater China.

Yes, exactly. Tencent Music, which has a joint venture with Spotify, is going to be an owner of UMG’s Greater China operations.

Tencent Music already controls more than 70% of China’s music-streaming market with its roughly 700 million monthly active users, and owns WeChat, China’s top mobile messaging app with 1.15 billion monthly active users, and its largest video game business. Tencent also owns data centers in the U.S., Canada, Singapore, India, and Germany, and it’s rapidly expanding that ecosystem with new digital services like cloud gaming platforms, and could expand, Netflix-style, into producing its own content, or live-streaming concerts.

Tencent is one of the world’s most powerful companies. It owns all the leading music services and apps (in China). Obviously, Tencent’s vision of where it wants to be in the markets it wants to have power in doesn’t stop at China or Asia. They are clearly looking at one world.

Tencent certainly wields considerable power now and could put considerable pressure on Western music stakeholders negotiating to operate in China and elsewhere as well as create a new business model by packaging UMG’s massive roster of artists including Lady Gaga, Taylor Swift, Kendrick Lamar and U2 with its suite of apps, games, and entertainment properties, and platforms. 

Yes, exactly. We would expect regulators to want to look into this because they will anticipate this is unlikely to lead to consumer welfare gains and it’s clearly being done on a strategic level. It’s not just about getting investors controlling what’s happening. It’s about basically envisaging a future where UMG and Tencent are partners. It hard to imagine a world where that is going to be good for competition, consumers and artists.

The possibility that U.S. authorities may block the deal cannot be completely ruled out given the nationality of Tencent. Any sign yet from Americans about the deal? I can see some red flags being raised there, but the deal won’t likely be blocked.

No. I can’t imagine that the U.S.A. wouldn’t look at it either. I think what is going to be interesting is the countries that will be important here are the ones that have specific rules about minority shareholding where they know full well that just because a shareholding is low, It doesn’t mean there’s no material influence

It was alarming enough when Universal purchased EMI’s music division in 2011 for $1.9 billion but, in comparison, that was small potatoes. When IMPALA opposed the Universal/EMI merger, you thought Universal was already too big. The EU itself came to the same conclusion, even though it let them grow a bit more.

Yes, it is a totally different ballgame now. I don’t think that you need to have much in terms of share-holding with these companies to create a proper alliance. This is what seems to be at stake here. Whether or not it is appropriate for the world’s biggest music company and Tencent Holdings to have this kind of a strategic structural relationship.

(One outcome of IMPALA and others opposing the Universal/EMI merger was the remedies involved for the deal to proceed. Universal Music Group (UMG) was required to sell two-thirds of EMI, and have its digital deals monitored for 10 years in order to secure the EU’s approval. The intervention led to a deal with Warner Music Group, and the independent sector being able to buy assets including a significant chunk of Parlophone.)

While the EU has spent two decades dismantling vertical controls in other essential markets like energy and communication, It is likely not about to go into reverse in digital and music without great consideration. Yet, you must concede that Vivendi will eventually sell off much of its stake in Universal, one way or another.

Yes, the indication, as we’ve said, is that they want to sell 50%. It is clear for them that the option of horizontal partners is out the window. They have already been told, “You can’t get any bigger.” So the only way to go is to vertical partnership. Of course, there’s a particular value in that because for Vivendi being able to use any structural links to leverage and gain more of a foothold in the vertical markets is a no brainer for a company. That is what they have to do to get a grip on the market, and to control what is happening around them.

Your nightmare of a pairing of suitors for Universal Music Group would have been Google and Tencent. I can’t imagine any regulator in Europe approving such a move because the resulting level of vertical integration would pose considerable risks for competitors and citizens.

Yeah, it’s funny when you have to choose between Google and Tencent. When you look at the sheer power and presence and the position of Tencent, not only in China but elsewhere, in Asia and India, and moving into Africa, it is something to think very hard about.

It’s ironic today that China is leading the way in mapping put the future music streaming when for so many decades its government disdained Western-style copyright or even co-operating with Western music labels or music publishers.

It’s a different approach to monetization

It was predicted with the mid-November 2019 acquisition of the last part of EMI Music Publishing by Sony/ATV would lead to monopoly. Sony paid $2.3 billion to acquire a controlling stake in EMI Music Publishing. The acquisition is said to have doubled Sony’s catalogue of songs, from 2.16 million to 4.21 million compositions.

Earlier IMPALA had published an analysis showing that when combined with EMI Music Publishing, Sony’s control of the national charts would exceed 70% on average in countries such as Italy (77%), the UK (73%), France (73%), the Netherlands (72%), and reaching a peak of 82% in Spain.

In 2012, EU regulators ruled that divestments were required for Sony to become a minority shareholder. With Sony now acquiring 100% control of EMI, it was given unconditional approval. EU regulators did not launch a full investigation into the acquisition. The deal went ahead without any conditions, despite strong representations made by trade bodies, including IMPALA, the British Academy of Songwriters, Composers and Authors (BASCA)—which in March 2019 changed its name to The Ivors Academy—and the European Composer And Songwriter Alliance during the consultation process. Sony now owns the world’s biggest music publisher.

(According to an analysis by Music Business Worldwide, in the three months to end of September (Q3 2019), Sony’s publishing companies, including Sony/ATV and EMP, generated $357.6 million while Universal Music Publishing Group, meanwhile, was $30 million behind at $327.5 million).

Well, what the Commission said on that case was that basically they had from the beginning taken a decision as if Sony was the one in control. So their way of retro-fitting the outcome was to say, “Listen guys and girls, when we first looked at this deal we didn’t accept Sony’s argument that they wouldn’t control. That is why we’ve got remedies.” That is why they made Sony sell. But we said that the remedies were insufficient. They were woefully inadequate for a company of that size. The Commission basically said, “Well, we already did our job on this. We’ve got the remedies in place. You might not agree that they were strong enough but that is the way it is.”

They are what they are.

They are what they are. That’s an interesting point because the Commission from their perspective took a tough stance. They’d got their divestments in place and they felt that was adequate and there was no need to revisit it. And the control of the charts is still there and it raises fundamental questions of diversity and pluralism in the marketplace to have one company controlling so much of the music today.

Two years ago, IMPALA indicated concern in the way streaming manipulation was being tackled at the European level, and to the uncertainty surrounding the user-centric model due to a lack of data. On June 20th, (2019) a code was signed by a group of technology companies, and music sector organizations, including IMPALA, to agree to practices to combat the world of “stream farms” and other forms of streaming manipulation.

With the goalposts constantly moving, streaming manipulation deeply affects many aspects of your members’ businesses.

Yes. The code is really an action across the whole sector. So it’s music services; it’s independents; and it’s majors, all working together to come up with a set of standards that they believe need to be adhered to by all companies in the music universe. It’s a really vital issue for our members because clearly any kind of manipulation is going to hit them hard. Anything that sucks money out of the system is going to hit the independents hard.

There’s diverse views of streaming distribution as well. The streaming sector seeks to adopt a user-centric strategy while the principle of pro rata temporis would lead to ensuring niché genres and local repertoire aren’t buried. Can services evolve to offer diversity and choice online among the white noise?

There’s a debate to be had around so many different elements in streaming distribution. There are all sorts of questions. The fact that it doesn’t matter how long a song is that you get paid the same amount. There are different elements to working out what the optimal model should be. But whatever model there is we will always have the question of manipulation. So we will always have to address it. So for us, it’s two separate issues. That why we believe the code is a real achievement of 2019 because it was the first time that the whole sector came together the services to say, “Okay, we need to act together to try and reduce manipulation because it’s not fair.”

The manipulation has been there, even before the advent of the streaming services, but it has only been of late as PROs, rights holders, and others began analyzing the massive flows of information coming into them on a daily basis that the challenges brought about by streaming data manipulation has been more recognized.

Yeah, it’s funny that you would say that because last year we gave the Outstanding Contribution Award to a Norwegian journalist, Markus Tobiassen (and the Norwegian newspaper Dagens Næringsliv) who had done a lot of investigative work into the manipulation done within the TIDAL service. So yeah you are right, it is one of those issues that the industry is more and more concerned about.

(Markus Tobiassen is a journalist at the Norwegian newspaper Dagens Næringsliv since 2014. Prior to that he was a cultural journalist and film critic in Adresseavisen. He was one of the lead investigators on the TIDAL case, which caused a stir in the music industry as whole, raising the alarm on possible issues with the way certain streaming platforms run their business.”)

The industry may be concerned about this gaming of the system, but few industry figures know much about data manipulation in streaming because the services’ practices are shrouded in secrecy.

Yeah. One thing guaranteed is that those who are able to manipulate will find ways to manipulate regardless. It’s a constant. It will be a constant battle.

Another IMPALA success of late is the European Union loan guarantee scheme to leverage more finance in the sector. It’s exclusively for small and medium-sized companies and works by having different banks guarantee loans, all backed up by the EU.

This is something that IMPALA has been working on for a long time, and it is based on a French model where financial institutions in France were making loans and guarantees to cultural operators, like independent labels, and they were making a decent return. So they kind of proved the model; that it was possible to finance the cultural sector without incurring unnecessary risk. What was happening in terms of loans, and in terms of debt finance, is that there is a new scheme that was introduced a couple of years ago to allow cultural operators like independents to go to a bank and say, “Lend me some money, and I can get you the loan guaranteed.” And now what we have is a totally new approach to the music sector where there is a new program that funds music projects very much like the film sector and that is “Music Moves Europe.” It is the very first time the EU has a program dedicated to the music sector. Totally different to anything that has happened before, and it was inspired by the model in France.

Obviously, European politicians recognize the cultural sector as an acceptable contributor to the economy. Is the program in effect now?

Yes, it is a pilot project, and it is going to be part of the new EU budget that is being finalized now. On top of that the loan guarantee facilities that I mentioned, they are also going to be grants as well. They are interested because they provide massive leverage effect when it comes to finance because you are providing a level of guarantee that generates more in terms of actual loans. This is really significant in terms of financing our (music) sector, and other cultural sectors

As different parties have begun seeking to strengthen their position in the growing digital market, it is fascinating that the German performance rights society GEMA– The Gesellschaft für musikalische Aufführungs- und mechanische Vervielfältigungsrechte–has bought a majority stake in Zebralution, a Berlin-based distributor that works with over 1,000 record labels and audiobook publishers from around the world.

By becoming one of the first collective management organizations in the world to secure commercial participation in a growth segment of the music market, GEMA– the only such institution in Germany—is seeking to boost its digital footprint for music, podcasts and audiobooks. This wouldn’t have happened a decade ago.

(In Germany, GEMA represents the copyright of more than 74,000 members, among them composers, lyricists and music publishers, and more than two million copyright owners worldwide.)

Yeah, it raises an interesting question that one. We have a collecting society using members’ money to make a private investment. Competing with members. Collecting societies, they (traditionally) have a particular role.They have a status and rules that they have to comply with, and there are conditions and benefits that come with that and certain responsibilities.

You favor collective bargaining? Collective licensing when the music industry chooses to license as one through collecting societies

Collective bargaining is fundamental to our members.

Several American-based music publishers, specifically Global Music Rights (GMR) founded in 2013 by Irving Azoff,  have taken a much more hands-on role in negotiating rights in contrast to traditional collective bargaining. Does direct negotiating by music publishers and others not weaken the collective bargaining process? Frankly, most people, other than music publishers, don’t know the collection societies outside of the U.S. or how they work.

That’s why Merlin was created because of dealing with a sector that is so valuable that it accounts for 80% of all new releases. It is a shame to throw that bargaining power away by not being able to use your collective strength to negotiate. Collective licensing is totally fundamental.

In contrast to Europe, American music publishers suffer from a legal framework that prevents the creation of a stand-alone buyer-seller marketplace with mechanical, and performing rights, specifically compulsory licensing where they are forced to give a license.

There’s no negotiating room.

Major American music publishers sought changes to the consent decrees for years.

While American publishing organizations support changes to the consent decrees that are regulated with ASCAP, and BMI, saying it would give rights holders more leverage to negotiate higher market-based rates, they don’t agree on the details. In fact, the U.S. Dept. of Justice is reviewing all consent decrees to see if they should be amended or allowed to sunset — including studying the National Music Publishers Assn. (NMPA)-aided effort, “skinny” consent decrees proposed by ASCAP and BMI that would permit publishers to selectively withdraw digital rights from their respective repertoires and blanket licenses.

 I agree with you about collective bargaining. If you are a major songwriter, you may be able to pull yourself out of collective bargaining, but not everybody can.

Nope. Exactly. And there are so many advantages to collective licensing and I think that it is important that these structures exist and they perform well. Obviously, it is natural the collecting societies business will evolve and develop and it will be an important question over the next few years to where the limits of that lie.

In the past music-based multinationals fully controlled distribution, recording, and music publishing. That’s not fully the case today.

A number of entertainment executives and artists are shaking up the music-tech ecosystem by launching venture-capital firms focused on rights-tech for music and entertainment. Among them are: Plus Eight Equity with DJs John Acquaviva, Richie Hawtin and Pete Tong as advisory board members; Raised in Space which has manager Scooter Braun on the board; and DBTH Capital Ventures, co-founded by Virginie Berger and based in Paris, that represents and develops French and international businesses in innovative services, technologies and creative industries.

There are now lots of options. That’s good. That’s great. The markets are diversifying but I think that what is also interesting is that you speak to our (label) members they tell you that they have never been so solicited by artists. Never before have they been solicited as they are today by artists looking for a proper label.

That’s ironic given all of the DIY white noise rhetoric of “You don’t need a label” out there. I know few artists that would not jump at a proper label deal.

It depends on what an artist is looking for. If they are looking for more freedom and longevity and, maybe, more of a collaboration and a joint venture type of arrangement. It really depends on the profile and the fact is that every level of the sector needs to be competitive, and needs to offer choice and give options to the writers or artists. It is important that the market evolves constantly.

Reversion of rights has become more of an issue in recent years.

Well, Europe answered that question in the Copyright review. They (regulators) concluded that reversion was okay, but only if there was no exploitation.

Dismissing rights holders who hang onto the copyright without doing anything.

Yes. But the EU didn’t buy into the idea of reversion as a fundamental part of how rights should operate. I don’t know. In terms of how the market works now, however, there is no reason not to exploit copyright.

Tell me about the new centralized industry data exchange service Repertoire Data Exchange (RDx), driven by IFPI, and the Worldwide Independent Network (WIN) on behalf of IMPALA which will ultimately allow collecting societies worldwide to facilitate seamless collection.

That is such an achievement for the independent sector to be collaborating on an equal footing.

So RDx will enable record companies and music licensing companies to submit and access authoritative recording data, and PPL, the UK music industry’s collective management organization, will deliver and operate RDx as a single registration point?

It is basically a totally new approach to data management in the sense that there’s a framework that will facilitate data exchange on a consistent basis. So it’s not the global database, this one project that will replace everything. I It is basically a protocol that will dictate standards in data management and exchange that will facilitate one single standard for data exchange worldwide. I think that the beauty of this system is that it will be compatible with local initiatives to standardize and get their data into working and exploitable form. it is basically a system that operates on DDEX (Digital Data Exchange) and it doesn’t exclude local initiatives that will sort out data and make sure that local repertoire is represented alongside international repertoire in the same way when it comes to data management.

Record companies have historically used a variety of data delivery processes to supply content to individual music licensing companies around the world resulting in challenges in the supply of recording data RDx marks a move toward greater transparency.

Yes indeed, and that’s being managed by WIN, the worldwide network so it will have a global impact. It’s fantastic.

This year’s IMPALA Outstanding Contribution Award is to be given to Music Declares Emergency. The UK organization, formed in 2019 by a collection of artists, music professionals, individuals, and Julie’s Bicycle, works with the UK music industry to improve sustainable practices and calls for systemic changes from government to achieve net zero carbon emissions by 2030.

Climate change isn’t an easy topic for the music industry to truly address given its massive carbon emissions imprint that includes touring (vans, and planes, pyro etc.), merchandising, and even vinyl production. Artists live high carbon lives, and the industries that they are part of have huge carbon footprints.

A lot of journalists have pointed that out. That those participating are hypocrites. The musicians and artists that have signed up have said, “Yeah we do have high carbon outputs and we are stuck in the fossil fuel system.” So they totally acknowledge that their lifestyle is causing climate ecological harm, but beyond that as well, they feel that there is a need to use their voices in a constructive way to call for systemic change.

Activism can be about staying carbon neutral.

Yes, sure, but it is also about using the power of artists, and a collective voice to call for systemic change. Action by governments to embrace the need for change and to encourage change and concrete action more rapidly than some governments are prepared to recognize that there is a need for. That is the key issue here I think. So it is also about the power of musicians and artists to use their voice in the public interest.

With your accent, it’s easy to tell you are from Scotland.

I’m from a tiny place called Hollybush in Ayrshire on the west coast. My father was a blacksmith. I grew up with horses and dogs. And a twin brother. I went to the University of Strathclyde in Glasgow.

You studied law?

One of the reasons I went there was because they had a really good reputation for international and European law. It was the best university for the European and international law courses which were just developing then. There was only a handful of students in those classes. The other two universities in Scotland, I couldn’t even go to because I wasn’t old enough. I had just turned 17 when I went to university. I’d had such a great childhood in the wide open, with big skies, and a huge level of freedom. When I started listening to (BBC DJ) John Peel, I began to think that, maybe, the big city had something to offer too. Studying was my ticket to go and live in Glasgow or somewhere else.

Larry LeBlanc is widely recognized as one of the leading music industry journalists in the world. Before joining CelebrityAccess in 2008 as senior editor, he was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-80. He was also a co-founder of the late Canadian music trade, The Record.

He has been quoted on music industry issues in hundreds of publications including Time, Forbes, and the London Times. He is a co-author of the book “Music From Far And Wide,” and a Lifetime Member of the Songwriters Hall of Fame.

He is the recipient of the 2013 Walt Grealis Special Achievement Award, recognizing individuals who have made an impact on the Canadian music industry.

 

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Interview: Helen Smith "In The Hot Seat" with Larry Leblanc - copyright, Tencent, Brexit, IMPALA turning 20...

Helen Smith is in Larry Leblanc's "In The Hot Seat" on Celebrity Access to discuss IMPALA's key issues for 2020: Tencent and UMG, copyright, Brexit, IMPALA's upcoming 20th birthday and much more.