London, 12th February 2014

Op-ed by Charles Caldas, CEO of Merlin, published in Billboard (Billboard Biz) on 12th February

Merlin’s CEO Charles Caldas on Indies, Streaming and the Market Share Issue (Op-Ed)

When is an indie really an indie?

Following January’s flurry of sales stats and data, and with Midem complete, it feels appropriate to now look forward at the priorities and challenges facing us in 2014. In terms of Merlin, and our place in the digital music market, that means two key and interconnected areas.

First, the streaming market, which is quickly coming of age.

According to Nielsen’s recently published figures, in the US licensed streams increased last year by 32%. In the UK, streaming now accounts for 10% of the value of recorded music sales. Given the relative infancy of the market — remember, Spotify only arrived in the States 18 months ago — this is a significant and positive trend. And there is more to come. A new wave of competitors, following the lead of Beats Music, are primed for launch over the coming months. Meanwhile, existing services are rolling out far beyond the major markets, into South and Central America, Asia, Eastern Europe and Africa. For recorded music, streaming has genuine potential to deliver global dividends.  

This is especially exciting for independent artists and labels. Premium subscribers, who are among the industry’s most valuable consumers, tend to be discerning music fans. They demand the complete history of music: past, present and future. They want a great user experience. And they want access to the cutting edge, the new and the innovative — all recognised hallmarks of independent music. 

According to Merlin’s members, the demand for independent repertoire on premium subscription tiers is already eclipsing their share of the wider digital market — a fact Merlin is clearly witnessing on the bottom line. Last year, we collected $70m from streaming services. This year, I’m confident we’ll easily surpass $100m.

Which brings us to the second major area: transparency.

With the commercial potential of streaming services starting to be more broadly understood, and with the flood of investment that we are starting to see from companies hoping to tap into that potential, there is a widespread hope that the emerging digital market will reflect the excitement and diversity epitomised by these new forms of consumption and deliver back to the industry value that was considered lost to piracy. But, more than that, we hope that, against a backdrop of major label consolidation, we can operate on a level playing field.  

Streaming rates are one important aspect of the transparency conversation. However, there is also the issue of how deals are constructed in the first place. Especially in regards to calculations around “breakage” (i.e any payments not tied to actual usage of repertoire) which are typically determined by market share. The greater the market share, the greater the breakage.

At present, streaming data is not published in Nielsen’s market share calculations. This is in itself problematic, since usage on streaming services, with no “shop windows” through which consumers are funnelled does not necessarily correlate with the more traditional models of consumption, based on unit sales in a “retail” environment.

As a result, the available market data on these new services is limited.

However, on the basis of Merlin’s data, the independent sector appears to be on a very strong footing. Our 2013 member survey showed our members performing significantly better on streaming services than what might be expected judging by the Nielsen numbers. 


In theory, this should place us among the first to the table when it comes to negotiating with streaming services.  Especially as, in the shape of Merlin, we have a single body capable of offering one-stop global licences for the most valuable basket of recorded music rights outside of those controlled by the major labels.

Unfortunately, this has not always been the case.

Partly, I believe, this is an issue of perception. For, instead of calculating market share by ownership of recordings, Nielsen makes its primary definition by ‘distribution’ — a measure which includes rights that may only be controlled on a relatively short term basis (whether direct or via ownership stakes in other distribution companies, such as The Orchard and Ingrooves/Fontana).

When calculated by master ownership, the independents’ share of overall US album sales is currently 34.6%, up from 32.6% in 2012. But via the inclusion of rights owned by third parties in the majors’ shares — rights which are not necessarily controlled for digital services — the independent sector’s published share of the overall US album market is slashed to 12.3%. By comparison, UMG, boosted by the EMI takeover, is shown with a 38.9% share. Sony grabs a significant 29.5%.

If these figures are being used to negotiate equity stakes, guarantees and other non-royalty benefits from new services, as we believe they are, it’s no wonder UMG and the other majors have been so quick to launch or acquire independent distribution businesses over recent years. Even on the basis of short-term distribution rights, the major labels can derive lucrative long-term gains, adding revenues to the bottom line but not necessarily passing them back to the companies or artists who actually create that value. 

Certainly those indie labels and artists “donating” market share must be unlikely to be among the beneficiaries of “breakage” created under these deals.    

Going forward, this is an increasingly pressing issue for the independent sector, and something we believe should be prominent in independent labels’ minds when considering distribution arrangements, and one where we should applaud A2IM, and Rich Bengloff in particular, for bringing it to wider notice. It deserves to go wider still. The transparency debate runs deeper than per stream rates and, at present, the vast majority of music businesses and artists would appear to have the odds stacked against them.  

Imposing old world metrics might improve short-term gains for the major labels, but it is unlikely to improve the long-term future of the streaming market. Quite the reverse. Amending market share calculations to ownership-based criteria falls short of a panacea, but at the very least it would be a step in the right direction.

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