No ‘Simple’ Fix to Low Streaming Royalties as UK Report Strikes Down ‘Equitable’ Sharing Model

LONDON — The British government’s Intellectual Property Office has said that bringing streaming in line with TV and radio broadcasts in the U.K. by obligating record companies to pay performers ‘equitable remuneration’ does not provide “a simple solution” to creators’ concerns over low returns from services like Spotify and Apple Music – and is “unlikely to yield a net positive income for the industry at large.” 

In its report into the potential impact of equitable remuneration on the U.K. music business, published Monday, the Intellectual Property Office (IPO) says its introduction could result in labels reducing their investment in developing new acts and would see rightsholders paying out “a significant sum of money” in administration costs.

The report goes on to say that more work is needed to fully assess whether labels’ ability to negotiate competitive deals with streaming services on behalf of artists would be weakened — as claimed by record labels – by changing how royalties are paid out for music streams.

“While not a satisfying conclusion, it is clear that more research is required into the nuances of how best to balance the incentives to create with the need to monetise creation,” states the report.

The IPO research paper into equitable remuneration is the latest chapter in a long and ongoing series of government-led interventions into the U.K. music industry fuelled by artist discontent over low payments from streaming.

In 2021, a Parliamentary inquiry into the music streaming business called into question the major record labels’ dominance of the industry and branded the global streaming model as unsustainable in its current form, saying it “needs a complete reset.”

One of the key proposals made by the Parliamentary inquiry was changing the revenue model for music streaming by forcing record labels to pay performers equitable remuneration — equivalent to a 50/50 royalty split — on music streams, which it called “a simple yet effective solution to the problems caused by poor remuneration.”

A similar statutory right to equitable remuneration has existed in the U.K. since 1996 for TV and radio broadcasts, where revenues are split 50/50 between labels and performers and distributed via by the collecting society PPL. The statutory right guarantees royalties to non-featured performers, such as session musicians, whenever a song they played on is broadcast on U.K. radio or television.

By contrast, under the current music streaming model only the copyright owner receives payment from streaming platforms, which it then shares with the artist according to the terms of their contract. Average royalty rates are typically set between 25% and 30% on new artist deals and far less on legacy contracts, while some indie labels now offer artists 50/50 profit-share deals. (Session musicians do not typically receive any royalties from music streaming).

The IPO’s report examines what impact equitable remuneration would have on the U.K. music business by applying several predictive models to streaming over a five-year period. 

When equitable remuneration is applied to 100% of streaming income — based on a scenario where a record company invests £150,000 and a release generates £240,000 (3 times the recoupable advance) — earnings for featured artists almost double to just under £115,000, while record label revenues move from a £90,000 profit to a loss of almost £13,000. Session musician income jumps from zero to just under £30,000.

In instances where equitable remuneration is applied to 35% of streaming income, the same metrics see label revenues drop from £90,000 to just under £54,000, while featured artists’ income rises from a flat £60,000 advance to almost £100,000 (including recoupable costs spent).

The research also models the impact on loss making deals and instances where 7x the record company advance is generated, as well as the impact of equitable remuneration on DIY artist deals.

The IPO’s modeling surmises that equitable remuneration would make record label investment “more risky and more difficult to justify,” while DIY artists would see increase in administration costs and receive little financial gain or, for heavily streamed releases, a reduction in profits. 

“If the intention is to better support the careers of current and future artists then there is a significant risk that introducing” a full version of equitable remuneration “would make it more difficult for the current label investment model to continue,” says the report.

The research paper, which was carried out by the IPO in conjunction with a working group made up of industry stakeholders, additionally looks at the potential impact of the U.K. introducing a version of equitable remuneration similar to what already exists in Spain.

In Spain, 5.6% of streaming income is currently shared out between featured artists and non-featured performers, with equitable remuneration paid by streaming platforms, not labels. However, the practice has been mired in litigation since its introduction in 2006 and critics say that it resulted in only marginal gains for artists and performers.

When applying the so-called ‘Spanish model’ to the U.K. business, researchers found that it offers a much less significant shift in revenue than other ER methodologies but raises unanswered questions around whether it would make “a material difference” to creator earnings.

The report warns that if an equivalent to the Spanish version of ER was introduced in the U.K. streaming services might look to recover “some or all” of the extra revenue they would have to pay out from their deals with rights holders.

Reaction among U.K. music trade groups to the IPO’s findings was mixed.

Jo Twist, CEO of labels trade body BPI, said the report reinforces record company’s long-held concerns around equitable remuneration. Making such a change to how streaming royalties are shared “would undermine the essential role that labels play in investing in and supporting artists,” Twist said in a statement.

The Council Of Music Makers noted that the IPO report “reaches no conclusions, and no decisions should be made on the basis of its ambiguous findings.” The trade group said it would continue to work with all industry stakeholders on a “wider discussion” around creator remuneration from streaming and various solutions that have been proposed.

Responding to the IPO’s research, government ministers Julia Lopez and Viscount Camrose said that “in light of the risks” highlighted in the report, “the government does not intend to apply the ‘broadcast model’ of equitable remuneration to on-demand streaming.”

Instead, the findings “lend weight to the view that the best way to address creator concerns is through dialogue among industry and, where appropriate, industry-led actions,” said Lopez and Camrose in an open letter to Dame Caroline Dinenage, chair of the Culture, Media and Sport Select Committee.