Dissecting the Digital Dollar Part 2 – Extract 1 – Division of Revenue

01 February 2017

The Music Managers Forum has long campaigned for a fairer, more transparent music industry that operates in the interest of artists and fans.  We published Dissecting the Digital Dollar parts 1 and 2 to further that aim regarding streaming. Both are available here. These bite-sized extracts summarise each issue and propose practical courses of action for managers and artists. The first of these extracts will look at the Division of Revenue, also known as the Digital Pie debate. Most of the licensing deals done between on-demand streaming services and record companies, music publishers and CMOs are, at their heart, revenue share arrangements.

MMF members broadly accepted the notional split between DSPs and rights owners of 30/70% of the income after tax as fair. Due to minimum revenue guarantees and advances being paid to the rights owners DSPs often don’t receive 30% and all remain unprofitable and have little margin to market themselves.

The 70% is split roughly 5:1 in favour of master rights versus songwriting rights. Historically this was due to labels taking more risk. Labels do still take risks on artists, however many felt these are considerably less than in the past. Therefore there should be a more equitable balance with songwriting rights owners receiving more of the pie.
Multinationals that own master and songwriting rights have a vested interest in maintaining the status quo in favour of the higher margin master business. Streaming income is accounted to the artist in many record contracts as though it is a sale. However, a stream sits somewhere between a broadcast and a sale.
All except labels thought that the royalty paid through to an artist on streaming income should be considerably greater than on physical due to the lower risks associated for the labels. In addition, deductions (types of carrier, geographical location of source of the income, marketing costs etc. from the analogue age) taken off the top should be removed as they are unjustifiable in the digital era.

Heritage artists are particularly disadvantaged having not been informed or consulted about their music being placed on streaming services.  Article 15 of the proposed European Copyright Directive aims to give artists the right to adjust pre-digital contract terms for the digital age and may become part of UK law if enacted before Brexit.

Equitable Remuneration is paid to Featured and Non-Featured Artists (session musicians) for radio play but not for on demand streaming. This is to be addressed in a later extract after more research.

Actions for Managers/Artists:
  1. Support songwriters in their efforts to obtain a bigger slice of streaming income. Help obtain better data to support their efforts.
  2. Ask labels- whether directly or through audits- what income is deducted between the source and the artist’s base price when royalties are deducted. Read and understand royalty statements.
  3. When negotiating contracts understand all the terms and implications. Make sure streaming is accounted for differently than a sale.
  4. Support the MMF and others in giving artists the right to adjust pre-digital deals to make them fair and fit for the digital age.

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