UK competition watchdog finds major record companies are not ‘making significant excess profits which could be shared with creators’

It was a music industry survey that, for quite a while, rocked the major record labels. But ultimately, following an in-depth study of the local music market, the UK’s main regulatory competition watchdog concluded that large-scale record labels are “[not] likely to be manufacturing important excess profits that could be shared with creators”.

In July last year, an interparliamentary committee of British politicians called for a “complete reset” of music streaming after investigation in the streaming economy.

A related report recommended that the majors’ dominance of the UK recorded music industry be reported to the UK’s competition watchdog – the Competitions and Markets Authority (CMA).

The CMA then launched a “market study” on the power dynamics of the recording industry. The CMA final 165 page report about it was published in the UK on Tuesday 29 November.

During the CMA market investigation, some UK music industry lobbyists suggested that artists and songwriters were not making enough money from streaming services and blamed some music companies to retain disproportionate profits from royalties.

The CMA ultimately concluded that streaming pay is an elite pursuit, with more than 60% of streams in the UK featuring music recorded by just 0.4% of top artists.

The CMA study also concluded that music consumers have benefited from “real world” price cuts in music streaming services. Due to inflation, the unchanged price paid by consumers in the UK for a service like Spotify The premium fell more than 20% between 2009 and 2021, the CMA said.

With specific regard to major label profits, the CMA explains in its new report that it undertook a break-even analysis and did not “find evidence of substantial and sustained excess profits from major labels.” which could be competed for the benefit of consumers, for example through more investment in music”.

He adds: “While there are limitations to the business case, the results of this analysis are consistent with our overall conclusion that competition elsewhere in the value chain helps ensure positive outcomes for consumers. “

Commenting on the impact that streaming has had on the music industry in the report’s closing remarks, the CMA notes that “the music market has seen profound changes in recent years, from piracy to the introduction of streaming “.

It also states that “it is widely recognized that consumers have benefited from streaming through access to comprehensive catalogs of music and innovative services for free or at a fixed monthly price, which has been declining in real terms.”

The CMA believes, however, that “there are real questions about whether the creators – those who write and perform the songs – have benefited to the same extent.”

“There are more artists than ever, and as a result, creators are faced with more artists and songs to compete with for streaming revenue.”

CMA report

The report further notes that while “results are generally improving, we note that to some extent changes in the industry, precipitated by streaming, have made it harder for some creators.”

Factors that have made it difficult for some creators, according to the AMC, include “lower barriers to entry and more choice in how music is distributed,” meaning “there’s more artists than ever before, and as a result, creators face more artists and songs to compete with for streaming revenue.

This particular observation from the CMA – that there are more artists and more songs than ever before – is even more striking following the news around 100,000 tracks uploaded daily to music streaming services.

Other challenges facing artists in today’s streaming economy, as the CMA pointed out, include “it’s difficult for music companies to know who among the growing pool of creators, will succeed”.

The AMC adds that “this inherent uncertainty combined with consumer tastes that tend to lean towards a relatively small number of artists means that creators face even greater challenges.”

He concludes, however, that he does not “believe that these factors are caused or exacerbated by issues with how companies in the market compete.”

“We’ve heard from many artists and songwriters across the UK about how they struggle to make a decent living from these services. These are understandable concerns, but our findings show that they are not the result of inefficient competition – and CMA intervention would not free up more money in the system that would help artists or authors – composers.

Sarah Cardell, CMA

Announcing the final report on Tuesday, November 29, CMA Acting CEO Sarah Cardell said, “Streaming has transformed the way music fans access vast catalogs of music, providing artists with a valuable platform to reach new listeners quickly and at a price to consumers that has been declining in real terms over the years.

“However, we have heard from many artists and songwriters across the UK about how they struggle to make a decent living from these services. These concerns are understandable, but our findings show that they are not the result of inefficient competition – and CMA intervention would not free up more money in the system that would help artists or songwriters. .

“Although this report marks the end of the CMA’s market research, which addresses previously raised competition concerns, we also hope that the detailed and factual picture we have been able to paint of this sector relatively new will provide a baseline that can be used by policy makers to determine whether additional measures are needed to help creators. »

Here are some other key findings from the report:

On the power of majors:

“We were told that the CMA could smash the majors, intervene in historical contracts between artists and labels, impose firewalls between the publishing and recording arms of the majors, remove clauses in contracts between streaming services and labels, impose a code of conduct governing the financial relationship between music companies and creators, or otherwise intervene to increase the remuneration of creators. We did not find any significant competition concerns overall, especially those that could result in material excess profits.

“This means that competition intervention is unlikely to free more money from the system in a way that could significantly improve overall results. In such circumstances, there is also a greater risk that intervention by competition has unintended consequences for both consumers and creators.

“For example, an intervention to separate the publishing and recording businesses of the majors could induce stand-alone recording companies to refuse any increase in ‘publishing share’ through a reduction in recording share, as any loss of their recording revenue would not be mitigated by gains from their publishing share.

“Furthermore, the intervention is unlikely to significantly alter the split between recording and editing because, for the reasons we have outlined in the report, these may be due to frictions in the negotiation of licenses and the bargaining power of the holders of inherent rights in the market which will not be overcome by more intense competition for songwriters.

On the benefits of music streaming services:

“We also found no evidence that streaming services generate excessive profits – indeed, we see low or negative operating margins for music streaming services whose accounts we were able to analyze. This evidence of profitability is consistent with strong competition between music streaming services to provide services to consumers.

“#Broken Record Campaign and a record label have raised concerns that music streaming services are not generating excessive profits due to investments in unrelated services that are subsidized by music streaming (including Spotify’s entry into new formats such as podcasts and audiobooks).

“Investments in other content formats could partly explain music streaming services’ lower margins. However, investment by music streaming services to expand the range of content offered by a music streaming service is also consistent with strong competition.In addition, offering new sets of audio formats can also serve to expand the market for those attracted to music streaming services and we note that streaming services expect that over time, these additional services will become profitable.

On the chances of future intervention:

“The streaming music market is changing rapidly and new technological advancements in the coming years could bring about further changes in the way we listen to music.

“During our study, we noted the significant innovations introduced on streaming services and that there are now new ways to access music, such as through UUC platforms, with new opportunities for revenue growth. .

“These changes are likely to continue to raise questions about the impact of these developments on consumers and creators. The CMA can intervene in the future if changes in the market restrict or distort competition and harm the interests of consumers.The music industry around the world

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