• Manager article part 5

Music Business News, February 21, 2017

A music rights expert explained the possibility and danger of Apple monopolizing the music streaming market. Also, a court ruled that Sirius XM does not have to pay royalties on recordings that pre-date 1972. And U.K. labels and Google partnered on an anti-piracy initiative.

 

Manager article part 5

 

Major Labels Thriving, Risking Potential Streaming Monopoly by Apple

 

“Spotify represents an important piece of our music industry ecosystem, and the system is vulnerable,” posited award-winning record producer, songwriter and music rights expert Paul Wiltshire.

 

According to Music Business Worldwide, competition is an essential part of the music economy and helps everyone in the music industry. He added that major labels may be hindering this competition.

 

Spotify’s revenues were up 80-percent in 2015, but its annual operating losses also increased, as it paid out almost 85 percent to rights owners.

 

Spotify raised $1 billion in 2016 with a 5-percent interest rate that will increase one percent every six months. And Spotify said it is now weighing whether or not it will delay service expansion until after it renegotiates fairer licensing agreements with the three major record labels, Sony, Universal and Warner.

 

Across the board, streaming services reported they are losing millions of dollars while artists and songwriters simultaneously battle for fair payouts, with their rates per stream down to fractions of cents.

 

Wiltshire pointed out that a look at the financials of major labels reveals they are seeing a return to growth and larger revenues after a decade of decline sparked in large part by failing to adapt to new technologies: “While streaming services are losing millions of dollars, artists and songwriters are fighting to get compensated fairly for creating the songs that make those services popular.”

 

Spotify’s deals with major labels used to include large advances plus a big chunk of the company’s revenues, which may or may not have been shared with artists on the platform. Although major labels supported Spotify early on, this support was in return for stock in the company, a benefit not passed on to artists on the labels.

 

According to Wiltshire, the major labels are “at a crossroads. If they continue to think short-term, they may face a future in which Apple will be the only streaming platform … If they want to ensure a robust market for music rights, they need to think beyond the short-term gains that could ultimately lead to the demise of Spotify and other independent streaming platforms.”

 

He added, “… Unfortunately our fate is at the mercy of the three biggest landlords, who are aligned in a somewhat myopic vision. Our music industry ecosystem, just like planet Earth, is fragile … We need to find sustainable ways to grow and thrive, that don’t just serve the few.”

 

If Spotify and other independent streaming services go under, the only thing left will be the biggest company in the world, Apple Inc. and its streaming platform, Apple Music. Apple Music has more money and can afford to lose a little while other companies fall by the wayside.

 

Apple reported $246 billion cash in a bank account that brings a return of two percent per year. Spotify’s 2015 losses alone are only two weeks of interest earnings for Apple.

 

Wiltshire concluded that the question major labels must ask is, “Do we only want one streaming platform?”

 

SiriusXM Wins New York Case on Pre-1972 Recordings

 

SiriusXM brought one battle over the public performance of pre-1972 sound recordings to an end last week.

 

The Hollywood Reporter said that on February 16, the 2nd Circuit in New York granted summary judgment to the satellite radio company and dismissed the lawsuit first set in motion by songwriters Flo & Eddie of The Turtles.

 

This judgment came on the heels of a New York Appeals Court ruling in December that stated New York’s common law does not protect the public performance of sound recordings made prior to 1972. This means broadcasters in the state would not have to pay to air older hits from Bob Dylan, The Rolling Stones, The Turtles and more.

 

Flo & Eddie’s argument, outlined in several lawsuits, was that works created prior to Congress’ move to protect sound recordings under federal copyright law could not be “misappropriated under state laws.” They won their lawsuit in California before earning a second win in New York. A New York federal judge’s ruling in favor of Flo & Eddie went before a judge again on appeal. In California, SiriusXM settled, with total payments to the plaintiff’s class action dependent upon the outcome of several appeals.

 

After the New York Appeals Court decided on its “limiting interpretation” of performance rights, attorneys for Flo & Eddie returned to the 2nd circuit to argue about whether or not SiriusXM had been party to unfair competition. The 2nd Circuit determined that the public performance issue is “determinative” of all claims and reversed the district court’s denial of a summary judgment. The result may save SiriusXM millions.

 

The U.S. Supreme court may eventually address pre-1972 sound recordings rights. However, the high court will not likely accept the New York case as a way to start the conversation because it relates to an interpretation of state and not federal law.

 

U.K. Labels and Google Launching New Anti-Piracy Measure

 

Google and Bing announced they will be partnering with U.K.-based labels on a new anti-piracy initiative that involves removing links.

 

According to Billboard, the search engines will be increasing efforts to “demote and restrict access” to websites that infringe on copyrights. The new effort is a response to the agreement of a voluntary code of practice set between United Kingdom-based rights holders and tech companies.

 

The code is being called the first of its kind in the world and will result in the removal of links to unlicensed material. Its purpose is to decrease the visibility of illegal content in search rankings in an effort to promote licensed music sites and services.

 

The agreement is already in effect and has been signed by the BPI, the Motion Picture Association and the Alliance for Intellectual Property as well as Google and Bing.

 

Geoff Taylor, BPI chief executive explained, “Successful and dynamic online innovation requires an ecosystem that works for everyone — users, technology companies, and artists and creators.”

 

He explained that the new practice will not be a quick fix, but it will help ensure that illegal sites are removed more quickly from search results, leading music fans to legal alternatives.

 

He added, “We look forward to working with Google, Microsoft and our partners across the creative industries to build a safer, better online environment for creators and fans.”

 

Rights holders will still be asked to report infringing content to search engines. However, those organizations and companies that signed the agreement said they are hopeful that this new initiative will lead to increase cooperation between all in the music and entertainment industries, streamline the takedown procedure and empower new anti-piracy practices. The groups are also working to make auto-complete suggestions better in order to decrease the number of infringing search results.

 

Studies conducted by the U.K. government’s Intellectual Property Office indicated that 78 million music tracks were obtained illegally between March and May of 2016 and 20 percent of Internet users engaged in some type of illegal music activity online during that same time period.

 

President and managing director of the Motion Picture Association EMEA Stan McCoy explained, “Pirate websites are currently much too easy to find via search, so we appreciate the parties’ willingness to try to improve the situation.”

 

Jo Dipple, chief executive of U.K. Music agreed and called the new voluntary code of practice “the culmination of years of discussions between rights-holders and search engines. This is progress and all parties must work to ensure the code has effect.”