The elephant in the room (II): how to maximise the size of the cake

I follow in the wake of the article written by my colleague David Serras in relation to the report “Economics of music streaming” prepared by the DCMS committee for the British Parliament. I would like to highlight some of the key points of the report from the point of view of competition law, due to the special structure of the market we are referring to and the importance of the competitive aspect in the committee’s report, to which it devotes several sections.

As is well known, both in the recording industry and – perhaps to a lesser extent – in the publishing industry, the majority of the market share is held by three majors and the remainder is made up of an amalgam of independent companies with very different profiles, although they are often grouped together under umbrella organisations. This scenario is a product of the process of market concentration that we have experienced in recent years and which, on occasions, has led to the intervention of the competition authorities. An example of this would be the acquisition of the sole control of EMI by SONY, approved in 2018 by the European Commission; more recently, the UK competition authority has expressed its concern about the effect on competition that the acquisition of AWAL by SONY may have on that market.

But it is not all about market share, and the report highlights a key element in understanding the effects of this situation: vertical integration and the role of the major labels as gatekeepers of the market. The three major groups have interests in the record industry, publishing and digital distribution; the report even highlights that, in some cases, they have had or have a stake in the streaming industry itself. This is a phenomenon that does not exclusively affect the majors, and in this sense, one of the report’s findings is extremely surprising: 81% of AIM members declare that they have interests in the publishing business.

And it is at this point that the report really nails it in pointing out a topic of great importance: how can we incentivise a better valuation of composition with the aim of reaching the ideal parity with the value of the recording. It would stand to reason that, in order to maximise their profits and achieve better results, the record label conglomerates that make up the three majors, and also the independent labels that control their publishing arms, should be interested in a better remuneration for compositions. However, the report points out that, as long as the majors also dominate the songwriting rights market through their publishing divisions, it will be difficult for songwriting royalties to be fairly valued. The report adds that this is because their publishing interests have little incentive to correct the devaluation of the composition in relation to the valuation of the recording rights. Therefore, the “under-remuneration” of music composition royalties versus recordings has much to do with the concentration phenomena in the recording and publishing markets and the multiplier effects of the vertical integration of these conglomerates.

As the DCMS committee rightly points out, encouraging a realignment and rebalancing of the industry’s remuneration incentives, bringing record labels, publishers, performers, authors and composers on an equal footing, will allow us to move from “how the revenue pie is shared” to “how to maximise the size of the pie”.

Eric Jordi, Head of Legal & Business Affairs


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