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1、 Music and streaming Final report 29 November 2022 Crown copyright 2022 You may reuse this information(not including logos)free of charge in any format or medium,under the terms of the Open Government Licence.To view this licence,visit www.nationalarchives.gov.uk/doc/open-government-licence/or write
2、 to the Information Policy Team,The National Archives,Kew,London TW9 4DU,or email:psinationalarchives.gsi.gov.uk.The Competition and Markets Authority has excluded from this published version of the market study report information which it considers should be excluded having regard to the three cons
3、iderations set out in section 244 of the Enterprise Act 2002(specified information:considerations relevant to disclosure).The omissions are indicated by.Some numbers have been replaced by a range.These are shown in square brackets.Non-sensitive wording is also indicated in square brackets.4 Contents
4、 1.Introduction.6 Context.7 Statement of Scope,Update Paper and our consultations.8 Background.11 The impact of digitisation and streaming.11 The market today.15 2.Value Chain.22 Overview.22 Music rights.24 Music companies.26 The majors.26 Recorded music.29 Music publishing.37 Creators.41 Artists.41
5、 Songwriters.52 Music streaming services and UUC platforms.53 Music streaming services.53 UUC platforms.58 The music consumer.60 How different parts of the value chain interact.63 3.Agreements between record companies and streaming services.66 Rights,payment terms and other common clauses.66 Functio
6、nality clauses.67 Most Favoured Nation clauses(MFNs)on prices(Price MFNs).68 Other MFNs,non-discrimination clauses,and playlisting clauses.69 Must carry clauses.70 Change of business model.70 Confidentiality/NDAs.71 4.Analysis on how well competition is working for consumers.73 The supply of recorde
7、d music to music streaming services.73 The nature and strength of competition.73 Bargaining position of music streaming services with record companies.75 Impact of contractual clauses in licensing agreements on competition between record companies.77 Majors combined activities in licensing recording
8、 and publishing rights.81 Conclusions.82 The supply of music streaming services to consumers.83 Nature and strength of competition.83 Barriers to entry and expansion.86 Barriers to switching.89 Barriers to innovation.91 Impact and transparency of playlists.93 Conclusions.95 Future competitive dynami
9、cs.97 5.Analysis on how well competition is working for creators.100 Artists.100 Market concentration.100 How competition to sign artists has evolved in the streaming era.101 Barriers to expansion in recorded music.102 5 Impact of terms in majors contracts with music streaming services.103 Bargainin
10、g position and outcomes for artists.112 Information asymmetry,artist representation and transparency.117 Conclusion-artists.122 Future dynamics in competition to sign artists.123 Songwriters.124 Publishing share of revenues.126 Integration of recording and publishing businesses.132 Extent to which c
11、ompetition to sign songwriters is increasing the publishing share.134 Tacit collusion.139 Majors influence on CMOs.140 Other concerns raised by songwriters.142 Conclusion-songwriters.144 6.User Uploaded Content(UUC)platforms.148 The relative bargaining power of UUC platforms and rightsholders.149 Va
12、lue gap in what YouTube pays for music compared to ad-funded music streaming services.152 YouTubes impact on music streaming services.154 Scope for incremental revenues from UUC platforms.158 The UUC policy framework.159 Content management systems and EU Copyright Directive.160 Our findings on poten
13、tial for UUC platforms to grow music revenues.161 Possible issues to consider on copyright legislation.162 7.Conclusion.163 6 1.Introduction 1.1 On 27 January 2022 the CMA launched a market study into music and streaming.1 The CMA consulted on a Statement of Scope.2 Responses to this consultation we
14、re published on 12 April 2022.1.2 On 26 July 2022,the CMA published an Update Paper3 setting out its early findings from the study and its proposal not to make a market investigation reference.The CMA consulted on this proposal and responses to the consultation were published on 21 September 2022.We
15、 have considered these responses and undertaken further assessment of the market.1.3 This Final Report concludes our market study,setting out the conclusions we have reached on the state of competition in the markets within our scope.Our core conclusion is that the CMA should not make a reference to
16、 a market investigation a lengthy process that would involve all stakeholders in a long and costly proceeding.We do not see a plausible path to any intervention that would produce benefits for consumers or creators that would merit a reference.1.4 We first describe the context for the study and the
17、background to the sector.We explain how the markets within our scope function,including the licensing and contractual arrangements.We then assess how competition is working in the different markets and consider the impact of user-uploaded content(UUC)platforms on music industry revenues.Finally,we s
18、et out the rationale for our decision not to make a reference.1.5 The music industry continues to change,in light of new technology and changes in the way music is produced,distributed and enjoyed.Our market study has considered one specific element the functioning of the market.There are wider publ
19、ic policy considerations that affect how the music industry operates,including the overall balancing of the interests of musicians and their audiences,that are outside the scope of our study but that remain actively under consideration.As well as explaining our decision and assessment,our findings m
20、ay assist to inform and support Government and policy makers consideration of these wider questions.1 The Market Study Notice is published on the CMAs case page.2 The Statement of Scope is published on the CMAs case page.3 The Update Paper is published on the CMAs case page.7 Context 1.6 As well as
21、its wider cultural and social role,music is an important creative sector for the UK economy,in 2021 contributing 4 billion to the UK economy and 2.5 billion in exports.4 1.7 However,the sector has like many others been hard hit by the coronavirus pandemic.The figures above represent a 31%and 15%decr
22、ease respectively from 2019,despite representing an increase from 2020.5 Live music in particular was heavily impacted,hurting music creators for whom this has previously represented a significant revenue stream.Artists were much more dependent on other revenues including those from streaming.1.8 An
23、 inquiry into the economics of music streaming by the DCMS Select Committee,published in July 2021,identified concerns that music creators were not getting a fair share of streaming revenues.The DCMS Committee also raised concerns about the role of the three largest global music companies,referred t
24、o as the majors(Sony Music Group(Sony),Universal Music Group(Universal or UMG)and Warner Music Group(Warner or WMG),recommending that the Government request a CMA market study into what the Committee called the economic impact of the majors dominance.6 1.9 To take forward the issues it identified,th
25、e DCMS Committee made a series of recommendations for both legislative reform and policy and regulatory intervention.In response,7 the Government set out a range of actions to consider the Committees recommendations and better understand the issues.These include the establishment of a Music Contact
26、Group with senior representatives from across the industry;and the creation of technical industry working groups to improve contract transparency and tackle data issues such as the provision of metadata identifying copyrights.8 Alongside this,the Government has committed to a research programme,incl
27、uding by:4 UK Music,This is Music 2022,p11.5 UK Music,This is Music 2022,p11.6 The DCMS Committee also recommended that the CMA consider exploring designating YouTubes streaming services as having Strategic Market Status(SMS)under the proposed new pro-competition regime for digital markets.The Queen
28、s speech committed to publish a draft Bill to create new competition rules for the largest digital firms which would be overseen by the Digital Markets Unit.The Governments proposals for such a regime are set out here:A new pro-competition regime for digital markets-government response to consultati
29、on.Until that new regime is in force,the CMA has no power to designate firms with SMS and this recommendation is therefore outside the scope of this market study.7 House of Commons Digital,Culture,Media and Sport Committee(2021),Economics of music streaming:Government and Competition and Markets Aut
30、hority Responses to Committees Second Report.8 Metadata is the data associated with tracks which provides information on the artist(s)and songwriter(s),as well as other features such as length,genre,etc.8(a)the Intellectual Property Office(IPO),on (i)potential options to strengthen creator rights(fo
31、r example by introducing a right to equitable remuneration9 when music is consumed by digital means,a right for artists to recapture the rights to their works after a period of time and the right to contract adjustment if their works are successful beyond the remuneration they receive);(ii)the liabi
32、lity of user-generated content-hosting platforms for copyright infringements within such content;and(b)the Centre for Data Ethics and Innovation(CDEI),on the impact recommendation algorithms used by streaming services are having on music consumption.1.10 The Government wrote to the DCMS Committee on
33、 18 May 2022 setting out its progress to date and a forward look for its programme of work.10 1.11 The Government also wrote to the CMA,requesting its consideration of a market study.Following consideration by the CMAs Board,the CMA launched a market study into music and streaming on 27 January 2022
34、.Statement of Scope,Update Paper and our consultations 1.12 As set out in the CMAs Statement of Scope published on 27 January 2022,our study considers the market for the supply of music,from the creators of music through to the consumer,in particular via music streaming services.11 1.13 In this cont
35、ext creators covers all the many contributors involved in the making of music,but in this document,unless otherwise specified,will tend to refer particularly to songwriters(by which we mean both composers and lyricists)and artists(by which we generally mean featured artists12 unless stated otherwise
36、).1.14 The CMAs market study covers two key levels of the music streaming value chain:(a)The products and services offered by music companies,including in recorded music and music publishing.We noted in our Statement of 9 Equitable remuneration,which currently applies in the UK in respect of radio a
37、nd TV broadcasts and public performances(eg in pubs,clubs,shops,etc.),provides an automatic,unalienable,non-transferable statutory right for performers to share in recording revenues.10 This letter is published here.11 See the CMA Notice of 27 January 2022 for this market study.12 Featured artists a
38、re the main artists featured on a recording.Other artists and musicians may also contribute to the recording and are referred to as non-featured artists.9 Scope that most of the possible concerns with a key competition or consumer element link back to possible issues in recorded music.13 While our i
39、nitial proposal was to therefore focus on recorded music,in light of representations received from stakeholders we have also considered music publishing in more detail.Within music publishing,our work has focused in particular on whether competition issues may be distorting the share of streaming re
40、venues that is paid out for publishing rights.As part of our assessment of the market we have examined the nature of competition and outcomes for artists and songwriters.(b)The provision of music streaming services to consumers.Consumer outcomes are an important factor in our assessment of the marke
41、t as it is our statutory duty to consider whether the market is working in the interests of consumers.Market outcomes for creators are an integral aspect of this consumers value creativity alongside the quality and range of music supplied and are considered within(a)above.1.15 In the course of our m
42、arket study,a wide range of concerns have been raised,many of which relate to how the market fulfils its wider social and cultural functions and rewards the broad spectrum of those who contribute to music-making.Our focus,as a consumer and competition authority,in this report is necessarily limited
43、to aspects of the market that may distort,or arise from a distortion to,competition.Our competition assessment is only part of a wider policy and copyright framework aimed at ensuring that intellectual property rights are properly protected and rewarded,and that the supply of music is safeguarded as
44、 the way consumers listen to music continues to evolve.1.16 We have consulted a large number of parties throughout this market study and gathered a broad range of evidence.This has involved a high volume of submissions from parties in response to our Statement of Scope and Update Paper,numerous meet
45、ings and discussions,and our formal requests for information to market participants.These information requests enabled us to interrogate key internal documents,including contracts,strategy papers,research and financial data.We are grateful to all those parties who have engaged with us,either publicl
46、y or in confidence,and informed our market study.1.17 In response to our Statement of Scope we received calls to conduct a market investigation from four respondents across the following four markets:(a)The supply of recorded music to music streaming services;13 See paragraph 85 of the CMAs Statemen
47、t of Scope.10(b)The supply of music streaming services to consumers;(c)The supply of record company services to artists;and(d)The supply of publishing services to songwriters.14 1.18 The CMA has the power to make a market investigation reference when the findings of a market study give rise to reaso
48、nable grounds for suspecting that a feature or combination of features of a market or markets in the UK prevents,restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or part of the UK(the reasonable suspicion test).1516 1.19 A decision whe
49、ther to make a reference is made by the CMAs Board,in consideration of the organisations full range of priorities and objectives and taking into account the CMAs published guidance.17 In this case,a key question is whether there are impacts on competition(sometimes termed market failures)that would
50、best be addressed in a market investigation.1.20 We published our Update Paper on 26 July 2022.In the Update Paper we consulted on our initial view that the reasonable suspicion test had been met in relation to the first three markets set out in paragraph 1.17 above,but not in relation to the fourth
51、 market(the supply of publishing services to songwriters).We said in relation to the markets where the reasonable suspicion test had been met that we did not consider that a reference would be appropriate taking into account,in particular,the scale of the suspected problems and whether a reference w
52、ould be the best mechanism to deliver better outcomes.18 We said we would revisit our provisional conclusions in the Update Paper in light of the consultation responses that we received and our further analysis during the remainder of the market study.1.21 We received 75 responses to our Update Pape
53、r consultation.Of those responses,we received:(a)5 responses(all coming from organisations,including all three majors)that supported our proposal not to make a reference;14 See the submissions of The Ivors Academy,#BrokenRecord Campaign,the European Composer and Songwriter Alliance and from an artis
54、t management company on our case page.15 Section 131 of the Enterprise Act 2002.16 See Airwave Solutions v CMA 2022 CAT 4,paragraphs 8 to 12.17 OFT511,paragraph 2.1,contains a list of relevant criteria which must be met for the CMA to propose making a reference.Even if these criteria are met,the CMA
55、 retains a discretion to decide whether it is appropriate to make a reference.18 See paragraphs 6.14 to 6.21 of the Update Paper.11(b)50 responses(coming from 7 organisations and academics,and from 43 individuals)that opposed our proposal not to make a reference;(c)11 responses(including those from
56、6 individuals)that were silent on the issue of a reference;and(d)a further 9 responses where the respondents stance on our proposal not to make a reference was unclear.1.22 The responses supporting our proposal not to make a reference did not discuss the reference issue at length.One respondent(UMG)
57、went further than the others,arguing that the reasonable suspicion test was not met as the concerns identified were de minimis.For the reasons set out in Chapters 4 and 5 below,we disagree with this representation.1.23 The majority of the responses in favour of a reference focussed on issues relatin
58、g to publishing rights and/or the interests of creators(artists and/or songwriters)rather than those of consumers.A number of them argued that the CMA should find that the reasonable suspicion test was met in respect of the market for the supply of publishing services to songwriters.Some suggested f
59、urther areas for the CMA to investigate.1.24 Our detailed consideration of these representations is set out in Chapters 4 and 5 below.For the reasons elaborated on in those chapters,we consider that the reasonable suspicion test has been met in relation to all four markets set out at paragraph 1.17
60、above.1.25 As set out in more detail in Chapter 7,we have decided not to make a market investigation reference on the basis of a combination of two main factors:(a)the scale of the suspected problem is not so great that a reference would be an appropriate response;and(b)a reference is not likely to
61、be the most appropriate mechanism for assessing the issues and delivering better outcomes.Background The impact of digitisation and streaming 1.26 Digitisation and technological change have had a profound impact on the music sector over the last twenty or so years.In particular,the ability to listen
62、 to music through digital audio files transformed consumer behaviour and expectations to which the sector had to respond.It is no longer necessary to 12 visit a bricks and mortar shop to purchase a physical CD or record in order to have access to the music you want.1.27 The growth of the internet en
63、abled audio files to be shared and gave consumers access to vast libraries of music at the click of a button.1.28 However,digitisation initially led to an increase in illegal file sharing.This had a profound effect on the industry.Sales of CDs,both singles and albums,fell considerably and,significan
64、tly,music industry revenues dropped dramatically.Between 2001 and 2015,UK recorded music revenues dropped around 60%from 1,868 million to 761 million(see Figure 1.1).1.29 In response to this rise in piracy,new models for listening to music emerged.Initially this was in the form of legal downloads of
65、 music such as through Apples iTunes store.Consumers were able to purchase individual tracks or albums that they owned and could listen to when they liked.This had some limited success in reversing the revenue decline.1.30 Music streaming services changed this picture again.The first of these in the
66、 UK was Spotify in 2008.In contrast to the download model,streaming services give consumers ongoing,legal access to vast catalogues of music as part of a subscription or for free if they are willing to listen to advertisements.This has now become the dominant means of consuming music in the UK in 20
67、20,more than 80%of music sales were through streaming services.19 1.31 Importantly for the music industry,streaming has driven an increase in recorded music revenues from the low point of 761 million in 2015 to 1,115 million in 2021(see Figure 1.1).Streaming now accounts for around three quarters of
68、 UK recorded music revenues.While revenues are increasing,recorded music revenues in real terms remain significantly below their peak in 2001.19 BPI(2021),BPI publishes its yearbook“All About the Music 2021”.13 Figure 1.1:UK inflation-adjusted recorded music revenues between 2000 and 2021 by format
69、type Source:CMA analysis of data from the BPI.Notes:Inflation adjustment using the ONS CPI Index 22 June 2022,2021 price year 1.32 The predominant model for streaming services is all you can eat there are no additional charges for listening to lots of music.As we discuss below,this has implications
70、for competition and the value chain.In December 2021,there were 39 million monthly active users of music streaming services in the UK.20 In total,tracks were streamed more than 138 billion times21 in 2021.22 Figure 1.2:Total number of monthly active users and streams in the UK,2021 Source:CMA Notes:
71、When presenting the number of streams reported by Official Charts,the CMA caveats that some streams and tracks are excluded from the Official Charts reporting.Official Charts excludes tracks with less than 100 streams on any given music 20 CMA analysis of data from music streaming services.Monthly a
72、ctive users are the number of unique users who stream on the platform in a given month.If the same user streams on multiple streaming services they would be considered a monthly active user on each.21 This includes official ad-funded music streams on YouTube.See Table 2.11.22 CMA analysis of data fr
73、om Official Charts.Official Charts is a joint venture operation owned by the BPI(representing the British recorded music industry)and the Entertainment Retailers Association(representing entertainment retailers and digital services from HMV,supermarkets and indie stores through to Amazon MP3,Spotify
74、 and Netflix).The role of the company is to commission,market,distribute and manage the UKs official music and video charts.Sales data is currently collected on Official Charts behalf by the market research company Kantar.See Official Charts website.14 streaming service and user generated content.It
75、 only includes streams where the user streams for over 30 seconds and,for some music streaming services,only top tracks are collected.As a result,the data may represent a slight underestimation of the total number of streams in the market and affects the number of streams reported on some music stre
76、aming services more than others.1.33 All the most popular streaming services offer a full catalogue of music.23 A single subscription or account allows consumers to listen to almost all the recorded music they know and love.It is not necessary to have a different subscription or account for differen
77、t genres of music or for music owned by different music companies.Most major streaming services offer catalogues with more than 75 million tracks.1.34 Streaming services also offer a range of features that are attractive to consumers.The vast catalogue of music that is available means there is value
78、 in its organisation so that consumers can more easily find what they want.Consumers can search for particular tracks or artists and they can create their own playlists of music they like.Streaming services themselves create playlists(both via algorithms and their editorial teams)around different ar
79、tists,genres and themes,for instance to accompany workouts or focussed on new releases or new artists.They also have sophisticated tools to make recommendations of music that consumers may like based on what they have listened to previously.Consumers can share music with friends through streaming se
80、rvices and can follow artists or playlists they particularly like.1.35 With a full catalogue,older music(the so-called back catalogue,which in our analysis we have taken to be music older than 12 months)is readily available and represents a very high proportion of streams(rising from 76%in 2017 to 8
81、6%in 2021).24 Before streaming,since record shops had finite shelf space,such music would have had comparatively few options for ongoing monetisation.The value of the back catalogue has increased considerably in recent years.This is because of the rise of streaming as well as new ways to monetise mu
82、sic content.25 As such,music back catalogue is now considered as an increasingly attractive class of assets.The rights for such music are being bought for large sums of money by music companies,private equity firms,and institutional investors.26 1.36 This change in the way music is consumed has also
83、 changed the profile of recoupment by music companies.In the past,sales in the first few weeks after 23 Prime Music did offer a limited catalogue service but in November 2022 moved to a full catalogue offering,albeit this offering is shuffle mode only rather than on-demand.Some other services specia
84、lise in certain genres,for example Idagio.24 CMA analysis of data provided by Official Charts.25 New use cases for music licensing include fitness,gaming and social media.For example,see Music Business Worldwide(2021),Welcome to the new record business:Warner Music Group is now generating over$270m
85、from TikTok,Peloton,Facebook and other alternative platforms annually.26 For example,see Financial Times(2022),Warner Music and BMG battle it out for Pink Floyds back catalogue and Financial Times(2021),Song lyrics strike a chord with private equity.15 the release of an album would have been crucial
86、.Now,those first few weeks after release are less critical as revenue and royalties can be earned over a much longer period of time.Music that is listened to repeatedly will be rewarded to a greater extent than previously.Before streaming,how often a track or album was listened to after it had been
87、purchased had no impact on revenues(although how often it was played on the radio,for example,would have influenced revenues).1.37 Digitisation has had other impacts on music companies and artists.The cost base of music companies has shifted away from the physical production and distribution of musi
88、c to digital distribution.Promotion of artists is now much more digitally orientated,including on music streaming services but also through social media and user-uploaded content(UUC)platforms such as YouTube.1.38 Music companies now use social media and platforms such as YouTube to find new talent
89、and spot emerging trends.Artists themselves(as well as music companies)can self-promote(and deliver music directly)through social media and build a fanbase.They are also able to by-pass traditional music companies and upload their music directly to streaming services.This has led to significant incr
90、eases in the quantity of music being supplied around 60,000 new tracks were added to Spotify every day in 2021.27 The number of new tracks being uploaded also appears to be increasing over time.28 1.39 There is more data available than ever before about what music is being listened to,how often,and
91、the characteristics of those listening.This can help artists demonstrate their value to music companies and it can inform decisions by music companies about their investments and promotions.The market today 1.40 Given this context,we set out here some of the characteristics of the UK market today.In
92、 the following chapter we describe in more detail the value chain and the different types of firms within it.The availability and use of streaming services 1.41 Following Spotifys entry in 2008 there are now multiple firms offering music streaming services,including Amazon,Apple Music and,more recen
93、tly,27 Music Business Worldwide(2021),Over 60,000 tracks are now uploaded to Spotify every day.Thats nearly one per second.28 Music Business Worldwide(2022),Why ingesting 100,000 tracks a day may not prove sustainable for Spotifys business in the long-term.16 YouTube Music.Spotify is a standalone st
94、reaming service,whereas Amazon,Apple Music and YouTube Music are offerings amongst a much wider range of products and services by large integrated tech firms.The other main market participants are Deezer,Tidal and SoundCloud,all of which are dedicated streaming services.These services license music
95、content from rightsholders on pre-agreed terms.When we refer to music streaming services in this report,we mean this type of service.1.42 UUC platforms,most significantly YouTube(as distinct from YouTube Music)but also SoundCloud,are another way consumers can access music.These platforms allow users
96、 themselves to upload content,including copyrighted content,for other people to consume.In the case of YouTube this content includes,but also stretches well beyond,music.While some UUC platforms have agreed in advance licences with music rightsholders,not all have a situation that is possible due to
97、 the different legal framework(so called safe harbour)under which UUC platforms operate.Figure 1.3:Timeline of entry to UK market by main music streaming services Source:CMA analysis.1.43 Each of the music streaming services offer premium subscription plans for consumers.The headline price of subscr
98、iptions for individual access to a standard tier is clustered around 9.99 a month.This has stayed remarkably stable over time.Price differentiation has occurred primarily via the offering of alternative tiers with different features(eg higher audio quality)or access(eg permitting family use or limit
99、ing use to single devices).1.44 Most streaming services also offer a service that is free to consumers,but which make money from advertisements so-called ad-funded tiers.As well as requiring customers to hear ads,these tiers have reduced functionality compared to paid-for tiers.For instance,users ma
100、y be limited in the number of tracks they can skip or unable to download tracks for offline listening.The rationale for these tiers is to try to bring in customers who might not otherwise use streaming services and to seek to upsell them to paid-for tiers from which considerably more revenue is deri
101、ved.17 1.45 YouTube,as the main UUC platform,is primarily ad-funded.Parts of the music industry have argued that this access to music for free contributes to a sense that music does not need to be paid for,thereby decreasing peoples willingness to pay,and depressing the pot of revenue available to m
102、usic companies and creators.1.46 The market share by revenue of the music streaming services and YouTubes UUC platform(Figure 1.4)shows the strong position that Spotify,Amazon,Google and Apple have in the market.Between them they account for 95-100%of revenue.When we remove YouTubes UUC platform(Fig
103、ure 1.5),Spotifys share of streaming revenues is 50-60%.Figure 1.4:Share of UK streaming revenues,2021 Source:CMA analysis of data from music streaming services.Notes:This pie chart is for illustrative purposes only.Revenue shares only account for Spotify,YouTube,Apple,Amazon,Deezer,Soundcloud and T
104、idal which have a combined streaming share of over 99%according to CMA analysis of data provided by Official Charts.These figures are provided in a 5%range where the figure is below 10%,and a 10%range where the figure is between 10%and 100%.The midpoints of the ranges have been used to provide an il
105、lustration of relative size in the market.Where the sum of these midpoints does not equal 100%,we have scaled the pie chart so that the area segments represent the share of the sum of the midpoints.18 Figure 1.5:Share of UK streaming revenues excluding YouTubes UUC platform,2021 Source:CMA analysis
106、of data from music streaming services.Notes:This pie chart is for illustrative purposes only.This excludes YouTube Premium and YouTube ad-supported revenues(so YouTube Music only includes YouTube Music paid-for subscriptions).Revenue shares only account for Spotify,YouTube Music,Apple,Amazon,Deezer,
107、SoundCloud and Tidal which have a combined streaming share of over 99%according to CMA analysis of data provided by Official Charts.These figures are provided in a 5%range where the figure is below 10%,and a 10%range where the figure is between 10%and 100%.The midpoints of the ranges have been used
108、to provide an illustration of relative size in the market.Where the sum of these midpoints does not equal 100%,we have scaled the pie chart so that the area segments represent the share of the sum of the midpoints.1.47 Given that most offer a full catalogue,music streaming services seek to different
109、iate themselves on the features they offer.These include the quality of the sound,the user interface,their playlists and increasingly through non-music content such as podcasts.Some also offer UUC alongside official music content.1.48 The evidence shows the growing popularity of music streaming serv
110、ices.In Ofcoms most recent audio survey,the proportion of people reporting using a streaming service at least once a week was around one half.The only form of music consumption undertaken by a greater proportion of people on a weekly basis was listening to the radio.29 Our analysis shows that the to
111、tal number of monthly active users of streaming services is 39 million in 2022,up from just over 32 million in 2019.30 1.49 Unsurprisingly,with more people using streaming services the number of streams in the UK has risen.In 2015,there were around 50 billion streams per year,whereas in 2021 there w
112、ere around 140 billion.29 Ofcom(2022),Audio Survey,question 1.30 CMA analysis of data from music streaming services.19 Figure 1.6:Number of total UK streams Source:CMA analysis of data from Official Charts.Note:Includes music streams from all music streaming services counted by Official Charts inclu
113、ding YouTubes UUC platform.For additional information about how Official Charts reports its stream count,see the note on Figure 1.2.The supply of music 1.50 There are three major music companies Sony,Warner and Universal,collectively the majors.The role they play is explained in Chapter 2.In terms o
114、f their share(by volume)of total UK streams,the majors accounted for over 70%in 2021 a similar proportion as in 2015.31 Their music dominates the popular charts.The combination of the rights they hold in recordings along with the rights they hold in publishing,means that in 2021 they collectively ha
115、d some form of rights in 98%of the top one thousand singles.32 1.51 Along with the major music companies there are many independent music publishers and hundreds of smaller independent labels.New types of providers helping artists self-release their music have also emerged in the wake of digital dis
116、tribution.These include artist and label(A&L)services companies,as well as DIY distributors that focus on putting music onto streaming services at low cost,helping artists to by-pass the involvement of a traditional music company if they wish.Together these smaller labels and providers account for a
117、round one quarter of streams,although only 2 have a market share in excess of 1%.33 31 See Table 2.2 32 See Figure 2.3.33 BPI(2021),All about the music,p48.20 1.52 Traditional labels both major and independent continue to play an important role in developing and breaking artists.However,today there
118、are more routes to market than ever before for artists,leading to a significant rise in artist numbers(with the numbers being streamed in the UK up from around 200,000 in 2014 to around 400,000 in 2020).34 Some artists do not opt for a label,but for many this can still be very attractive for upfront
119、 financing and prestige.Without a label,artists may be able to keep more control of their music rights and thus earn more over the long term,but at the cost of greater risk in the event they are unsuccessful.For those noticed by a label,the terms on offer may be more beneficial than in the past give
120、n the wider range of options available to artists.But given the crowded artist marketplace,only a select few will catch the attention of any label,let alone receive competing offers,so for many the scope for negotiating better terms is limited.1.53 Whichever path is taken,music remains a risky busin
121、ess.The growth in artist numbers under streaming has arguably made it even more difficult for artists to break through at scale.Even with label support,failure rates remain high,with the BPI noting that approximately only one in ten investments made by record labels breaks even on the upfront label
122、investment.35 Effective data analytics and social media marketing(including on UUC platforms)appear to be increasingly important factors in online success.1.54 The surge in artist participation has also impacted upon remuneration.Prices for music streaming services have been relatively stable for so
123、me time and tend to take the form of flat monthly fees.This means that with more artists and more streams being played,the average value of each stream and the average earnings per artist fall.As such,thousands or even millions of streams are now commonplace 12 million streams per year will earn an
124、artist around 12,000 a year.36 Further,as noted above,each artist is competing harder than ever before for each of these streams,both with new artists and old artists(via the back catalogue),all within the constraints of consumers finite time and attention.Artists on old contracts may also see more
125、limited benefits from the uplifted value in back catalogue if the original royalty rate applied is significantly lower than standard streaming rates for new contracts,or if their physical sales had left them with costs initially financed by their label to be paid off or recouped from ongoing royalti
126、es.34 IPO(2021),Music Creators Earnings in the Digital Era,Table 6.4,p201.35 BPI(2020),Submission to the DCMS Select Committee(EMS0208),p13.36 CMA analysis of data from the majors.21 Some companies,including Beggars Group,BMG and the majors,have now set aside such unrecouped balances for some artist
127、s.37 1.55 However,streaming should also be considered within the wider music ecosystem.A presence on streaming services is key to building up an artists brand,but its value has traditionally also been measured by its impact on their wider career.Many artists derive the main part of their income from
128、 live music and have found recent years exceptionally challenging as these income streams were shut down under the pandemic.37 See:Sony Music launches Legacy Unrecouped Balance Program();WMG follows Sony Music in tackling unrecouped artists problem-Music Ally;UMG wipes out unrecouped balances for le
129、gacy artists royalties|Labels|Music Week.22 2.Value Chain Overview 2.1 Figure 2.1 provides an overview of the structure of the music streaming value chain.This is a complex landscape with a wide range of entities involved,firstly in developing the songwriters who write music and the artists who reco
130、rd that music,then distributing the recordings(typically under licence)to music streaming services who make this music available to consumers.Music is subject to various intellectual property rights:rightsholders can license their music directly,or via third parties such as music companies,collectin
131、g societies(also known as collective management organisations,or CMOs),Merlin38 or IMPEL.39 Some music streaming services obtain their music content from music companies(music streaming services)while others(UUC platforms)obtain their content from users(generally consumers,but also creators or music
132、 companies).2.2 This value chain straddles both recorded music and music publishing,which involve distinct,but complementary,intellectual property rights and activities(wider than music streaming).2.3 The creation,distribution and licensing of sound recordings is referred to as recorded music.Record
133、 companies:(a)sign and provide services to develop artists;and/or (b)distribute and license rights in the sound recordings created by artists to retailers.2.4 The music industry also includes music publishing,where companies:(a)sign and provide services to develop songwriters;and (b)manage and licen
134、se the rights in their musical compositions(songs),including when sound recordings of the songs are played.38 Merlin is an organisation which negotiates with music streaming services on behalf of a collective of independent labels,charging a small administration fee(see the Merlin website).39 IMPEL
135、is an international collective of independent music publishers who,together,license their mechanical rights to a wide range of music streaming services(see the IMPEL website).23 Figure 2.1:Overview of the music streaming value chain Source:CMA 2.5 Recorded music is monetised through five primary mea
136、ns:(a)Streaming:payments by consumers for on-demand online access to music for example,as provided by music streaming services;payments by advertisers to place adverts alongside music content(or content containing music)listened to by consumers on music streaming services or UUC platforms.(b)Physica
137、l sales:one-off payments by consumers for the purchase of physically reproduced sound recordings(on CDs,vinyl and cassettes).(c)Downloads:one-off payments by consumers for the online purchase of music in digital format.24(d)Performance rights:these include payments by TV and radio stations for the r
138、ight to use music as part of broadcasts;and payments for the public performance of music in venues such as shops and restaurants.(e)Synchronisation(sync):payments for the use of music in(or synchronisation of music with)film,TV shows,TV adverts,video games and other forms of audio-visual media.2.6 I
139、n addition artists may generate income from live performances and tours and from the sale of merchandise.These sources of income may be separate from the terms of deals with their label or other distribution service provider or may be included in 360 degree deals.Music rights 2.7 Under UK copyright
140、law(the Copyright,Design and Patents Act 1988 or CDPA),separate copyrights are associated with the musical composition(with separate copyrights in the music and in the lyrics)and the actual recording of a song.These copyrights are referred to,respectively,as song rights or publishing rights,and soun
141、d recording rights or master rights.40 (a)Song/publishing rights last for the lifetime of the copyright owner plus 70 years.41 (b)Sound recording/master rights last for 50 years from the making of the recording or 70 years from the recording being published or made available to the public.42 2.8 Und
142、er UK copyright law,the copyrights in the song and the recording are automatically vested in the songwriter(s)43 and producer(s)respectively.A producer,in this specific context,is defined as the person by whom the arrangements necessary for the making of the sound recording are undertaken.44 As such
143、,the copyright to a sound recording may be owned by a music company that organises the recording on behalf of the performers it represents.Alternatively,the performer(s)may organise the production themselves and own the copyright to the recording.40 For a more detailed discussion of music rights,see
144、 for example a report commissioned by the IPO(2021),Music Creators Earnings in the Digital Era,Chapter 2,and Music Copyright Explained,a guide commissioned by the IPO and produced by CMU Insights.41 CDPA 1988:s.12(1).42 CDPA 1988:s.13A.43 In this document,the term songwriters is used to refer to bot
145、h composers and lyricists(as is common in the industry)notwithstanding that composers and lyricists have distinct rights under copyright law.44 CDPA 1988:s.178.25 2.9 Copyright owners and performers have certain rights over their music.In the UK:(a)The law specifies certain acts that only the copyri
146、ght owner is entitled to undertake(or license or assign to another party to undertake):the reproduction right,the distribution right,the rental right,the public performance right,the communication to the public right(CTP,and its subsets,the broadcast right and the making available right),and the ada
147、ptation right.45,46 (b)Alongside copyright owners,performers are automatically granted a separate category of rights known as performers rights47 that give the performer a number of moral and economic rights in the recording:(i)in respect of the reproduction,making available,distribution,rental and
148、lending rights,it is not possible to exploit a performers work in recorded form without gaining their consent;48 and(ii)in respect of public performance and CTP rights(excluding the making available right),it is not possible to exploit a performers work in recorded form without paying equitable remu
149、neration.49 45 Report commissioned by the IPO(2021),Music Creators Earnings in the Digital Era,p9(see:Rights).46 The reproduction and distribution rights are sometimes grouped together and referred to as mechanical rights.The public performance right and the CTP rights(both the broadcast right and t
150、he making available right)are sometimes grouped together and referred to as performing rights.See Music Copyright Explained,p4.47 Report commissioned by the IPO(2021),Music Creators Earnings in the Digital Era,p8(see:Performers rights).48 CDPA 1988:s.180(1).49 CDPA 1988:s.182D(1).Equitable remunerat
151、ion is not defined in law,so is worked out by the music industry.The UK industry norm is a 50/50 split between the artist and any corporate partners.26 Figure 2.2:Music rights and the rightsholders for a stream Source:CMA 2.10 Different rights are engaged depending on how the music is used.For on-de
152、mand music streaming,50 the reproduction and CTP(making available)rights are generally understood to apply51 and(to the extent that they are exclusive)can be licensed or assigned(transferred)by copyright holders and performers.Music companies The majors 2.11 Collectively,the three largest global mus
153、ic groups(Sony,Warner,and Universal)are generally referred to as the majors.As is common among music companies,52 they have both recorded music and music publishing businesses.50 For further detail,see for example the report commissioned by the IPO(2021),Music Creators Earnings in the Digital Era,p6
154、0-61.51 We note existing debate regarding whether the making available right is the appropriate right to apply in a music streaming context,for example in light of how consumers access music streaming services and the increasing prevalence of passive or lean-in listening on these services such as vi
155、a stations,autoplay and playlists.See for example House of Commons Digital,Culture,Media and Sport Committee(2021),Economics of music streaming:Second Report of Session 2021-22,paragraphs 61 to 69.52 Association of Independent Music(AIM)(2001),Submission to the DCMS Select Committee(EMS0157),p14.27
156、Table 2.1:The major music companies Sony Music Group Warner Music Group Universal Music Group Corporate structure Sony Group Corporation is headquartered in Japan;and listed on the Tokyo Stock Exchange and the NYSE.Warner is headquartered in the US and has been publicly traded on the NASDAQ since Ju
157、ne 2020.53 Universal,previously owned by Vivendi,was listed on the Euronext Amsterdam in September 2021,with 60%of Universals share capital distributed to Vivendi shareholders at the time.Universals corporate headquarters are in the Netherlands and its operational headquarters are in the US.Recorded
158、 music Main business division Sony Music Entertainment(Sony Music)Warner Recorded Music Universal Music Holdings Limited Other subsidiaries providing artist and label/digital distribution services The Orchard;AWAL ADA Virgin Music Label&Artist Services;Ingrooves Music Group;Spinnup FY21 global reven
159、ues$4.7 billion$4.5 billion 6.8 billion Music publishing Main business division Sony Music Publishing Warner Chappell Music Universal Music Publishing Group FY21 global revenues$1.4 billion$0.8 billion 1.3 billion Source:CMA,based on information from the majors and published financial data.2.12 As w
160、ill be seen later in this chapter,the majors have a significant share of the music market both globally and in the UK which has arisen in part from consolidation over time.54 Together,in 2021 they held overall market shares of 73%in recorded music(based on their shares of UK streaming revenues from
161、the largest music streaming services Apple,Amazon and Spotify)and 50-60%in music publishing(based on PRS data).55 2.13 These shares increase significantly when focusing on rights to the top UK hits based on streams as shown in Figure 2.3.53 Warner Music was previously listed on the NYSE.It was priva
162、tised when acquired by Access Industries in 2011,and subsequently listed on the NASDAQ.See Warner Music Group-Access Industries and Whats Playing at Warner Music?|Nasdaq.54 Over the last 25 years,the number of major record companies reduced from six(including Polygram,BMG and EMI)to three.In 1998,Po
163、lygram was acquired by Seagram(then Universals parent company).BMGs recording operations merged with Sony in 2004,eventually becoming Sony Music Entertainment in 2008.In 2012,EMI was acquired by Universal,with its publishing operations sold to Sony,and some of the merged entitys recording labels sol
164、d to Warner.55 See Table 2.5.28 Figure 2.3:Share of the Top 1000 UK singles in 2021 where the majors have recording or publishing rights Source:CMA analysis of data from the majors.2.14 The majors also have holdings in Spotify and/or other music streaming services.For Spotify,this dates back to its
165、initial launch and initial shareholdings were in the region of 5%.56 2.15 When Spotify went public in 2018,Warner sold all of its shareholding for$504m and has paid its artists royalties on the proceeds from the sale.57 Sony Music sold 49%of its shareholding and shared approximately$250 million of i
166、ts gain with its artists and distributed labels,without regard to recoupment.58 Universal did not divest its shares.59 All say they have not had,and do not have,any undue influence or involvement in Spotifys governance or other strategic or operational decision-making.60 2.16 All the majors hold som
167、e limited financial interests in other small music streaming services.They affirm that these interests have not resulted in any undue influence or operational involvement with these firms.61 Sony Music notes that:(i)its investments are very small and non-controlling financial interests;(ii)it has no
168、 ability to influence or gain any materially better terms;and(iii)it considers that the investments are advantageous to new music 56 See for example House of Commons Digital,Culture,Media and Sport Committee(2021),Economics of music streaming:Second Report of Session 2021-22,paragraph 106.57 WMG inf
169、ormation provided to the CMA.58 Sony Music information provided to the CMA.59 Universal information provided to the CMA.60 Information provided by the majors to the CMA.61 Information provided by the majors to the CMA.29 streaming services who will not otherwise be in a position to offer the necessa
170、ry financial guarantees.62 Recorded music 2.17 Traditionally,securing a deal with a music label was the main route to market for an aspiring artist.The key role of such labels was the provision of so-called artist and repertoire(A&R)services.2.18 A&R services relate to the discovery,signing and deve
171、lopment of artists,as well as the recording of their music(for example:talent scouting,negotiating and signing artist contracts,payment of any capital advances,funding and provision of artistic and creative support and direction,organising tour support and other supporting services).Alongside A&R se
172、rvices a label will provide marketing and promotion,for example:digital marketing,advertising,publicity,radio promotion and playlist promotion;and distribute an artists music,including to music streaming services.2.19 There are several hundreds of labels operating in the UK,but the largest(major)lab
173、els are characterised by the following:(a)worldwide presence;(b)a full range of A&R,marketing and promotion services(with large budgets whereby the company funds the creation of artists recordings and provides high-touch levels of creative support),alongside wholesale distribution services;and(c)foc
174、us on a limited number of headline acts globally.2.20 In the age of streaming,labels continue to play a significant role in signing new artists and investing in A&R.Our own analysis as presented in paragraph 2.70 as well as evidence provided to us by the BPI63 indicates that A&R expenditure has incr
175、eased since 2012 both in absolute terms and(to a much lesser extent)as a percentage of industry revenue.In addition,BPI data shows that this has been accompanied by increasing roster sizes(for example,with the number of new signings by majors having increased 38%since 2010 to 153 in 2019).64 Labels
176、take on a degree of risk in A&R,particularly with newer,less proven artists.30-40%of major labels active 62 Sony Music information provided to the CMA.63 BPI data provided to the CMA.64 BPI(2020),Submission to the DCMS Select Committee(EMS0208),p28.30 UK artists are currently profitable on a global
177、basis,with expectations that a further 5-10%of this group will become profitable over the next five years.65 2.21 However,with the advent of streaming the role and economics of labels have changed along with the skills and services demanded of them,eg:(a)Manufacturing/logistics no longer need to be
178、factored into streaming distribution costs(and making music without a label is no longer impossible as you do not have to have physical product).Critically,this means that it is easier to split the distribution function from other services a label has traditionally provided.(b)Before streaming,the k
179、ey sales window centred almost exclusively on the short period around a records release.While that initial window is still important for word of mouth and fan engagement,music has an increased longevity given that digital search and playlisting can continue to make a track readily accessible long pa
180、st its launch.Labels have had to adapt to this reality,which has changed the nature of marketing as well as leading to renewed interest and viability for artists back catalogues.(c)Data management has become increasingly important as talent is emerging online,global licensing and management of right
181、s have become paramount,and the influence of digital marketing increases.Labels are investing in effective data analytics and social media marketing,supporting their artists with data,and having to evolve to capitalise on fast-moving digital trends(such as the emergence of the metaverse).2.22 With t
182、he rapid growth of self-releasing artists entering the market independently of a label under digitisation,new types of music companies have sprung up in support for example,focusing on artist and label(A&L)services which are typically a scaled down version of A&R services(and can often be selected o
183、n an a la carte basis)provided to either artists or labels;or focusing on mass market distribution.In response,the majors have also started diversifying their offerings.2.23 Presently,an artist typically has five options when releasing music.Depending on their circumstances,an artist may:(a)sign wit
184、h a major label;65 CMA analysis of data from the majors.31(b)sign with a smaller,independent label(such as Beggars Group,BMG Rights Management(BMG)66 and Domino Recording Company);(c)use an artist services provider(such as Believe,PIAS and Empire).The majors and some indies also provide such service
185、s(eg Sony via AWAL and the Orchard,and Universal via Virgin);(d)choose to distribute their music as a self-releasing artist using an established platform(known as DIY platforms,for example TuneCore,Distrokid,CDBaby,ONErpm,DITTO,United Masters and Amuse);or (e)secure the services of a manager and tea
186、m for various levels of promotion and other support and arrange distribution via a label services provider(see next paragraph).2.24 In this report,references to indies should be taken to mean independent record companies in general,including labels,A&L service providers and DIY platforms,unless othe
187、rwise specified(for example,by reference to an indie label).2.25 Some indie labels may contract with a provider for a variety of label services covering wholesale distribution,but also some A&R and promotion activities.The majors also provide these services to other labels,for example via ADA(Warner
188、),Ingrooves(Universal)and the Orchard(Sony).However,CMA analysis suggests that distribution on behalf of other labels is a minority part of the majors music streaming revenues in the UK(on average,around 10-20%).67 2.26 The segments listed above have given artists three broad deal structures through
189、 which to bring their music to market:(a)Traditional recording agreements with the major labels or indie labels offering high touch A&R,marketing and promotion,and distribution services.Typically,these deals involve significant upfront investment by the label(with higher advances offered to an artis
190、t that risk being unrecouped if the artist is not successful).This requires an artist to agree to long-term commitments,and sometimes assign their copyright for an extended period or in perpetuity.These deals are typically on a royalty basis(where the artist receives a share of the revenues and cost
191、s are refunded from those royalties).Some deals may operate on a profit share(where costs are deducted from total revenues and the remaining profits 66 We note that in 2003,BMG merged its record label interests with Sony,but relaunched its own services again in 2008.67 CMA analysis of data from the
192、majors.32 split between the label and artist)and some are set up as a 360 deal where the label takes a cut of all the artists earnings(ie wider than recorded music).(i)In the case of indie labels,some services may ultimately be contracted out to an A&L services provider.Indie labels may also not be
193、able to provide the same scale of financing or scope of services as the majors.(b)Service deals with A&L service providers where an artist retains(licenses)their copyright and receives marketing and A&R services which were only historically available in traditional recording agreements.These deal st
194、ructures typically involve smaller upfront investments(eg smaller advances)and less risk for the provider:providers are less likely to take on deals with a high risk of non-recoupment.On the other hand,these deals typically tie in artists for shorter periods and offer them(as the copyright holder)hi
195、gher royalties from the revenues earned.(c)Distribution only agreements with DIY providers offering distribution to streaming services and low touch(tech-driven)marketing and promotion services.These deal structures typically do not involve upfront investment and therefore do not incur risk for the
196、provider.All revenues earned go to the artist,with the DIY provider charging a fixed fee(on an annual or monthly basis)for their services.2.27 In practice,the terms within any deal structure can vary substantially,and there is some blurring of the boundaries between these options so they can be cred
197、ible alternatives for some(but not all)artists.Some A&L service providers have multi-tier offerings which seek to cater for a wide range of artists at all stages of their career,and some providers offer more than one of these deal structures.68 68 See,for example,CMA(2022),Completed acquisition by S
198、ony Music Entertainment of AWAL and Kobalt Neighbouring rights businesses from Kobalt Music Group Limited Final report(Sony/AWAL),paragraphs 2.57-2.58.33 Figure 2.4:Differences in the artist propositions offered by the different options Source:CMA 2.28 While the dynamics of the market are changing w
199、ith the entry of new DIY platforms and A&L providers,this has not to date been substantially reflected in overall market shares.The majors shares of streams remain significant and have stayed relatively stable over time.Table 2.2:Label shares of total UK streams Universal Sony Warner Other 2015 30-4
200、0%20-30%10-20%24%2016 30-40%20-30%10-20%23%2017 30-40%20-30%10-20%21%2018 30-40%20-30%10-20%22%2019 30-40%20-30%10-20%23%2020 30-40%20-30%10-20%24%2021 30-40%20-30%10-20%25%Source:CMA analysis of data from Official Charts.Note:As detailed in Figure 1.2s note on Official Charts reporting of stream co
201、unt,some streams are excluded,and this may impact the label share presented in the table.In particular,Official Charts excludes tracks with less than 100 streams on any given music streaming service and,for some music streaming services,only top tracks are collected.The top tracks may be over-repres
202、ented by the majors and,as a result,this table may overestimate the major record companies share of UK streams.34 2.29 A similar picture emerges when considering shares of recorded music revenues from UK music streaming.The majors had a combined share of 73%in 2021,compared to 78%in 2017.69 Profitab
203、ility Operating margins 2.30 In recent years,the increased prevalence of streaming has resulted in a change in the major labels recording revenue mix.Due to the lower associated costs of streaming compared with traditional channels,the majors recorded music operating margins70 have risen.71 Table 2.
204、3:Operating margins for major labels UK recording businesses FY17 FY18 FY19 FY20 FY21 Universal 10 to 20%10 to 20%10 to 20%10 to 20%10 to 20%Sony 10 to 20%10 to 20%10 to 20%10 to 20%20 to 30%Warner(Management Accounts)10 to 20%10 to 20%10 to 20%10 to 20%10 to 20%Warner(Statutory Accounts)10%11%17%11
205、%15%Source:CMA analysis of management and statutory accounts of major labels.Return on Capital Employed(ROCE)2.31 ROCE is a useful measure to examine whether profits for a particular firm or sector are high,because it can be compared against an objective benchmark,the weighted average cost of capita
206、l(WACC).Another way of looking at this is that while all companies need to earn positive margins to be sustainable,margins themselves need to be considered alongside other measures in understanding whether a market is working well(eg levels of investment,risk profiles,etc).Some sectors with high ass
207、et investment and low operating costs will tend to have high margins,but in these circumstances that would not necessarily equate to high economic profitability.2.32 A finding that ROCE is higher than the WACC is not in itself indicative of a competition problem.A firm that innovates and gains a com
208、petitive advantage 69 CMA analysis of revenues from UK streaming paid out to the majors for recording rights,for the three largest UK music streaming services(Spotify,Amazon and Apple).70 Operating margins are calculated after deducting cost of sales and operating expenses such as marketing expenses
209、,admin,and overheads.71 Our findings of improving operating margins for the major labels UK recording businesses is consistent with the written evidence submitted by economist Will Page to the DCMS Select Committee Inquiry,which highlighted an increasing trend in operating profit margins for the thr
210、ee major record companies UK recorded music businesses,from 2015 to 2019.35 may earn higher ROCE for the period that it is able to sustain that competitive advantage.In a market characterised by effective competition,any excess of returns above the WACC would usually be expected to be eroded over ti
211、me,as competitors would see an opportunity to react and earn higher returns on capital.Our approach to estimating ROCE 2.33 We determine ROCE using earnings before interest and tax(EBIT)as the measure of return,divided by the value of capital employed(calculated as total assets minus current liabili
212、ties).The general principle is that all revenues,costs,assets,and liabilities necessarily arising from the operation of the business to supply the relevant activities should be included.In practice this means the following items should be excluded:exceptional items,these typically being one-off item
213、s arising from activities unrelated to the normal course of business,such as restructuring costs;financing costs,regardless of whether they are short-or long-term;and taxation on income and any associated corporation tax or deferred tax on assets and liabilities.2.34 In calculating the capital emplo
214、yed of the majors,we have taken a top-down approach:first,an unadjusted capital employed was calculated by subtracting current liabilities from total assets,followed by adjustments in line with the above principles.72 2.35 We note that a large proportion of the majors asset base relates to intangibl
215、e assets(even after removing for goodwill)which are inherently difficult to value.For the purposes of this market study,a revaluation of the assets has 72 As a result,the following have been removed from the capital employed of the majors:cash balances;intercompany financing and treasury balances;sh
216、ort-term borrowings;deferred tax assets and liabilities;restructuring balances;and financial instruments.Goodwill balances have also been removed.Goodwill is an intangible asset which arises where the price paid for a business exceeds the fair value of tangible assets plus separately identifiable in
217、tangible assets.The CMAs Guidelines set out three recognition criteria when determining whether to recognise an intangible asset for the purposes of profitability analysis or not and goodwill does not meet all three recognition criteria.(See Guidelines for market investigations,Appendix A,paragraph
218、14.Goodwill does not meet the third recognition criterion of a separately identifiable asset.)Where necessary,adjustments have also been made to EBIT,both for the purposes of the ROCE and EBIT margin calculations in accordance with the principles set out in paragraph 2.33.As a result the items relat
219、ing to the following have been removed:restructuring and integration;foreign exchange gains and losses;and gains and losses on the sale of assets.36 not been carried out and the results of the analysis are therefore potentially sensitive to changes to the valuation of the intangible asset base.2.36
220、Furthermore,the three majors use different accounting policies for the management accounts of their UK recording businesses,which we have used to conduct our profitability analysis.Sony Music and Warner provided management accounts which are subject to specific accounting practice requirements(eg fo
221、llowing US GAAP)and are typically subject to audit.Universal,as it is entitled to do,submitted management accounts with different accounting policies under which it recognises a significantly lower value for its assets than the other two majors.Universals lower asset valuations mean we are unable to
222、 calculate a meaningful or credible ROCE for Universal.We have therefore excluded Universals figures from our ROCE analysis.Universals lower asset valuations lead to in some years(meaning)and in other years lead to,which is not credible.2.37 We note that our analysis also has limitations due to issu
223、es such as data availability and treatment.For example,management accounts are not available for streaming specifically(instead covering the recording business in the UK as a whole)and each major label uses its own accounting practices which may not be entirely consistent and may not perfectly refle
224、ct the economic realities of the businesses.In addition,Warners EBIT calculations for its UK recorded music business did not include a full allocation of central overheads,and so its ROCE is likely to be overstated in Table 2.4 below.2.38 Our profitability analysis is only an indicator and does not
225、on its own provide conclusive evidence around the level of competition in the market.2.39 Table 2.4 highlights our estimates of ROCE for Sony and Warner in the UK and compares this against the weighted average cost of capital(WACC)used by the major labels for internal decision making.73 Table 2.4:So
226、ny and Warners UK recording business ROCE vs estimated WACC FY17 FY18 FY19 FY20 FY21 Sony ROCE 0 to 10%0 to 10%0 to 10%0 to 10%0 to 10%Warner ROCE 10 to 20%10 to 20%10 to 20%10 to 20%10 to 20%Average ROCE(unweighted,excluding Universal)0 to 10%0 to 10%10 to 20%10 to 20%10 to 20%Average WACC*9%9%9%9%
227、9%73 We note that these figures are based on management accounts which generally include activities other than those directly related to music streaming.*This includes Universals WACC as the Average WACC of the three majors is the most representative WACC figure available.Source:CMA analysis of majo
228、r labels management accounts.37 2.40 Although only indicative,this analysis suggests that the majors are earning a healthy level of profit.We also observe a trend of profits increasing over time.While there are limitations with our profitability analysis(in particular a lack of suitable accounting d
229、ata to assess Universals profitability),we have not found evidence that the major record companies profits in the UK are substantially and persistently in excess of the weighted average cost of capital.Music publishing 2.41 Music publishing involves the promotion,licensing and administration of song
230、 rights,and the provision of services to songwriters in support of the above.2.42 The majors along with BMG are the largest publishers in the UK,as shown in Table 2.5.They operate alongside a large number of other independent music publishers,for example Beggars Music,Kobalt Music Group,peermusic an
231、d Concord.These music publishers will often compete for many,if not all,of the deals that the majors are looking to secure,including for exclusive agreements with songwriters and the representation or acquisition of music publishing catalogues.2.43 Other UK music publishers include Bucks Music,Domin
232、o Music Publishing,Mute Songs,Cooking Vinyl and Sentric Music.These music publishers may provide many of the same services as the majors;although they may not always have the international reach of a major(for example,they may often rely on a sub-publishing network74 to represent their interests out
233、side the UK).Some other music publishers also specialise in particular genres or types of songwriters,and others market themselves as not main-stream and able to provide more personal attention to their clients.The level of A&R/creative services they offer may also differ.2.44 There are also a numbe
234、r of investment vehicles and funds,such as Round Hill Music,Hipgnosis Songs Fund,Shamrock Holdings and Primary Wave Music,that target the purchase of legacy music publishing catalogues.These companies,which are typically funded via initial public offerings or through private equity funds,have acquir
235、ed a number of music catalogues for example Hipgnosis acquisition of 50%of Neil Youngs song rights and the 74 A music publisher may sub-let its music catalogue to a foreign publisher that has the necessary contacts to expose works in that territory and the administrative skills to collect subsequent
236、 royalties.Also,a sub-publisher can,through membership in local mechanical and performing rights societies,collect and distribute income generated by an original recording.Major and established publishers with offices in many territories do not usually require sub-publishers.38 Eliot Kennedy catalog
237、ue,Round Hill Musics acquisition of historic music publisher Carlin and Primary Wave Musics acquisition of KT Tunstalls publishing catalogue.2.45 Combined,the PRS writer members published by the majors accounted for 50-60%of the Multi-Territory Online(MTOL)streaming revenues(ie for performing right
238、royalties)collected by PRS in 2021.75 This combined share has been relatively stable,with similar figures in 2018,albeit the share of individual majors has fluctuated within this.Table 2.5:Annual PRS songwriter and associated publisher Multi-Territory Online(MTOL)performing rights revenue shares by
239、music publisher Publisher 2018 2019 2020 2021 Sony 30-40%20-30%10-20%20-30%Universal 10-20%10-20%10-20%10-20%BMG 5-10%5-10%5-10%5-10%Warner 5-10%0-5%5-10%5-10%Others 40-50%40-50%50-60%40-50%Total 100%100%100%100%Source:CMA analysis of data provided by PRS for Music,based on estimates for performing
240、right revenues as a proxy for overall publishing rights shares.Notes:(1)Figures for Universal have been estimated assuming that the publisher share is equivalent to the writer share.(2)MTOL covers Europe,China,Middle East,North Africa,Commonwealth of Independent States and many of theterritories in
241、Sub-Saharan Africa,Latin America and Caribbean and Asia-Pacific.2.46 Publishers earn revenue from developing,protecting,and valuing the rights to pieces of music,and licensing these rights for use in retail or other media.This will include revenues from music streaming.As described in paragraph 2.10
242、,music streaming revenues derive from both reproduction and CTP(making available)rights.2.47 Collective licensing offers an efficient way to manage rights on behalf of a large number of rightsholders.UK music falls within what is generally known as Anglo-American repertoire.76 For such repertoire,so
243、ngwriters typically assign their performing rights(which include the making available right)77 to a collecting society,or CMO,to license their works and collect royalties on their behalf(charging an administrative fee for these services)but may license or assign their reproduction rights to a publis
244、her.Both rights have traditionally 75 CMA analysis of data from PRS for Music.76 This commonly refers to songs registered with collecting societies in the UK,Ireland,United States,Canada,Australia,New Zealand and South Africa.See Cooke,Chris(2020),Dissecting the Digital Dollar,Third Edition,p71.77 S
245、ee footnote 46 for an explanation of the term performing rights.39 been licensed and collected by CMOs on a national basis on behalf of both publishers and songwriters.78 2.48 In the CD era,song rights would be licensed to the label who would then supply the CDs to retailers.79 As streaming develope
246、d,streaming services became the licensees for both song and recording rights.The global nature of these services meant that multi-territorial licensing became an increasingly efficient option.2.49 In response to this,some CMOs have opted to collaborate to set up multi-territorial licensing hubs for
247、example ICE,a copyright hub that is owned by several CMOs(PRS,GEMA and STIM).80 Further,some larger publishers(commonly referred to as Option 3 publishers further to European Commission recommendations on such options)81 have opted to withdraw or otherwise reorganise their reproduction rights from C
248、MOs and license these directly on a multi-territorial basis.As music streaming services require both the CTP and reproduction rights in musical works to lawfully include them in their services,for further efficiency and as a matter of commercial policy,PRS has allowed the performing rights in its re
249、pertoire to be licenced together with the reproduction rights.Option 3 publishers therefore typically select a CMO(or licensing sub-subsidiary of another CMO)to partner with for this purpose.These negotiations are usually led by the publishers but the CMO must approve the licensing terms.To establis
250、h this licensing structure,some publishers have set up special purpose vehicles(SPVs)with CMOs/hubs.82 2.50 It is common for a number of songwriters to be credited on any given song;hence song rights tend to be fragmented,with fractional ownership dispersed among multiple parties.Further,as noted in
251、 paragraph 2.47,song rights cover both reproduction and performing rights which may have different licensors and/or use a range of licensing structures.78 Some CMOs(in the UK,Phonograph Performance Ltd(PPL)are also involved in the administration of various rights on the recording side but these do n
252、ot generally include the rights which apply to on-demand music streaming,which performers usually assign or transfer to a music company.Hence,CMOs are not typically involved in the licensing of recording rights for on-demand music streaming.79 Cooke,Chris(2020),Dissecting the Digital Dollar,Third Ed
253、ition,p84.80 See the PRS for Music website.81 PRS for Music information provided to the CMA.That term originates from the impact assessment that preceded the European Commissions 2005 Recommendation on the cross border collective management of copyright for online use.The 2005 so-called Option 3 Rec
254、ommendation stated that holders of online rights should have the right to withdraw their online rights and transfer the multi-territorial management of those rights to a CMO of their choice.The Option 3 publishers considered it more efficient to approach the multi-territory market outside the tradit
255、ional CMO network.82 See for example Cooke,Chris(2020),Dissecting the Digital Dollar,Third Edition,p73.Such SPVs include entities like SOLAR(for Sony/ATV),DEAL(for Universal),PEDL(for Warner),ARESA(for BMG)and IMPEL(for a consortium of indies).Kobalt works in partnership with its own collecting soci
256、ety AMRA(Cooke,Chris(2020),Dissecting the Digital Dollar,Third Edition,p190).40 2.51 While music streaming services will use their own data and/or data provided by rightsholders to calculate the share of revenues due to each recording licensor,due to the complexity of publishing rights they typicall
257、y provide data on streams to a third party(usually a CMO,licensing hub or companies who specialise in such rights processing)to assess for claims.The third party will return a breakdown of where royalties are due so that the music streaming service can then pay out.It is therefore usual for publishi
258、ng revenues to be paid later than recording revenues.2.52 It is also not uncommon for a certain percentage of publishing revenues to be unclaimed by or on behalf of one or more right holders with an interest in a work,due to difficulty in identifying the rightsholder.This can arise from (a)unmatched
259、 royalties which occur when the usage data(if any)supplied bythe licensee cannot be matched to a registered work,and(b)partially-matched royalties where the usage data supplied by the licenseecan be matched to a registered work but 100%of the shares on the workare not claimed.2.53 Such unclaimed roy
260、alties(often referred to within the industry as black box income)are dealt with in line with PRS Constitutional Rules and specified PRS for Music policies.83 2.54 The amount of unclaimed UK royalties distributed by PRS for Music(on behalf of both PRS and MCPS)was 0-5m in 2019,10-15m in 2020,and 10-1
261、5m in 2021,representing less than 2%of royalties distributed each year byPRS for Music.84 These figures are the MTOL values for unclaimed onlineroyalties for performing and mechanical rights licensed and collected byICE.852.55 Table 2.6 highlights publishing margins for the three majors over the rev
262、iew period.While provided as useful sector information,we note that such margins cannot be directly compared to recording margins as publishing and 83 Unmatched royalties are held by PRS for Music,with 75%distributed pro rata in line with allocated royalties after one year and the remaining 25%after
263、 three years.Partially-matched royalties are held by PRS for three years,during which time PRS for Music members can register their shares and claim any missing royalties.The funds that remain are distributed pro rata after 3 years.84 PRS for Music information provided to the CMA.PRS do not recommen
264、d drawing conclusions from the percentage of annual royalties distributed that relate to unclaimed royalties,partially since these royalties are collected and distributed at different times and because of the requirement for licensors globally to have completed invoicing.Nevertheless,this percentage
265、 is the best indication we have of how prevalent unclaimed royalties are,albeit only an approximate indication.85 PRS for Music information provided to the CMA.See note(2)to Table 2.5 as regards the scope of MTOL.41 recording are different businesses with different costs and capital requirements.Tab
266、le 2.6:Operating margins for major labels UK publishing businesses FY17 FY18 FY19 FY20 FY21 Universal 10 to 20%10 to 20%10 to 20%10 to 20%10 to 20%Sony 10 to 20%10 to 20%10 to 20%0 to 10%10 to 20%Warner 10 to 20%0 to 10%0 to 10%0 to 10%0 to 10%Source:CMA analysis of major labels management accounts.
267、2.56 In aggregate the trend in operating margins has been decreasing over the review period.This is driven almost entirely by an increase in the proportion of royalties paid out.Creators Artists 2.57 As noted in paragraph 1.52,streaming has reduced barriers to entry for artists,particularly newer or
268、 emerging artists.It is now possible for individuals to make a good quality sound recording using readily available and affordable online recording tools.New artists can also upload their music directly to social media or mass distribution platforms at no or low cost.More generally,social media has
269、enabled artists to directly market themselves much more proactively and more readily develop a fan following.As a result,the industry has seen an explosion in the numbers of artists making music(see Table 2.7)and the volume of music made available(with around 60,000 tracks uploaded globally per day
270、on Spotify alone).86 2.58 Streaming has also offered new opportunities for global reach in a way previously unimaginable.Further,it has reinvigorated the careers of many legacy artists by making it possible for their music to readily be discovered even if physically out of stock or otherwise hard to
271、 find.However,as described in paragraph 2.21,streaming has also changed the marketing and financial dynamics of music making.In an increasingly crowded space,it is arguably both easier than ever before to be heard but harder than ever to break through at scale.2.59 All of this has also resulted in g
272、reater complexity for artists who increasingly have options to take more control of their own career but can find it challenging to track and understand their revenue data across millions of 86 Music Business Worldwide(2021),Over 60,000 tracks are now uploaded to Spotify every day.Thats nearly one p
273、er second.42(global)streams and to successfully navigate their marketing options.They rely largely on their music companies and streaming services to provide them with usable data for these purposes.2.60 The experiences and outcomes for different artists vary widely.For the purposes of this report,w
274、e refer to low,mid and high-range artists,where:low-range refers to artists with limited financial success(these are emerging artists at the start of their career or artists who are not making a career from their music);mid-range refers to artists with some success and who are able to sustain music
275、as their main occupation through to those who are reasonably successful;and high-range,which refers to artists who are very successful and considered to be at the top end.Other industry participants categorise artists into different tiers.However,we have not sought to provide precise definitions by
276、artist revenue or other factors.2.61 Artists may move between these ranges over time,for example moving up the tiers as they grow their fanbase.It is also important to distinguish between established artists who have a longer-term track record of success,emerging artists(who have built some track re
277、cord,for example through social media)and new artists(who may be relatively unknown),as they are likely to have different needs and also represent different levels of risk to music companies when considering potential signings.2.62 The data shows a large increase in the number of low and mid-range a
278、rtists under streaming.However,in terms of share of streams the market remains heavily dominated by the few high-range artists who become successful,many of whom are generally contracted to the major labels.Research commissioned by the IPO found that between 2014 and 2020 the top 0.4%of artists acco
279、unt for 63-65%of streams,the top 1%for 7880%of streams,and the top 10%for 98%.87 While the number of successful artists and tracks are increasing,88 the proportion of artists achieving more than 1 million streams per month(see Table 2.7)in the UK remains small(in 2020,around 0.4%).87 Report commissi
280、oned by the IPO(2021),Music Creators Earnings in the Digital Era,p198.88 BPI(2022),All About the Music 2022 yearbook reveals more artists and tracks succeed on streaming than ever before.For example,the BPI estimates that the top 100 UK tracks in 2021 made up 4.4%of streams(down from 10.3%in 2016).4
281、3 Table 2.7:Total number of artists reaching streaming thresholds 2014 2015 2016 2017 2018 2019 2020 10 million-99,999,999 3 11 34 55 78 104 110 1 million-9,999,999 187 340 533 825 1,212 1,441 1,613 100,000-999,999 1,610 2,471 3,536 4,895 6,528 7,518 8,322 10,000-99,999 7,026 10,144 13,080 16,455 19
282、,937 24,138 27,180 1,000-9,999 19,778 25,438 32,274 38,813 46,084 52,883 59,997 0-999189,546 212,152 236,082 256,164 277,349 301,052 326,881 Total218,150 250,556 285,539 317,207 350,918 387,136 424,073 Source:Report commissioned by the IPO(2021),Music Creators Earnings in the Digital Era,Table 6.4.N
283、ote:Based on number of artists reaching these streaming thresholds in a sample month corresponding more or less to October(weeks 40 to 43)in each of the years from 2014 to 2020.2.63 While notable,this concentration of outcomes is to some extent a general feature of many creative industries and has p
284、re-dated streaming.Popularity tends to coalesce around certain hits,given the finite attention available from consumers,notwithstanding that there are today more ways to access and market such hits.Further,the low barriers to making music(particularly in the digital age where access to a studio is l
285、ess critical than before)mean that a long tail of artists speculatively but unsuccessfully entering the market can be expected.2.64 It has been argued that the pro rata remuneration model adopted by most streaming services and music companies89 helps to sustain this winner-takes-all dynamic(as reven
286、ues are driven towards the tastes of consumers who listen more to music and the most popular music overall)and that artists would be better served by alternative models that could help to spread revenue more equitably.The Government is carrying out research on different remuneration models(including
287、 equitable remuneration)90 in response to recommendations on this point from the DCMS Select Committee.2.65 In terms of the importance of streaming for artists,while it is widely acknowledged as being key for their visibility and public profile,for all but the most popular artists it cannot sustain
288、a living.A recent report commissioned by the IPO found,based on a survey of music creators,91 that they gained income from many different sources but that,prior to the COVID-19 pandemic,live performances were the greatest source of income for artists.Streaming,despite being the biggest contributor t
289、o global recorded music 89 This allocates revenues from a service to a given track according to its share of total streams on that service(in a given country).90 A statutory right that ensures performers are paid equitably(i.e.fairly)from certain specific exploitations of their recordings and which
290、cannot be waived or assigned in contract.In some contexts the law specifies that the right amounts to 50%.See definition and discussion in Report commissioned by the IPO(2021),Music Creators Earnings in the Digital Era.A Private Members Bill proposing reforms to the rights and remuneration of musici
291、ans and other rightsholders,including the introduction of equitable remuneration for music streaming,was also tabled by Kevin Brennan MP but has not progressed following a debate in the House of Commons in December 2021.91 Report commissioned by the IPO(2021),Music Creators Earnings in the Digital E
292、ra,p11-13.Survey respondents comprised various types of music creators,including songwriters and composers as well as performing artists.44 revenues since 2017(see Figure 1.1),contributed,on average,6%of the survey respondents music-related income.92 The low revenues from streaming typically earned
293、by individual artists are a clear source of tension within the industry.2.66 Using data from the major labels,we have estimated the amounts that music recording artists earn from 12 million UK streams per year.We estimate that this would earn an artist around 12,000 per year.This analysis does not i
294、nclude earnings from overseas or from other sources such as live performance or publishing rights.93 Evidence we have received from the majors suggest that more than half of their UK artists streaming income comes from outside of the UK.94 2.67 There is evidence that the deal conditions available to
295、 artists(including from major labels)are improving on average.Royalty rates are rising,and increasingly some deals may feature shorter commitments(eg for single tracks as opposed to albums)and/or for shorter terms of copyright(if assigned or licensed at all).A&R investment has been increasing,largel
296、y offsetting reduced marketing expenditures over time.95 We look at some of these developments in more detail in the following paragraphs.New artist contractual terms 2.68 We collected contractual data from the majors on key artist outcomes for all new artist contracts(ie where the artists are new t
297、o their label)signed in the years 2012,2017,2019 and 2021.The data suggests that key contractual terms for these artists in particular,financial and copyright terms have on average improved in this period.The number of new artist contracts(both multi track and single track)increased from 158 in 2012
298、 to 219 in 2021,although an increasing proportion of these are single track deals.In Table 2.8 below we set out an analysis of data on key contractual terms for the majors multi-track deals with new artists.As this analysis is based on averages across all 3 majors,they do not show how the terms can
299、vary significantly between artists,reflecting for example the different potential 92 Report commissioned by the IPO(2021),Music Creators Earnings in the Digital Era,p 171.93 CMA analysis of data from the majors.94 Based on estimates provided by the majors.95 Furthermore,all three majors have recentl
300、y voluntarily written off unrecouped balances from pre-2000 contracts for their legacy artists(see 18 May 2022 letter from the Minister of State for Media,Data,and Digital Infrastructure,DCMS and the Minister for Science,Research and Innovation,BEIS,to the Chair of the DCMS Select Committee(page 1)s
301、o that these artists are now receiving revenues from streaming.45 financial rewards and risks based on the characteristics of individual artists(including by genre,potential,and stage of career).96 Table 2.8:Key artist outcomes in relation to new multi-track artist contracts across all majors 2012 2
302、017 2019 2021 Number of multi-track contracts 150 143 141 110 Average gross royalty rate 19.7%21.4%21.9%23.3%Average minimum number of commitment periods(with a commitment to produce a multi-track recording)97 3.8 3.3 3.4 3.0 Proportion of contracts where labels own copyright of recordings in perpet
303、uity 66.0%45.5%44.7%26.4%Estimated average period(in years)copyright retained after initial recording contract expires 50.4 38.9 39.3 30.0 Average(mean)advance paid(2021 prices)147.5k 133.8k 140.6k 153.2k Source:CMA analysis of data from the majors.2.69 In addition,we requested data from the majors
304、on the total earnings from UK streaming for all UK artists,prior to any recoupment for advances or recording costs,and the total UK streaming revenues received by the majors in relation to UK artists.This data shows that between 2017 and 2021:The average royalty rate(before recoupment)98 for all UK
305、artists signed to majors increased slightly from 25.0%to 26.3%.The vast majority of UK streaming income that is earned by UK artists is accrued by a relatively small number of artists and the evidence shows that the average earnings of these larger artists increased significantly.99 There has also b
306、een a small increase in the real average earnings of all artists on the books of majors(it remains relatively low with the overall average annual income in 2021 at around 2,000).96 In addition,we note that these individual contractual terms should not be viewed in isolation,including from other aspe
307、cts of the deal not captured here(eg marketing support provided by a record company).There may be trade-offs involved,for instance between the royalty rate,minimum commitment period and the amount of marketing support.97 For example,a commitment within a contract to produce a minimum of 3 albums is
308、made up of 3 commitment periods,one for each album.The number of commitment periods typically comprises an initial period(eg to produce the first album)followed by a number option periods exercisable by the record company(not the artist)that commits an artist to produce further albums or tracks.98 T
309、otal earning for all majors UK artists before recoupment divided by total majors streaming income from UK artists.99 For the majors largest UK artists(those who were ranked in the top 400 of the majors largest artists,whether UK or global,by UK streaming revenue in total these artists numbered 415 i
310、n 2012 and 387 in 2021):royalty rates increased from 25.4%in 2012 to 27.0%in 2021;real average earnings increased from 51,178 in 2012 to 99,615 in 2021;and total real earnings increased from 21.2 million in 2012 to 38.6m in 2021.46 The total number of UK artists who earn income from UK streaming and
311、 the total amount earned by UK artists from UK streaming both increased significantly.100 Figure 2.5:Average UK artist yearly streaming earnings from majors and average(mean)royalty rates(2021 prices)Source:CMA analysis of data from the majors.A&R and marketing expenditure 2.70 To understand how rec
312、ord companies investment in artists is changing over time we requested evidence on the majors expenditure on A&R101 and marketing expenditure102 over time.In Figure 2.6 we present analysis of how real A&R expenditure by the majors has changed over time,which shows that between 2012 and 2021:In real
313、terms gross A&R expenditure increased from 103m to 235m and increased from 12%to 17%of total revenue;100 Increasing from 1,762 in 2017 to 2,158 in 2021.Note this is the average for all of the majors UK artists who achieved any earnings from UK streaming,regardless of whether they are currently contr
314、acted to produce new recordings.In total this was 13,906 artists in 2017 and 21,882 in 2021.Total majors UK artists earnings from streaming increased significantly in real terms from 24.6m in 2017 to 47.2m in 2021.101 These expenditures incudes advances,recording costs,tour support costs and video c
315、osts.Typically the majority of these costs are recoupable by the label from artist royalties.102 These costs included marketing costs for videos,tour support,press,promotions,and website&digital application costs;and advertising costs for TV,online,billboard&print,and co-op.Typically these costs are
316、 non-recoupable.47 In real terms net A&R expenditure(A&R expenditure in a year net of any recoupment of A&R expenditure through gross royalties)increased from 48m to 132m,and increased from 6%to 10%of total revenues;103 In real terms marketing expenditure fell from 123m to 95m and fell from 14%to 7%
317、of total revenues;104 Combined net A&R and marketing expenditure as a percentage of revenues has fallen from 20%to 17%;and Combined gross A&R and marketing expenditure as a percentage of revenues has fallen from 26%to 24%.105 2.71 A&R and marketing costs are the most direct investment that is made b
318、y record companies in artists.106 The evidence suggests that the level of this investment has remained broadly constant as a proportion of revenues during the period,107 with A&R costs tending to increase over the period,and marketing costs tending to decrease.108 103 A&R expenditure(gross and net)i
319、s typically only made for UK-signed artists,however the revenue base is worldwide revenue.Therefore,these estimates may represent an underestimate of the scale of this expenditure relative to the income generated by the artists in relation to which the expenditure is incurred.104 Typically marketing
320、 expenditure is conducted only locally(ie directed at the UK market)however,the revenue base is worldwide revenue.Therefore,these estimates may represent an underestimate of the scale of this expenditure relative to the income generated from the territory at which the expenditure is directed.105 We
321、note that these trends apply to the aggregate data for all majors.For individual majors the trends in A&R or marketing expenditure may differ from that reported in this paragraph.106 We note that A&R and marketing expenditure are not the only expenditure which captures the level of investment in art
322、ists by record companies.A proportion of a companys overhead costs(mainly employee costs)will also be dedicated to artist services of various kinds.107 We note that it can be difficult to draw too many conclusions from relatively small year-on-year changes in these costs(as a proportion of revenues)
323、as they can be very lumpy(A&R costs in particular)depending on the mix of contracts that a record company signs in any given year.In addition,external factors such as the covid pandemic will impact these levels of expenditure.108 One reason for this put forward by the BPI was that the decline in mar
324、keting costs is due in large part to the increasing use of online marketing instead of much more expensive television marketing.48 Figure 2.6:Majors expenditure on marketing and A&R as a percentage of revenue over time Source:CMA analysis of data from the majors.New artist actual earnings 2.72 We no
325、te that the annual earnings data that we have presented in this section will not be the same as the actual earnings.2.73 Firstly,these earnings are based on artists gross royalty rates and typically producer royalties in the region of 3-5%will be deducted from these.109 2.74 Secondly,these earnings
326、will differ from the amounts actually received by an artist on an annual basis because of the way recoupment works.(a)Where artists sign a traditional record deal,this typically involves a recoupable upfront financial commitment by the record company which consists largely of an advance on any futur
327、e royalties earned by the artists and expenses involved in the recording of the music(such as studio and video costs).110 (b)Artists will earn royalties on sales or streams of the music once it is released.These earnings will initially be used to pay off or recoup the upfront commitment.109 Based on
328、 evidence provided by the majors.110 Recoupable expenses typically involve:artist advances,recording costs;video costs,TV advertising costs;support of artists tours;and legal fees.Generally,these costs are fully recoupable,with the exception of TV advertising spend and video costs of which only a pr
329、oportion is typically recoupable.The exact details regarding which costs are recoupable and the extent to which they are recoupable will vary on a case by case basis.49(c)Only when the upfront commitment is fully recouped will the artist start to receive earnings directly from their royalties.2.75 T
330、he recoupment process will impact both annual artists earnings111 as well as the effective royalty rate they receive.By effective royalty rate,we mean the total earnings an artist actually receives after recoupable expenses112 over a period of time,113 as a percentage of the total revenues received
331、by that label from music streaming services for the use of the artists recording rights during the same period.2.76 In Figure 2.7 below we set out a stylised example of how the recoupment process impacts an artists actual annual earnings and effective actual royalty rate.114 For simplicity,this exam
332、ple focuses solely on music streaming income whereas in practice,an artists income will cover a range of income sources which will all go towards recoupment.The analysis shows:Whilst artists may receive significant income upfront in the form of an advance of royalty income in the first year of a rec
333、ording deal,they may not receive any further income for a number of years afterwards until the upfront commitment of the record company has been recouped.The exact period before an artist begins to receive earnings paid directly from music streaming income depends significantly on how popular the music is over time.115 The effect of producer royalties and recoupable upfront expenses such as record