AFM, Media Convergence and Performance Rights, Part 5

June 1, 2016

Ray Hair  -  AFM International President

Below, in the fifth and final part of our series, we examine the growth of streaming and the potential to drive new money to MPTF, SPF, and AFM-EPW.

Revenue from Music Streaming Continues to Grow

From the early 2000s to date, with consumption racing toward streaming and away from physical sales and analog broadcasting, royalty collections from streaming have grown from a trickle to a flood. SoundExchange, the US collective for record labels and featured artists, is now the biggest rights management organization in the world. SoundExchange has collected and distributed more than $3 billion since 2003 and will top $1 billion this year. In 2016, the AFM & SAG-AFTRA Fund will distribute to musicians and vocalists more than $50 million derived primarily from streaming royalties paid by satellite radio and webcasters like Pandora and SiriusXM.

Despite its recent surge, rights revenue from SoundExchange accounts for only a portion of the music streaming pie. There are three categories of record label streaming revenue—paid subscriptions like Apple Music and Spotify; SoundExchange, which distributes royalties to labels, featured artists and to background musicians and vocalists through AFM & SAG-AFTRA Fund; and ad-supported streaming like YouTube. The paid subscription category has grown the most over the past three years to 51%, surpassing revenue from the other two categories combined. SoundExchange weighs in at 33% and free streaming, like YouTube, is 16%.

By the numbers, the record industry is a $16 billion global music market. The US share was $7 billion in 2015, transitioning from physical sales to streaming. Streaming accounted for more than one-third of all domestic music revenue in 2015, with $2.3 billion (34%) earned from streaming.

Sales of CDs and Digital Downloads Trending Lower

Compare those numbers to revenue and distribution amounts allocated to Sound Recording Special Payments Fund (SPF) and from the Music Performance Trust Fund (MPTF) by way of current AFM agreements with the recording industry. SPF and MPTF proceeds, which benefit session musicians and local presenters of public concerts, declined to approximately $4 million and $1 million, respectively, last year. Nowhere is the drop in sales of CDs and downloads more evident than in the business of SPF and MPTF—two entities that are of immense importance to our locals and members.

SPF and MPTF revenues date from two epic strikes in the 1940s that ended when record labels agreed to allocate a percentage of sales to fund public performances of live music, and later, for residual and benefit funds. The high water mark for SPF and MPTF was the early 1980s, prior to the advent of CDs and downloads and digital file sharing, during an era when vinyl records reigned supreme. In those days, the funds together accounted for more than $40 million in distributions. Consumer trends point to worsening problems for those historic funds.

Last month, a report from Digital Music News, citing sources with “close and active business relationships with Apple,” said an end to iTunes downloads was no longer a matter of if, but when. The report offered two separate timelines for Apple’s seismic strategy shift, one with a termination date “within two years,” and another dating out to “the next 3-4 years, maybe longer,” ostensibly to force consumers to switch over to Apple Music, the tech giant’s subscription-based streaming service.

A Seminal Moment

What does this tell us? It’s time to change horses. The days of sustaining MPTF and SPF with royalties from CDs, DVDs, and downloads, are numbered. Royalties negotiated in the old days must be applied toward all streaming revenue, foreign and domestic. As the saying goes, that’s where the money is.

The Federation is currently engaged in negotiations with the recording industry for a successor Sound Recording Labor Agreement (SRLA)—the agreement that led to the creation of MPTF, SPF, the AFM & EP (pension) Fund and all other residual payments and funds in the first place. Federation terms covering contributions from MPTF, SPF, and streaming are open items at the bargaining table. That’s why today, with content moving rapidly from physical to digital, and with the industry now across the table, we may have arrived at a seminal moment—where the right deal with the labels could provide new income for the pension fund, SPF, and MPTF for years to come.

Conclusion

About 120 years ago, in 1896, 26 independent local musicians’ unions convened in Indianapolis to build the union of their dreams. They set about building strength through unionism and organizing. In our early years, locals and musicians confronted employers by standing together, setting standards, and refusing to perform for less. With the rise of radio broadcasting, talking motion pictures, and high fidelity recording technologies, standards-setting strategies for preserving local employment came under intense pressure.

The Federation and its locals responded to technological challenges by working together to organize media employers, achieving constructive contracts with radio, film, and record producers. As technology improved the fidelity and popularity of recordings, the AFM was left to bargain with producers to prevent unlimited use of recordings because the 1909 US Copyright Act had omitted performance rights for musicians, reserving them only for composers. Leveraging its power in the 1940s, the AFM established a groundbreaking royalty system—the Music Performance Trust Fund.

As consumer technology crossed the digital threshold in the 1990s, the US Congress amended copyright law to provide musicians with long-awaited performance rights in sound recordings—for digital transmission only. SoundExchange and the AFM & SAG-AFTRA Fund were established to distribute rights money from digital radio and webcasting to copyright holders, featured artists, session musicians, and vocalists. AFM and SAG-AFTRA reached agreement with the labels for a 1% royalty from on-demand streaming.

In the 21st century, we live in a time of convergence, the intersection of content production and distribution, where new digitization and transmission technology have blurred the lines between broadcasting and new media. The rapid surge of innovation has produced a new techno-economic paradigm, disruptive to existing business models, bargaining relationships, and workplace attitudes.

In eras past, when paradigm technological shifts and blowback from unemployment shook our foundation, we answered with collective bargaining. The Federation is well positioned in the new age of global media to bargain progressive agreements to preserve employment, protect our members, and to restore MPTF and our residual and benefit funds.

Of media consumed worldwide, 60% is produced in the US and Canada, primarily under AFM agreements. With $2.3 billion in domestic streaming at stake, more in foreign streaming and rising fast, producers are doing what they’ve always done: to deprive musicians, their pension fund, residual funds and MPTF a fair share of the pie. It’s the same old song. We make all the music, but everyone else makes all the money. We can change that. We’ve done it before. 120 years ago, our founders knew they were stronger together. Standing together, we have the power to overcome anything. Brothers and Sisters, here’s to another 120 years!

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