The Budapest Conference: A Campaign for Fairness in Music Streaming?

December 1, 2014

Ray Hair  -  AFM International President

I am writing this month’s column while flying back to AFM headquarters after a week of informative meetings November 17 through 21 in London with our counterparts from the British Musicians Union on electronic media issues, and in Budapest, Hungary, where the Hungarian Musicians Union and the International Federation of Musicians (FIM) convened the first ever International Conference on Music Streaming.

I was accompanied by Vice President from Canada Alan Willaert and International Executive Board Member and Local 802 President Tino Gagliardi.

At this inaugural confab, believed to be the first to deal with musicians’ streaming issues, over eighty musicians’ union and collective rights management representatives from around Europe, the US, and Canada gathered in Budapest to discuss the worldwide metamorphosis in the consumption of music—away from the purchase of physical product and digital downloads, toward the more efficient and far less costly model of streamed content delivery to cell phones, laptops and home video screens by on-demand webcasters such as YouTube, Spotify and Pandora, and by digital satellite radio services such as Sirius XM. The drop in royalty revenue experienced by professional musicians as a result of these changes is staggering.

Union leaders everywhere know that featured artists and session musicians throughout the world are angry over the lack of fairness in earnings received from the streaming of their works. We believe the situation has reached a crisis, one which must be effectively addressed and globally articulated through a coordinated plan of action which would include legislative and concerted protest activities.

The Budapest meeting was decidedly Euro-centric, with the overwhelming majority of attendees representing Eurozone unions and collectives. But as the issues were developed and discussed, it became obvious that despite musicians’ weak royalty position in the worldwide digital distribution derby, US digital performance rights management and efficiency through Sound Exchange and AFM-Sag-Aftra Fund is way ahead of that found in Europe, despite our lack of a performance right in terrestrial radio.

The European countries now find themselves on the business end of the barrel, watching their strong performance rights position in terrestrial broadcast weakening as the consumer moves from terrestrial radio and physical consumption to interactive on-demand streaming, which is largely unregulated. There, featured artists are paid on interactive streaming only according to their one-sided, label-favored royalty agreements where artists, unless they produce a mega-hit, invariably remain indentured servants to the companies and receive little or nothing from interactive play.

There are two sides to the digital distribution coin, in the US and elsewhere. First, there is non-interactive webcasting and satellite radio, and also cable-delivered music services, well-represented by Pandora, Sirius XM and Music Choice. The choice of music heard by the consumer on the non-interactive side is by genre or style. Particular tunes cannot be selected and heard repeatedly. Artists and musicians are protected non-interactively by a statutory license, also known as a “compulsory” license, which requires the copyright holder to make content available for distribution, but the streaming service—Pandora or Sirius XM in the US—must make a statutory payment to the artists and background musicians for each streamed use. Those payments are distributed to featured artists by SoundExchange and to background musicians and singers by AFM-SAG-AFTRA Fund. We know that SoundExchange will collect the better part of a billion dollars this year for distribution to record companies and featured artists. It is projected that by 2020, that figure will double. That’s a 100% increase in six years to $2 Billion.

Secondly, there is the interactive side of the coin. Simply put, interactive streaming is “on-demand” streaming, allowing a user to scroll through tracks and start and stop upon request, without having to download an audio file. In the US and elsewhere in most parts of the world, the interactive side is not subject to a statutory license, but is regulated through an “exclusive” license which allows the record company to withhold its tracks from a streaming service unless an economic bargain can be struck to permit such use. Here is where artists and musicians are really getting screwed.

Interactively, since the exclusive license for streaming the work is non-statutory and controlled solely by the record company (unless the artist has control of that right) the artist is paid only according to any existing royalty contract. Background musicians and vocalists are left to beg featured artists for piece of that pie, which is usually nothing since the record companies are experts at hiding the ball, reclassifying and re-engineering artist earned revenue from one bucket to another non-obligated one, all to avoid an obligation to accord professional musicians the dignity and respect we deserve. That strategy is compounded by the fact that the record companies are now big shareholders in the streaming companies.

The silver lining to the interactive side of the coin from our union’s perspective is that prior to the enactment of US digital performance rights in 1995, the AFM and AFTRA reached a deal with the record companies in 1994, predicated on our support of the 1995 Digital Performance Rights Act, where the major labels would pay 1% of all receipts from interactive streaming and tethered downloads to funds administered by AFM and AFTRA (now SAG-AFTRA). I’ll say it again. 1% of all receipts. The money from interactive streaming is now flowing in this country from the AFM’s 1994 agreement, where there is little revenue to be found abroad. But we estimate we are only receiving about 30% of what we think is owed. Multiple sources say the Sony and Universal, who have 20% ownership of streaming service Spotify, are trying to sell the company for $10 Billion. Their combined investment is reported to be $540 million. That shows you how much money is in the deal.

We will certainly work with our brothers and sisters to identify, articulate and prioritize the issues necessary to develop a worldwide campaign to achieve fairness for musicians in the digital distribution of their work. It’s not fair for musicians to make the music, while everyone else makes all the money.

Next month, I will report about discussions had with BMU representatives in London prior to the Budapest Conference, which concerned that union’s policy and practice in the recording of videogame scores. My report will certainly attract the attention of the US-based game publishers, their composers, and their booking agents who, according to our investigation, have repeatedly and deliberately misstated the case surrounding rights packages available in London. Tune in next month. It’s a report you won’t want to miss.

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