UK competition watchdog finds major record labels are not ‘making significant excess profits that could be shared with creators’

It was an exploration into the music business that, in a beautiful moment, sent the major record companies into a frenzy. But in the end, after thorough research into the local music market, the UK’s leading legal competition watchdog has conclusion that large-scale record labels are “[not] maybe is do meaningful excess profit can be shared with creators”.

In July last year, an inter-parliamentary committee composed of UK politicians called for a “complete reset” of music streaming after an inquiry into the economics of streaming.

A related report has recommended that the dominance of professionals in the UK recorded music industry be transferred to the UK’s competition watchdog – the Competition and Markets Authority. school (CMA).

The CMA then conducted a ‘market study’ on the dynamics of the record business. CMA . Finals 165 pages long report on the matter was published in the UK on Tuesday (November 29).

During the CMA market research, some lobbyists in the UK music business argued that artists and musicians were not pocketing enough money from streaming services and accused some music companies hold excessive profits from royalties.

The CMA ultimately concluded that streaming remuneration was a pursuit for the elite, with more than 60% of UK streams being music recorded by only 0.4% of the top artists.

The CMA study also concluded that music consumers have benefited from ‘real’ price cuts in music streaming services. Due to inflation, the price does not change that a consumer in the UK has to pay for a service like Spotify The CMA says premiums have fallen by more than 20 percent between 2009 and 2021.

Specifically, on the topic of large firms’ profits, the CMA explains in its new report that it has conducted a profit analysis and has found no “evidence of substantial and sustained excess returns of the firms.” Big labels can be competitive to benefit consumers, for example through more investment in music.”

It adds: “Despite limitations with profitability analysis, the results of this analysis are consistent with our overall finding that competition elsewhere in the value chain is helping ensure positive outcomes for consumers.”

Commenting on the impact of streaming on the music industry in the report’s concluding comments section, the CMA noted that “the music market has undergone profound changes in recent years from piracy to the introduction of streaming”.

It also says that “it is widely acknowledged that consumers have benefited from streaming through access to a full music catalog and creative services for free or at a fixed price.” every month, this price has actually decreased.”

However, the CMA believes “there are real questions as to whether creators – the people who write and perform songs – benefit to the same extent.”

“There are more artists than ever before, and as a result, creators face more artists and songs to compete for streaming revenue.”

CMA . report

The report further notes that while “outcomes are generally improving, we note that to some extent changes in this area, due to streaming, have caused some creators to make it more difficult”.

According to the CMA, factors that make it difficult for some creators include “reducing barriers to entry and having more choices about how to distribute music,” which means “more artists than ever before.” time out and as a result, creators face multiple artists and songs to compete for streaming revenue.”

This particular observation by the CMA – that there are more artists and more songs than ever before – is even more striking after the news that there are around 100,000 tracks uploaded to music streaming services every day.

Other challenges artists face in today’s streaming economy as outlined by the CMA include, “that music companies have a hard time knowing which of the number of creators are streaming. development will be successful”.

The CMA adds that this “inherent uncertainty combined with consumer tastes that tend to favor a relatively small number of artists means that creators face even more challenges.” bigger challenge”.

However, it concluded that it does not “think these factors are caused or exacerbated by problems related to the way companies in the market compete”.

“We have heard from many artists and musicians across the UK how they struggle to make a decent living from these services. These are understandable concerns, but our findings suggest that these are not the result of ineffective competition – and that CMA intervention will not release more funds into the system to help artists or musicians.”

Sarah Carddell, CMA

Publishing the final report on Tuesday (November 29), Sarah Carddell, interim CEO of CMA, said: “Streaming has changed the way music fans access music catalogs. music giant, providing a valuable platform for artists to reach new listeners quickly and at a rate that prices for consumers have fallen to real value over the years.

“However, we have heard from many artists and musicians across the UK how they struggle to make a decent living from these services. These are understandable concerns, but our findings suggest that these are not the result of ineffective competition – and that CMA intervention will not release more funds into the system to help artists or musicians.

“While this report marks the end of CMA’s market research, which aims to address previous concerns about competition, we also expect the detailed and evidence-based picture we can Building on this relatively new field will provide a basis that can be used by policymakers to consider whether further action needs to be taken to help creators.”

Some other important conclusions from the report include:

On the strength of the majors:

“We were told that the CMA could disrupt majors, interfere with historic contracts between artists and labels, impose firewalls between the publishing and recording branches of majors, remove regulations. clauses in contracts between streaming services and labels, impose code that governs financial relationships between music companies and creators, or otherwise interfere with creators’ compensation create. Overall, we found no significant competitive concerns, particularly concerns that have the potential to lead to significant excess returns.

“This means that a competing intervention is unlikely to release additional funds from within the system in a way that would significantly improve the overall outcome. In such cases, there is also a higher risk of competitive interference with unintended consequences for both consumers and creators.”

“For example, an intervention to separate the publishing and recording businesses of the majors could provide an incentive for independent recording businesses to refuse to respond to any increase in the ‘publishing market share’. ‘ through a reduction in the recording market share, as any loss to their recording revenue will not be mitigated by the profit from their publishing market share.

“Moreover, the intervention is unlikely to significantly alter the allocation between recording and publishing because, for the reasons we outline in the report, these could be due to licensing negotiations. and the bargaining power of copyright holders inherent in the market will not be overcome by fiercer competition for musicians.

On profits at music streaming services:

“Currently, we also find no evidence of streaming services earning excess profits – in fact, we see low or negative operating margins for streaming services. music streaming has an account that we were able to analyze. This proof of profitability is consistent with intense competition among music streaming services to provide services to consumers.

“The #Broken Record campaign and a record company have raised concerns that music streaming services may not generate excess returns as investments in unrelated services are being supported. cross-supported by music streaming (especially Spotify’s entry into new formats like podcasts and audiobooks).

“Investments in other content formats may partly explain the lower profit margins of music streaming services. However, the investment of music streaming services to expand the range of content that music streaming services offer is also matched by strong competition. Furthermore, the offering of new audio format packs could also help expand the market of people who are attracted to music streaming services and we note that streaming services anticipate that Over time, those additional services will be profitable.”

Regarding future intervention opportunities:

“The music streaming market is changing rapidly, and further technological advancements in the coming years could spark further change to the way we listen to music.

“In the course of our research, we’ve documented important innovations introduced across streaming services, and there are now many new ways to access music, such as through UUC platforms. with new opportunities for revenue growth.

“It is likely that these changes will continue to raise questions about how these developments will impact consumers and creators. The CMA may intervene in the future if changes in the market limit or distort competition and harm the interests of consumers.”Global Music Business