What IP lawyers should know about IFPI’s Digital Music Report 2015

What are the developments in the world of digital music illustrated by the International Federation of the Phonographic Industry’s (IFPI) Digital Music Report 2015? Tahir Basheer, a partner at Sheridans, considers some of the highlights of this report.

What are the five take home points of the IFPI Digital Music report 2015?

1. The strong growth in subscription streaming revenues confirms the already suspected shift in consumer attitudes from one of ownership to access. This trend can also be seen in the decline in both physical format sales and download sales, as well as the rise in the numbers of consumers streaming music on mobile devices (tablets, smartphones etc).
2. YouTube and safe harbour continue to be an issue.
3. Digital music revenues in the territories covered by the IFPI report are now equal to physical revenues.
4. There are now even more distribution methods through which an artist must exploit their recordings in order to be successful (music subscription services, YouTube channels, multimedia emoticons or ringtones, crowdfunding campaigns, social media proliferation, CDs, vinyl, downloads and performance rights licensing). This is important not only in terms of direct revenue streams but also in terms of publicity, promotion and reputation as various charts now incorporate this data. It is also becoming more common for streaming data to be used to calculate Gold and Platinum award certifications around the world. This is important for artists as record deals often contain uplifts on the amount of royalties the artist receives if a record reaches Gold or Platinum status.
5. Piracy is still an issue despite its decrease and the introduction of website blocking legislation.

What legal issues will new business models throw up?

The rise of subscription services has highlighted some issues in the way digital royalties are calculated for artists—for example, a number of artists including Thom Yorke and Taylor Swift have openly criticised Spotify for the low level of royalties they pay and have removed their work from the service. Streaming royalties should be dealt with separately in record contracts to take account of the differences from downloads as streaming revenue is based on consumption of music over a continuous period and the accumulation of invoices whereas a download is a one-off purchase.

Other issues include:

Streaming data

How should data from streams be incorporated into the charts (eg how many streams is equal to a track download)?

‘The making available right’

How does the ‘making available right’ and its interpretation change the landscape—this is an exclusive right for authors, performers and phonogram producers to authorise or stop the ‘making available’ of their works over digital networks. Some of these authors, performers and phonogram producers are increasingly using this right as a further weapon in their arsenal to control the exploitation of their records over internet and over other wireless networks (eg by pirates who upload and open up to the public databases containing multiple music tracks without authorisation). Interestingly it is now also being used as a way for the artist to have a say in relation to streaming services, in the way their music is being distributed, even if the streaming service purports to have an agreement with a record company.

Safe harbour provisions

Further pushes to change the safe harbour provisions.

Finally, there is arguably a lack of competition among the biggest streaming providers (which then introduces issues around competition law), although this may change as new services enter the market this year (eg the recent launch of Tidal).

What is ahead for music licensing?

Statutory intervention—so that the normal rules of music licensing apply to, for example, YouTube and its one billion monthly unique users.

What new technologies does the report highlight and what opportunities do they bring?

Streaming—bundling deals bringing new consumers into the market who may then become subscribers, thus potentially increasing revenues. The ability to stream anywhere (gym, car, mobile) now means that access is effectively being viewed as the same as ownership, although there are also arguments that freemium streaming models are de-valuing music.

What happened with digital piracy in 2014? What part have website blocking orders and search played in tackling digital piracy?

It has been suggested that freemium subscription models may be taking away some of the demand for illegal downloads, although this is hard to prove.

The problem with website blocking orders is that the website simply pops up again on a new server (for example Pirate Bay has recently returned after it was shut down in December 2014 following a raid on its servers). There is also the problem of cross-jurisdictional enforcement and the blocking procedure can be expensive and burdensome. Many blame Google and its search facility directing users to pirate sites and argue that it needs to be more pro-active in demoting the appearance of pirate sites in search results and making sure that licensed sites appear at the top.

What is ahead for digital piracy, particularly with regards to mobile devices?

Piracy will always exist. The solution is to convince consumers of the value of music and offer them access to it at a price that they are happy to pay. The ability to access music on mobile devices has always been regarded as a premium service which can be charged for and there has been a trend to bundle this charge into the handset or mobile Telco fees. I think increasingly accessing music through mobile devices will become the norm and the concept of charging through the mobile telephone bill or through prepaid usage cards, codes or vouchers, almost as an invisible cost, will also become the norm.

Interviewed by Alex Heshmaty.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.