Lawyer Monthly Magazine - May 2019 Edition

The main challenge is the difference between the revenues effectively received by rights holders from the exploitation of their copyrights by content-sharing platforms, such as YouTube and Facebook However, the “Value Gap” isn’t just created as a consequence of non-payment of royalties. Even where deals are being reached voluntarily between rights holders and the relevant digital players, those deals may still not satisfy the requirement for value or a “fair share” of the value created by the products using rights holders’ IPR. Take Spotify – a driving force for streaming – as an example. Many rights holders have been vocal in their disapproval of the amount of royalties they receive and, in certain cases, have withdrawn their repertoire (if only on a temporary basis in some cases). Nevertheless, Spotify has been reported to spend roughly 80% of its revenues in rights payments. This is clearly an unhealthy situation for both rights holders and Spotify. It’s also been variously reported that the difference between royalties received by ad-based content-sharing platforms and services like YouTube, and subscription-based services such as Spotify, is between five and twelve times. This comparison should be treated with some caution though as, whilst there might be some commonality in the experience the user enjoys, there are also differences between the services. This also illustrates the degree of disparity that characterises the “Value Gap”. How can the Value Gap be closed? Traditionally, the origin of the Value Gap is rooted in the “Safe Harbour” provisions that exist in legislation in the USA and Europe. This legislation establishes exemptions for content intermediaries from direct and indirect responsibility for copyright infringing content in user uploads. In Europe, there has been much heated and passionate debate in recent times which has culminated in the new EU Copyright Directive, recently approved by the EU Council and, therefore, now ready to be implemented locally in Member States. Article 17 of the Directive amends the previous “Safe Harbour” provisions (contained in the EU ElectronicCommerce Directive in 2000) and, broadly speaking, requires content-sharing services to have licences for copyrighted material with “fair remuneration” for rights holders. It also makes platforms liable for content made by its users. Whilst there is no similar change inprospect in theUSA regarding “Safe Harbour” legislation, the Music Modernisation Act 2018 has brought about an extensive overhaul of music MUSIC COPYRIGHT MUSIC IN THE DIGITAL AGE: CLOSING THE VALUE GAP 74 Professional Excellence www. lawyer-monthly .com MAY 2019 copyright and creates a number of new licensing and royalty rules for the digital era. That’s not to say that it’ll all be plain sailing from now on. Recently, Spotify and Amazon have officially challenged a Copyright Royalty Board ruling in the USA that set royalty rates for songwriters there, for on- demand subscription streaming and other mechanical uses, that would rise by 44% over the next five years. Looking at the economics of Spotify’s business, it’s perhaps understandable that they’ve taken this action, but it has been met with howls of protest by rights holders and their representatives, the National Music Publishers Association, for instance, calling it a “shameful” move which equates to “suing songwriters”. Furthermore, although the legislative change in Europe has been hailed as a major breakthrough, only time will tell the extent to which it closes the Value Gap. Nevertheless, it is clear that legislation has a central part to play in creating an environment where the Value Gap can be closed, but The Value Gap: what is it? Digital technology has revolutionised the music and entertainment industries in many ways, not least in the way in which music is distributed. The old “analogue” distribution paradigm has been turned on its head, especially in relation to physical products, and technological advance continues to create new and exciting opportunities, not only for getting the product to the consumer but also for establishing new relationships with consumers. This also presents a number of real challenges to the financial ecosystem that must underpin this growth. The main challenge is the difference between the revenues effectively received by rights holders from the exploitation of their copyrights by content-sharing platforms, such as YouTube and Facebook, and the value that those platforms receive from exploiting such content. This is commonly referred to as the “Value Gap”. The sense of “injustice” that creators feel around the “Value Gap” issue is exacerbated by the growth of digital revenues enjoyed by those commercialising the music. According to the recently published Global Music Report 2019 from the International Federation of Phonographic Industries (IFPI), representing record labels and artists, paid streaming accounted for 37% of the total global recorded music revenue in 2018.