A fair way to close the value gap

The music industry says that artists, labels, and songwriters are getting a raw deal from services that allow users to upload content. The beef is that user-uploaded songs, which may generate advertising revenue for the service and the uploader, compete directly with those same songs uploaded by the copyright owner. The difference in revenue between a user upload and a professionally supplied version is what the music industry means by the ‘value gap’.

And they don’t like it. As explained by record company trade body IFPI’s Frances Moore:

“The value gap is about the gross mismatch between music being enjoyed by consumers and the revenues being returned to the music community.”

Copyright terms and conditions always make the uploader responsible for any copyright permission or licences, but sometimes uploaders don’t have all the rights they need. If services remove the content promptly when asked, they benefit from what is known as a ‘safe harbour’, and the copyright holder has no claim against them for infringement or loss of revenue.

So what does the music industry want? Frances Moore again: “The ‘safe harbour’ regime designed for the early days of the internet should no longer be used to exempt user upload services that distribute music online from the normal conditions of music licensing. Labels should be able to operate in a fair functioning market place, not with one hand tied behind their back when they are negotiating licences for music.”

Unusually for the music industry, the IFPI position has managed to generate broad support among artists and indie labels, as well as songwriters and publishers. Over 1,300 artists have now signed a letter to the EC President Juncker, which you can read online here. 

The music industry is not calling for safe harbour to be abolished, rather that the qualification to benefit from it is drawn far more narrowly now that many platforms are less file hosting services and more media and advertising businesses. And the European campaign is mirrored by similar efforts in the US asking for changes to the DMCA safe harbour provisions.

The pushback has been quick and predictable, and based on the same set of positions that have been rehearsed over the last 20 years of Internet history. Some feel that copyright should be abolished, and artists who can play live should make money only from from ticket and tee shirt sales. Some suspect the campaign is just the biggest artists and labels wanting to add even more millions to their already vast riches. Many think that the music industry should share out more equally what it already has before seeking to get stronger rights. Some think that over-zealous labels and artists are harming other creators by issuing unfair take-down notices.

Legal sophisticates will recognise some important principles wrapped up in this debate. Citizens and consumers are clearly right to demand that an industry with unfair practices is not rewarded. And in a commercial environment in which only a tiny proportion of new work achieves a return on investment, there is a balance to be found between the value of distribution and promotion to the creator, and the value of the content to the service. There are too a whole class of either inadvertent, incidental, and innocent infringements where the uploader has no intent to profit to the detriment of the musicians.

But does the music industry have a point at all? The disparity in the money the music industry gets for the same consumer experience is real enough. IFPI calculated wholesale subscription revenue per user at just under $30 per year for 2015, while advertising brought in about $0.72 per user per year, albeit from a much larger user base. The advertising rates on UGC are generally much lower than on professionally supplied content; so where YouTube and other services are being used as a music jukebox, the hit to music industry revenue from this competition is very significant.

But of course there is no way to know whether there’s more money to be found. The services currently benefiting from safe harbour have every incentive to increase their own revenue. Other old copyright businesses that are moving to internet economics seem to be suffering similarly, so it might just be inherent in the way Internet media economics works. You can watch Professor Scott Galloway for an entertaining rant about this.

Internet advertising has its own set of issues quite apart from any music industry griping. We are learning that the cost of relying on advertising to support media generally is paid partly in greater intrusion into our private lives as trackers try to squeeze more value out of our daily traces, mostly with nothing like informed consent. High quality journalism is expensive. It might be weakened as more people have greater access to publishing platforms, with subsequent harm to political process and public life.

For me one of the ironies of the long standing conflict between copyright and Internet businesses is that if copyright was a tech startup innovation it would be lauded as a thing of progressive genius. It would not be organised in national silos, nor looked after by people who refuse to cooperate with each other. But there’s no more natural way, in a world of infinite replication and trackability, to incentivise and reward creators. And that is what ad-supported UGC services do, through unique digital object ids, channels, and the massively complex world of consumer tracking and advertising markets.

There is a great deal both sides can do to show they are fit for purpose. The music industry should finally deliver on the promise of digital technology and make it easy for everyone to identify and pay the creators and owners of the music, just like YouTube does with its own creators. Services need to show they deserve a safe harbour by demonstrating respect for the rights and privileges of everyone, from fair dealing student to striving artist to privacy deserving citizen. I would like to see the value gap closed by giving songwriters and musicians more say in the deals that affect their livelihoods, and by demanding more transparency from services on what they do with all of our data.

Paul Sanders is a member of ORG’s Advisory Council and the cofounder of several music and technology companies. This blog is his personal view and we hope it will start a debate on the ‘value gap’.