q144/random_k4/random_3.md

Music and streaming
market study final report

Executive summary

29 November 2022

Executive summary

Introduction

1.

2.

Music streaming has transformed how consumers listen to music. The rise of
music streaming has given consumers easy access to large catalogues of
music covering an array of genres and time periods for a fixed monthly price,
or free with ads. As music streaming services have grown in popularity,
consumer outcomes have improved significantly. Between 2009 and 2021 the
monthly price of individual music streaming subscriptions has fallen by more
than 20% in real terms because the price of these plans has not kept pace
with inflation. At the same time, consumers have gained access to more
music and more innovative and better quality services, for example higher
quality audio, new video content and synced song lyrics.

Consumers have widely adopted music streaming
– in the UK in 2021 there were 39 million monthly
active users of music streaming services and
there were over 138 billion streams. Streaming is
now the primary means for artists and labels to
distribute music and has been pivotal in securing
the sector’s recovery from piracy.

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3.

4.

5.

6.

7.

Some parts of the market have improved for artists in recent years, with more
choice about the type of deals with record labels available and more able to
directly release their music on streaming services. Average royalty rates in
major deals for new artists have increased steadily from an average of 19.7%
in 2012 to 23.3% in 2021. For songwriters, the share of revenues going to
publishing rights has increased significantly from 8% in 2008 to 15% in 2021.

Whilst outcomes are good for consumers and generally improving for
creators, we note that to some extent changes in the sector, precipitated by
streaming, have made it harder for some creators. Reduced barriers to entry
and more choice on how to distribute music has meant there are more artists
than ever and, therefore, creators face more artists and songs to compete
with for streaming revenues. Not only that, but the convenience of streaming
means that older music is enjoying a resurgence of popularity, meaning that
today’s artists need to work harder than ever to grab listeners’ attention.

These factors may be exacerbated by the fact that it is challenging for music
companies to know who among the growing pool of creators will be
successful. This inherent uncertainty combined with consumer tastes that
tend to tip to a relatively small number of artists means that it is challenging
for creators to succeed. We do not think that these factors arise from how
firms compete in the market.

We have found that it is unlikely that the outcomes that concern many
stakeholders are primarily driven by competition. Consequently, it is unlikely
that a competition intervention would improve outcomes overall, and release
more money in the system to pay creators more. In such circumstances, there
is a greater risk that a competition intervention will result in unintended
consequences and worse outcomes for both consumers and creators. The
costs, risks and uncertainty created by a market investigation (which could run
for two years) would be imposed on the industry and borne, ultimately, by
consumers. We have therefore decided to not undertake a market
investigation.

While there is limited potential for a competition intervention to improve
outcomes, there remains a broader policy debate about the optimal
distribution of existing revenues. We think it is a matter for Government and
policymakers to determine whether the current split is appropriate and fair,
and to explore whether wider policy interventions are required, for example
those relating to the copyright framework and how music streaming licensing
rates are set. We hope that our final findings provide insights that will be
helpful for that continuing debate.

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The effect of digitisation on the music industry

8.

9.

The introduction of the internet made music piracy easier than had previously
been the case. Whilst piracy had always been a problem in the industry, the
internet made it easier to illegally copy works and share them with other
internet users on a large scale. The result was a collapse in music industry
revenues, and therefore creator revenues, as CD and other physical sales
declined. Inflation adjusted UK recorded music revenues fell by around 60%
from £1.9 billion in 2001 to £0.8 billion in 2015.

Services that allowed consumers to access digital music legally, initially
through paid downloads of songs followed by music streaming, meant that for
the first time music companies and creators could monetise their content on
digital services and stem the flow of revenue losses. Since the introduction of
streaming, adjusting the older revenue figure for inflation music revenues
have increased from £0.8 billion in 2015 to £1.1 billion in 2021, although these
revenues remain below their £1.9 billion peak in 2001.

UK inflation-adjusted recorded music revenues between 2000 and 2021 by format
type

10.

Consumers have embraced legal music
streaming and today music streaming accounts
for more than 80% of music sales. Data published
by Ofcom indicates that 47% of the population
made weekly use of music streaming services in
early 2022. This has nearly doubled since 2017,
but has remained relatively stable since 2020,
indicating that it might be plateauing. Younger
people stream music the most, with 77% of 15-

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11.

12.

34-year-olds streaming music on a weekly basis compared with just 19% of
those aged 55+.1

Streaming has changed not only how we listen to music but what we listen to
because for the first time all music, both old and new, is readily available in
one place at no additional cost. This has created opportunities for labels,
publishers, and creators to reach new audiences who may not have heard the
music on its first release which has in turn extended the lifecycle for earning
revenue from songs. This is a benefit to those creators whose music
continues to be listened to, but this development is not necessarily good for all
creators because it means that today’s new music competes with yesterday’s
songs for a share of streaming revenue.

Digitisation and new online business models continue to create new
opportunities to consume music. Today, besides new online radio stations, a
consumer may hear a piece of music in a video on TikTok, see their favourite
artist on a live stream rather than in concert, or engage with music alongside
new interactive online gaming platforms. Whilst these are different to
streaming services with full catalogues and music available on-demand, they
are new ways that consumers hear and discover music and offer potential
new sources of revenue for the music companies, artists, and songwriters.

The recorded music sector is concentrated, but that is not driving
the concerns raised by artists

13.

14.

Our analysis shows that more creators than ever are releasing music,
doubling from 200,000 in 2014 to 400,000 in 2020. This is, in part, made
possible by innovations in technology and the ability to easily distribute music
online. For example, it is now easier than ever to create and record music
outside the confines of a traditional music studio and share it on streaming
services without the need for a record label.

It has long been the case in recorded music that only a very small minority of
artists will achieve the highest level of success. In 2020 over 60% of streams
were of music recorded by only the top 0.4% of artists. To reach the top of the
chart, songs need to be streamed many millions of times each day and many
artists are faced with a situation where their work can be streamed millions of
times, but it does not translate into a significant share of their income. For
example, twelve million streams a year could earn an artist around £12,000,
but less than 1% of artists achieve that number of streams. We have heard

1 Data published by Ofcom (2022), Media Nations: UK 2022.

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from both artists and songwriters that they are unable to make a sustainable
income from music streaming and for many it feels unfair.

15. We have considered what may be causing these outcomes for artists2 and, in

line with our statutory duties, whether these outcomes are being caused by
competition issues in the market.

16.

The recorded music sector is concentrated, with the 3 major labels holding a
combined share of over 70% of UK streams, and this has persisted for some
time. The market share in terms of streams of independent record companies
(indies) has remained steady at around one quarter for several years. This
share is very fragmented with only 2 indies having a share in excess of 1%.

Label shares of total UK streams in 2021

Source: CMA analysis of data from Official Charts.3

2 As described in Chapter 5 of this report, a number of our findings on artists will also relate to songwriters.
Issues specific to songwriters are considered in more detail below.
3 Notes: This pie chart is for illustrative purposes only. These figures are provided in a 5% range where the figure
is below 10%, and a 10% range where the figure is between 10% and 100%. The midpoints of the ranges have
been used to provide an illustration of relative size in the market. Where the sum of these midpoints does not
equal 100%, we have scaled the pie chart so that the area segments represent the share of the sum of the
midpoints.

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17.

The scale of the majors and their global reach means they can offer large
advances which attracts proven and successful artists. In turn, this can make
it difficult for indie labels to attract and retain artists as they become
successful, which can create a barrier to expansion for indie labels.

18.  Despite the concentrated nature of the market, outcomes for artists as a

whole seem to be improving. We accept that this improvement may not be
benefiting all artists, and that for many artists the improvement will seem
insufficient.

19.  Our analysis shows that in some respects the options available to artists,

particularly new artists, are improving:

(a)  There is now more choice for artists about which type of deal they would
like to agree, from DIY distribution, A&L services, or more traditional
record deals.

(b)  Some new artists have greater leverage when negotiating a record deal

with a label if they have already built a strong fanbase and online
presence.

Average UK artist yearly streaming earnings from majors and average
(mean) royalty rates (2021 prices) in the UK

Source: CMA analysis of data from the majors

20.  Analysis of new contracts signed by the majors with new artists for multi-track

deals (ie albums or extended play (EP) records) shows that, between 2012
and 2021:

(a)  the average gross royalty rate has increased from 19.7% to 23.3%;

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(b)  the proportion of contracts where labels own copyright of recordings in

perpetuity has reduced from 66% to 26.4%; and

(c)  the average number of minimum commitment periods (where a period is
defined by a commitment to produce a multi-track output such as an
album) has fallen from 3.8 to 3.4

21.  Competition appears to be particularly focused on artists who are already

popular or are likely to be. Competition to sign such artists can be very
intense with offers from many labels. Traditional record deals also face
increasing disruption from alternative models, in particular service deals from
artist and label (A&L) service providers, and there are more options than ever
for artists to reach audiences and monetise their work.

22.  We think that outcomes for artists are driven by factors which are largely

unrelated to competition issues in the market.  Rather, we think these
outcomes can be attributed to factors more inherent to how music streaming
works. Digitisation has allowed for a huge increase in the number of artists
sharing their music and a vast back catalogue made available via streaming
so there is more music available to stream and consumer tastes tend to tip
towards a relativity small number of artists being successful. In addition, there
is very significant uncertainty about which artists will be successful.  The
combination of these market features is likely to result in competition focused
on a relatively limited number of artists and market outcomes where the
majority of the benefits are accrued by a minority of artists.

23.  We therefore conclude that a competition intervention, for example a change

to the structure of the market, is unlikely to result in a material increase in
revenues for artists.

24.  Whilst majors’ profits have been increasing since the lows of piracy, our
profitability analysis has not found evidence of substantial and sustained
excess profits by the majors. This is consistent with our overall finding that

4 As these are only averages across all 3 majors, they do not show how the terms can vary significantly between
artists, reflecting for example the different potential financial rewards and risks based on the characteristics of
individual artists (including by genre, potential, and stage of career).

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there is unlikely to be scope to improve outcomes for artists substantially
through increased competition.

25.  We understand that Government has taken several steps to address concerns

about creator remuneration and has responded to the DCMS Select
Committee recommendations for legislative and policy reform in this area. In
particular, the IPO is conducting a research programme including examining
potential options to strengthen creator rights and remuneration. We are
sharing our final findings with the IPO and DCMS to help inform their work.

Labels could do more to improve the information they provide to
artists

26.  We heard strong concern from some artists and their representatives that they

do not get enough information from record labels on how their earnings from
streaming services are calculated or how the deals that exist between labels
and streaming services may affect what they earn or could earn in future.
Non-disclosure agreements (NDAs) between music streaming services and
labels were cited as a barrier to improving information provision to artists.

27.  Our analysis shows that some artists are provided with information, such as

number of streams and the royalties earnt on these streams, which tells them
how much they have earned per stream on music streaming services, and we
saw some positive examples of labels presenting this information in a user-
friendly way. However, this was not consistent across all labels, and we think
best practices could be developed so that information could be presented in a
more straightforward and uniform way with appropriate guidance on how to
interpret the data. This will help artists better understand how they are paid for
streaming and the sources of their income.

28.

In respect of NDAs, whilst they do prevent certain terms and conditions being
made available to artists and limit access to the ‘source data’ from the music
streaming services, they do not appear to prevent a significant amount of
relevant information being made available to artists about their earnings. By
limiting the access to source data, the NDAs may potentially limit the ability of
artists to verify the accuracy of information. However, this is an issue more to
do with verification of the fulfilment of contractual terms rather than one of
competition to sign artists.

29.  We welcome the work the IPO is undertaking on issues
around transparency for artists, including developing a
code of practice.

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Publishing revenues from streaming in the UK have grown
significantly, but many songwriters argue they are not paid enough
to make a sustainable income

30.  Each song has two sets of music rights: (1) rights in the underlying song or
‘publishing rights’ which includes the music and lyrics; and (2) rights in the
particular recording of that song, the ‘recording rights’. Without permission to
use both rights, a streaming service cannot legally stream the song.

31.

Throughout the study we have heard consistently from groups that represent
songwriters that the publishing right of a song is systematically undervalued
when compared to the recording right. In turn, they argue that this means that
songwriters receive less in royalties for their work and do not make a
sustainable income from streaming. Whilst some songwriters are also
themselves artists and may have access to revenues from recording rights
and other sources of income, that is not always the case.

32.  Songwriters and their representatives have suggested that the undervaluation
of publishing rights is because the majors have market power and interests in
both publishing and recording rights and that it is financially advantageous for
them to suppress publishing revenues in favour of the recording side of their
business, possibly through tacit collusion. We have also heard concerns that
the majors may have the ability and incentive to influence industry outcomes
via their membership of collecting societies (CMOs) who have a role in
negotiating royalties for the use of their members’ publishing rights.

33.  We have examined evidence on the allocation of music streaming revenues,

and it indicates that:

(a)  The share of revenues going to publishers (publishing share) increased

from 8% in 2008 to approximately 12% in 2012. Since then it has
increased to 15% in 2021. This is a significant increase across the period.
In contrast, the share of revenues going to record companies in 2021 is at
a broadly similar level to what it was in 2008.

(b)  For the majors, the growth in publishing revenues

has far exceeded the growth in recording revenues.

(c)  Majors’ growth in publishing revenues is 244% since
2017, which is significantly above the [110-120]%
average across the publishing sector over the same
period.

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Split in music streaming revenues in 2008 and 2021

34.

Source: Section 4.2.2 of research commissioned by the IPO Music Creators Earnings, the Digital Era,
and On-Demand Streaming Revenues and CMA analysis of data from Apple, Amazon and Spotify.5

This evidence is inconsistent with the argument that the majors have tacitly
colluded to suppress the publishing share or that there is otherwise
particularly weak competition to sign songwriters that is leading to a split in
the allocation of music streaming revenues that favours recording rights over
publishing rights. The majors having both a recording and a publishing
business is also not necessarily problematic. For instance, if the majors did
not have a publishing business they might have a stronger incentive to block
increases in the ‘publishing share’ by refusing to accommodate such an
increase through reducing the recording share since any losses to their
recording revenues which occurred would not be mitigated by gains to their
publishing revenues.

35. We also have not seen clear evidence that CMOs are failing to push for better
terms owing to the majors’ influence or that CMO governance procedures and
processes are failing to mitigate any potential bias in their decision making. If
such regulatory concerns do exist, the proper body to examine them is the
IPO, which has responsibility for monitoring the conduct of CMOs under the
Collective Management of Copyright (EU Directive) Regulations 2016.6

5 Note: Whilst the CMA analysis for 2021 is based on data from the largest music streaming services, the IPO
research draws on a range of largely qualitative evidence and therefore (as the IPO research itself
acknowledges) the IPO research estimate of the split of revenues for 2008 is only indicative. Therefore,
comparison between the split between 2008 and 2021 should be treated with caution and taken to be indicative
of the overall trend in the split over time rather than estimates of the exact quantum of change in the split.
6 The conduct of UK CMOs (including the PRS) is governed by the CRM Regulations. The CRM Regulations
designate a National Competent Authority (NCA) which is responsible for monitoring and enforcing compliance

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36.  Songwriters are concerned that the initial split between publishing and

recording revenues adopted when streaming began was unfair and
unjustified, for example because it did not reflect the alleged lower costs of
record companies under streaming compared to physical distribution. The
increase in the publishing share is consistent with this concern over the initial
split and there being a subsequent period of market-correction, which may not
yet have fully played out. However, the fact that publishing revenues are
increasing at a greater rate compared to recording revenues, in particular for
the majors, suggests that publishing revenues are not being actively
suppressed because of a distortion or restriction of competition.

37.  We have found that there are inherent difficulties in securing increases to the

publishing share and, consequently, increasing the amount songwriters are
paid. This difficulty may arise from the fact that music streaming services,
labels and publishers must all reach agreement to change how streaming
revenues are divided. However, they may all have different incentives and so
they may not agree – we call this a ‘licensing negotiation friction’. We think
that agreement between the parties may be particularly challenging when an
increase in the publishing share would necessitate a fall in the share that goes
to record companies due to the strong bargaining position of music
rightsholders, which arises from the need for music streaming services to get
agreement from all key rightsholders to offer a wide range of music.

38.

The long-term increase in the publishing share since 2008 has been
accommodated by a fall in the share taken by music streaming services. The
risk is that we may reach a point, or could do soon, where further substantial
increases in the publishing share can only be accommodated by a fall in the
recording share, which labels would be in a strong bargaining position to
resist.

39.  Whilst we think that competition for songwriters has driven up the existing

publishing share, concerns exist that the current split could still be sub-
optimal, particularly for songwriters. If that is the case, we think that it may
take time for the split to adjust further, if at all, owing to the inherent licensing
negotiation frictions and bargaining power of music rightsholders we have
described. There is also a limit on the extent to which competition to sign
songwriters can drive further increases in the publishing share, particularly if
an increase needs to be accommodated by a fall in the recording share.
Competition policy is not therefore the right tool to reach an optimal split. We
think it is a matter for Government and policymakers to determine whether the

with the Regulations’ provisions. The NCA functions in the UK are undertaken through the IPO, which has
published guidance on these regulations (see IPO (2021), Guidance on the Collective Management of Copyright
(EU Directive) Regulations 2016).

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split is appropriate and fair, and to explore what is needed to incentivise song
writing as part of wider policy interventions on this split and other measures,
for example those relating to the copyright framework and how music
streaming licensing rates are set.

The legal arrangements between major labels and music streaming
services are complex but they do not appear to be significantly
hampering competition and innovation

40.  Major labels rely on music streaming services to distribute their music,

and streaming services cannot meet consumers’ needs without obtaining
licences to the large catalogue of each major record label and publisher.
Accordingly, music streaming services must negotiate deals with labels
and publishers to access music content. These deals can be exceedingly
complex and will cover financials and other terms. Our market study
uncovered a number of clauses that could plausibly raise competition
concerns. For example a number of agreements contained non-
discrimination clauses which act to prevent the music streaming service
from favouring music content based on price, for example, by giving
more prominence to cheaper music.

41.  However, given the current ‘full catalogue’ business model of music streaming

– consumers expect to access every major’s repertoire on each streaming
service – there is no credible alternative to each major’s catalogue. Taking
this into account, our view is that the nature of competition between record
companies to supply music to music streaming services is weak but would
remain weak even absent the combined effect of the contractual clauses we
identified as being potentially problematic. Whilst a slight strengthening of
competition might result from the removal of these clauses (individually or in
combination), it is not clear any improvement would be more than marginal.

42.

Innovation is intrinsic to a healthy, competitive market and we therefore take
seriously any suggestion that innovation has been hindered. We have
therefore also assessed the impact of contractual clauses on how music
services compete with each other in terms of innovation. To introduce
innovations or changes to services, the music streaming services typically
need to agree with the majors to amend existing contracts, which we heard
can be a long process which may slow the pace of innovation.

43.  We found examples of substantial innovation by music streaming services,
both in terms of the services, such as the introduction of high-quality audio,
and in the price plans available. But we were also given a few examples of
innovations that were slow to market because of the complex negotiations

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needed to secure licensing agreements. There is a risk that contractual
restrictions may contribute to the slower development of such innovations
than might otherwise be expected or, potentially, preclude innovation
altogether.

44.  While potential competition concerns have been raised with us about the

effect of agreements between the majors and music streaming services, we
are not persuaded that changing the contractual clauses would significantly
increase innovation. Rather, the problem appears to relate to the need for
music streaming services to agree with multiple rightsholders on what terms
(financial or otherwise) they can use their content, including in new and
innovative ways. It is the sheer volume and complexity of these negotiations
that appear to be the main barrier to even greater innovation. However, these
negotiations appear to be an inherent part of the licensing process – with the
financial terms negotiated depending on the features agreed.

Competition between music streaming services is currently
delivering good outcomes for consumers, but concerns may arise
in future

45.

The music streaming services market is concentrated with a few larger
streaming services such as Spotify, Apple, Amazon, and YouTube (which is
part of Google), alongside a range of other smaller providers. Spotify has the
largest number of monthly active users by some distance, as shown in the
graph below. Music streaming services are popular with consumers and have
grown rapidly – between 2019 and 2021 the number of monthly active users
of music streaming services increased from 32 million to 39 million. Despite
the strong presence of large, well-known firms in the market, and the number
of active users increasing, music streaming services are not making
sustained, excess profits: indeed, our analysis has shown that many services
have low or negative operating margins.

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Share of UK Monthly Active Users by music streaming service in
December 2021, excluding YouTube’s UUC platform

Source: CMA analysis of data from music streaming services.7

46.  We have heard consistently that consumers demand access to a full

catalogue of music. The result is that the main music streaming services
effectively offer the same music content to consumers. Competition between
the services, therefore, anchors around offering the best experience to
consumers through good design, personalised playlists, and high-quality
audio content, as well as through pricing plans. These services also now
compete with one another by offering non-music content, such as podcasts.

47.

For consumers, the monthly price of music
streaming services is either free (ad-funded) or
falling in real terms because the price of
individual subscriptions has remained stable and
not kept pace with inflation. Most services offer a
range of price plans, including family and student
plans, as well as free ad-funded tiers. Streaming
services are also frequently bundled with other

7 This pie chart is for illustrative purposes only. Monthly Active User shares only account for Spotify, YouTube
Music, Apple, Amazon, Deezer, Soundcloud and Tidal which have a combined streaming share of over 99%
according to CMA analysis of data provided by Official Charts. YouTube Music users include YouTube Music
premium Monthly Active Viewers and YouTube Music ad-funded Daily Active Viewers, meaning this figure will
provide an underestimation of YouTube Music’s actual users. These figures are provided in a 5% range where
the figure is below 10%, and a 10% range where the figure is between 10% and 100%. The midpoints of the
ranges have been used to provide an illustration of relative size in the market. Where the sum of these midpoints
does not equal 100%, we have scaled the pie chart so that the area segments represent the share of the sum of
the midpoints.

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services, such as mobile phone subscriptions, and accessed via a range of
devices, including smart speakers.

48.  Recorded music is now also costing consumers less overall compared to

when CDs and other physical formats were more popular, as indicated by UK
recorded music revenues falling by around 40% from £1.9 billion in 2001 to
£1.1 billion in 2021 in real terms.

49.

In a market that is expanding, music streaming services mainly compete for
new consumers, rather than encouraging existing customers to switch to their
streaming services. However, music streaming services with ad-funded plans
do actively seek to get customers to upgrade to a paid-for service.

50.  Our analysis shows that consumers cancel their service at above 4% a month
for the major streaming services. Cancellation might occur because free trials
are coming to an end, the user is switching to another service, or because the
user is no longer using any streaming service. The current data on why
consumers may cancel their services is limited, but it suggests that the most
cited reasons are consumers not being able to afford the service or not using
it enough.8

51.  Switching between music streaming services might be challenging if

consumers are concerned that they will lose access to their favourite playlists.
There are some nascent music data portability services that support
switching, but demand for them is currently low. Low switching rates are not
necessarily a dynamic that causes immediate concern - for example, in a
growing market. However, as the number of new premium users to compete
for declines in future, there is a risk that prices for music streaming services
will rise significantly for consumers or there may be a deterioration in the
quality of services, if there isn’t a significant threat of switching. Therefore, as
the market reaches maturity we would be concerned if we did not see more
vigorous competition between streaming services (eg through enhanced
efforts to make it seamless for consumers to switch and port their playlists or
musical preferences). Higher rates of switching would imply consumers
exercising choice (and hence competition), although the lack of switching by
itself is not conclusive evidence of a lack of competition.

52.  With more music available, tools that help consumers

discover new music are more important. Streaming services
compete in bringing music to consumers’ attention and
promoting new artists and songs. We have found that while

8 This should be treated with caution, however, as only a small proportion of users who cancel respond to the
cancellation survey used to collect this data.

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the majority of tracks listed on the top new music discovery playlists are
licensed by the majors, the proportion is lower than the majors’ combined
share of total streams. This suggests that artists that are not signed to a major
do have reasonable opportunities to reach new listeners via discovery
playlists and more generally the streaming services have told us that they
design their music recommendation systems with a focus on listener
engagement and user satisfaction.

53.  Overall, whilst music streaming services are currently delivering good

outcomes for consumers, it is imperative for a sustainable and vibrant market
that services can effectively compete with one another, and we would have
concerns in future if we saw a reduction in competition – for example, if
majors sought commitments from streaming platforms to exclude competitors
(large or small) from discovery or search elements of their service.

There is a ‘value gap’ between what YouTube and other music
streaming providers pay to rightsholders but it currently amounts
to less than 0.5% of UK recorded music revenues

54.  UUC platforms allow consumers to access music content uploaded by users,

artists and labels for free (but often with ads), in some cases coupled with
other content such as entertainment videos. These services differ from music
streaming services because any user can upload content, which may include
copyrighted material which they may or may not have permission to share.
Sometimes this content can appear on these platforms before a licence has
been agreed with rightsholders.

55.  UUC platforms have some protection in law through a ‘safe harbour’ provision
which limits the liability they have for hosting illegal content uploaded by users
in some circumstances. However, once they become aware that content is
available without permission from rightsholders, they must remove it or, as is

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more often the case, allow the rightsholder to grant permission and monetise
the content, for example by sharing ad revenues.

56.  A range of music companies, artists and songwriters have been concerned

that the asymmetry in the legal regime may result in a loss of revenues (often
called the ‘value gap’) for the music industry. In particular, there is concern
that the safe harbour provisions give UUC platforms greater bargaining power
over rightsholders, leading to rightsholders having to agree worse terms than
they would otherwise.

57.

To understand whether a value gap exists and, if so, how significant the gap
is, we have compared the amount that YouTube, as the largest UUC platform,
pays out to rightsholders in comparison to Spotify’s ad-funded service. In
2017, YouTube’s ‘value gap’ in the UK – that is how much more it would have
paid to rightsholders as a proportion of revenue from music content if it had
paid them at the same rate as Spotify’s ad-funded service – was over 20
percentage points. However, this ‘gap’ has closed over time and in 2021 had
fallen to significantly less than 5 percentage points, or less than £5 million. To
put this figure into context, it is less than 0.5% of the £1,115 million total UK
recorded music revenues in 2021. The evidence therefore suggests that the
extent of YouTube’s ‘value gap’ has decreased in recent years.

58.  Whilst YouTube is the largest UUC service and therefore very important in the
market, there are other UUC platforms that take a different approach to
licensing and may have less effective content management systems.

59.  Some newer UUC platforms incorporate music into their offering, but do not
offer a full streaming service. Examples of this include TikTok, a short-form
video-sharing service, and Twitch, a longer-form live streaming service. These
platforms, alongside YouTube, provide innovative services for consumers and
potential opportunities for creators and music companies to earn further
revenues in addition to those generated by music streaming.

60.

The way these services use music differs from traditional music streaming
services: they may use snippets of recordings or only offer specific genres of
music, rather than a full catalogue on an on-demand basis. Therefore, it may
not always be the case that the rates payable for these services will be
comparable to music streaming services, which is an important factor when
assessing if there is a ‘value gap’ between the two offerings. That said, we
have heard examples of refusal to license or difficulties in agreeing licences
that may indicate that safe harbour is among the factors in some commercial
negotiations. We also consider that the quality of content management
systems is important in ensuring that rightsholders are remunerated fairly for
music content uploaded onto UUC platforms, and we have heard some newer

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emerging platforms may lag behind the more established platforms in this
regard.

61.  Meanwhile, since the exit of the UK from the EU, European legislation

relevant to UUC has been amended such that it now requires UUC services
using copyrighted content to make their ‘best efforts’ to seek permission to
use that content. We note that the DCMS and IPO are monitoring the practical
impact of these legislative changes on UUC services in the UK. We
encourage them to take account of our broader findings in relation to UUC
services when considering if legislative changes are required in the UK.

The market is evolving and innovating, but it is vital that it
continues to deliver good outcomes for consumers

62.

The music streaming market is changing rapidly, and further technological
advances in the years to come may spark further changes to the way we
listen to music. Our analysis shows that the market is on balance delivering
good outcomes for consumers. However, we would have concerns and may
intervene in the future if aspects of the market change in ways that harm
consumers’ interests. For example, factors that may give rise to concerns
could include:

(a)  if future mergers or acquisitions affect the bargaining power of either

music companies or music streaming services, which may in turn lead to
worse outcomes for consumers with the CMA likely to pay particularly
close attention to any such merger activity and to investigate whether it
could lead to a substantial lessening of competition.

(b)  shifts in the way consumers access streaming services that influence their

listening behaviour, for example if there is continued growth in the use of
smart speakers, and whether this could exacerbate barriers to expansion
of streaming services that do not have their own smart speaker
ecosystem.

(c)  greater use of playlists, autoplay and recommendations for music

discovery and consumption could be a cause of uncertainty and concern
for consumers and artists if their operation, including any underlying
algorithms, is not fair and transparent.

(d)  how difficult it is to switch between music streaming services and whether
this limits the strength of competition between those services when the
market is no longer growing.

(e)  if the level of innovation on the part of streaming services were to

decrease; or if innovations that would benefit consumers were to be
prohibited by music companies; or if consumers were to be
disadvantaged in other ways, including through significantly higher prices.

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