CMA market study into music streaming – What you need to know

The CMA has today launched a market study into music streaming. This is a step that could lead to a range of interventions:

  • The CMA could issue guidance or recommendations;
  • It could launch enforcement action under its antitrust powers (as happened after the electric vehicle charging market study); or
  • It could make a market investigation reference, which could in turn lead to remedies as far-reaching as ordering divestments.

This market study is likely to have a broader impact than just the UK. The CMA has a strong track record of impactful interventions in digital markets. In addition, the UK occupies an important place in international music, with major record labels having a strong presence in the country, international musicians finding an audience in the UK, and British performers often being successful abroad. It is likely that the CMA’s interventions will have reverberations well beyond British shores.

In its statement of scope, the CMA says that its focus will be on the music streaming value chain, which “includes arrangements concerning the acquisition and licensing of music rights and/or the distribution of digital music, and arrangements between music creators, music companies (including music labels and music publishers), and other intermediaries (including [collective management organisations])”. 

The CMA’s workstreams have been split into three:

  • Competition between music companies
  • Competition between music streaming services, and
  • Competition issues that may arise from agreements and inter-relationships between music companies and music streaming services.

As part of its assessment the CMA will explore how competition in one part of the value chain affects competition elsewhere, and it will primarily focus on recorded music rather than music publishing.

Experience from some of the other major market studies carried out by the CMA tells us that it is likely the CMA will identify additional concerns beyond its statement of scope (as occurred in the recent mobile ecosystems market study). In terms of the end game for the industry, this could range from recommendations and guidance to the launch of an antitrust investigation (as happened after the electric vehicle charging market study) or a full-blown market investigation with remedies at the end.

Genesis of the market study

The genesis of the market study is the UK Parliament’s Digital, Cultural, Media and Sports (DCMS) Committee report on the economics of music streaming in July 2021. This report called for “a complete reset” of the music streaming market due to the small slice of the pie received by music creators. That sounds extreme, but the UK’s market investigation powers can be far-reaching, as was the case when the CMA’s predecessor ordered the divestment of London airports.

The fact that this market study originates from a political report also adds an interesting dynamic, since the CMA will need to be mindful of the political dynamics at play, while maintaining independence. There will be some vocal Members of Parliament following the CMA’s every move, and any perception that the CMA is treating the big players in this industry with kid gloves will no doubt result in an invitation to appear before the DCMS Committee.

The role of YouTube

Under the new pro-competition regime for digital markets in the UK, an independent Digital Markets Unit (“DMU”) within the CMA will enforce a set of code of conduct of platforms it designates as having Strategic Market Status (“SMS”) within digital markets. The DCMS Committee had recommended that “the CMA should consider exploring designating YouTube’s streaming services as having SMS to encourage competition with its products.”

However, as the CMA points out in its statement of scope, this regime is not yet in force, so there is currently no mechanism to designate YouTube as having SMS. However, the CMA’s market study into the music streaming market will inform its understanding of any gatekeepers, including YouTube, in preparation of the new DMU regime.

The major music labels

The DCMS Committee also strongly recommended that the CMA undertake a market study into what it called “the economic impact of the majors’ dominance”. The majors are the three largest global music corporations, Sony Music Group, Universal Music Group and Warner Music Group, with the DCMS Committee estimating their combined market shares at more than 80% for both recorded music and music publishing (although initial CMA estimates are 68% for recorded music and 58% for music publishing).

The CMA said that it will carry out work to understand the extent of any market power of the majors, and it will look in particular at their bargaining power with respect to music creators on one hand, and music streaming services on the other. Once it has established to what extent such market power exists, it intends to assess whether there are any particular business practices or other factors that limit competition between music companies on either the music creator side or the music streaming side.

Music streaming services

The CMA will also assess the strength of competition in music streaming services, looking to establish the extent of market power certain music streaming services may hold. With respect to these companies, the CMA will investigate, among other things,

  • Barriers to switching and issues around how consumers interact with music streaming services;
  • What drives innovation in music streaming and what, if anything, may impede innovation; and
  • Any vertical issues that may arise from vertical integration between some music streaming services and other related products and services such as smart speakers.

Agreements and equity holdings

The CMA is also interested in understanding the relationships between the music streaming services and the music companies involved in licensing and distributing music. According to the statement of scope, concerns have been raised over the agreements involved and the impact they may have on competition between music companies in supplying music to streaming services, and whether they make it more difficult for smaller recorded music companies to promote artists and expand.

In addition to this, the CMA has indicated that it will look to better understand the financial stakes some of the companies have in each other, and whether these “softer forms of control or influence” might limit competition.

Timeline and next steps

Anyone interested in making a submission on the CMA’s statement of scope can do so until 17 February. The CMA will need to publicly state whether it intends to make a market investigation reference by 26 July 2022, and its market study report will be issued no later than 26 January 2023.

The CMA also recognises that there are a number of important policy initiatives in this area, and states that it will work alongside Government “in a joined-up way that seeks to avoid unnecessary duplication”. In this respect, the other important milestones outside the CMA’s market study are DCMS’s intention to report back in spring 2022, with a further review in autumn 2022, at each point considering whether to take forward legislation in any areas that might be linked to the market study.

We will keep a close eye on developments and report them on the blog.

Co-authored by Tom Smith and Stijn Huijts, partners at Geradin Partners, and both former Legal Directors at the CMA. Photo by Viktor Forgacs on Unsplash.

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