CMA music streaming market study: what’s going on?

Music streaming is a fascinating industry, and many people were looking forward to seeing how the UK’s Competition and Markets Authority (“CMA”) had used its wide-reaching information gathering powers to uncover any problems. This is a huge and culturally-important industry for the UK, and it seems to operate in some weird and convoluted ways. There were big questions to be settled about the strength of the major music labels, possible collusion between them, and how to ensure songwriters could make a living from their talents.  But then the CMA’s interim report was published on 26 July 2022, and it produced no strong findings at all.

Of course, it’s always possible that the CMA might investigate an industry and find there are no significant problems and no improvements worth making. It just doesn’t happen very often.  In this case, the CMA has found that the market is delivering good outcomes for consumers, and it does not propose to launch an in-depth market investigation at the end of the market study. No remedies are proposed.

What’s going on?

Key findings of the interim report

The CMA is assessing the impact streaming has had on the music sector and whether competition is working well for consumers by delivering high-quality, innovative services for low prices. While the CMA’s primary focus was on consumers, it also considered the impact on songwriters and artists, following concerns raised that the market is not serving creators’ interests sufficiently.

The key findings from the interim report are as follows:

  • Streaming has transformed the music industry. 80% of recorded music is now listened to via streaming services. Recorded music is now also costing consumers less overall compared to when CDs and other physical formats were more popular. Streaming has also overcome the problem of illegal filesharing, which caused a collapse in the music industry and creator revenues from 2001 to 2015. With the increasing use of music streaming services, inflation-adjusted recorded music revenues have increased from £0.8 billion in 2015 to £1.1 billion in 2021.
  • The recorded music sector is concentrated, with three major record labels (i.e., Universal, Sony and Warner) holding an aggregate share of over 70% of UK streams. The CMA has also found that the market power of the three major record labels has persisted for some time. However, despite the concentrated nature of the market, the competition to sign artists, especially proven and upcoming artists, can be very intense. Overall, the evidence available to the CMA did not show that this concentration in the market is causing consumers harm or that it is driving the concerns raised by artists. Neither labels nor streaming services appear to be making sustained excess profits.
  • The CMA also did not find evidence that the majors are suppressing publishing revenues (the royalties due to songwriters rather than recording artists). Deals with the music streaming services are largely negotiated separately by the recording and publishing arms of the major labels, and even though they answer to the same management and shareholders, the CMA found – in what appears to be a departure from the “economic unit” principle in competition law – no evidence to indicate a close cooperation or cross-influence on financial terms. Record label and publishing businesses are ultimately accountable for securing the best contract terms possible for their respective artists and songwriters. The CMA did not seek to answer how labels manage this duty with the fiduciary duties they owe to their shareholders.
  • In relation to concerns of some artists and their representatives on the lack of transparency over how record labels calculate their earnings from streaming services, the CMA stated that it will share its findings with the Intellectual Property Office to help them inform their work on issues around transparency for artists. The CMA found, while some positive examples of labels presenting information on the number of streams and the rate per stream in a user-friendly way, this is not consistent across all labels.
  • The legal arrangements between major labels and music streaming services are inevitably long and complex. The CMA observed that some of these agreements weakened competition. However, the CMA found that while a slight strengthening of competition might be expected by their removal, it is not clear that any improvement would be more than marginal. In its examination of these contracts, the CMA uncovered:
    • several non-discrimination clauses (e.g., clauses preventing the music streaming service from giving more prominence to a music simply because it is cheaper for the service); and
    • Most Favoured Nation (‘MFN’) clauses covering a range of provisions, including the setting of payment and marketing terms, providing that the music streaming service cannot offer another record company better terms. The CMA noted that none of these MFN clauses relate to the price of music streaming services to the end consumer, which would be more likely to raise serious competition concerns. Nonetheless, these clauses might still weaken competition.

Overall, the CMA says that its initial analysis indicates that the music streaming market is delivering good outcomes for consumers. However, the CMA noted that it would be concerned if the market changed in ways that could harm consumer interests, for example, if innovation in the sector decreased, or if the major labels and streaming services began to make sustained and substantial excess profits.

The origins of the market study

When the CMA is deciding how to allocate its scarce resources, each prospective case goes through a fairly rigorous selection process using its (published) prioritization principles. As part of that process, the CMA considers the likely outcomes of the case and whether it can see a route through to a successful outcome. It considers whether plausible remedies are available that seem likely to improve the functioning of the market in question. For obvious reasons, the CMA does not want to commit resources to a case that will make no difference to competition in a market.

In the case of the music and streaming market study, the case was foisted upon the CMA by a Parliamentary committee rather than being a case that the CMA chose for itself. The Digital, Culture, Media and Sport select committee had published a report on the economics of music streaming, which voiced concerns about the dominance of the three major music labels. The report called for a CMA investigation and “a complete reset” of the music streaming market due to the small slice of the pie received by music creators.

The CMA clearly felt it needed to investigate, and this will have significantly affected its prioritization assessment. Some may believe that the politicians are to blame for forcing the CMA to waste its resources on a market study that produced no tangible results.

My colleague Stijn Huijts commented on this political dimension at the time the market study was launched, saying:

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.

Senior staff at the CMA may well be receiving such an invitation very soon.

A clean bill of health?

To be fair to the CMA, there are occasions when giving an industry a clean bill of health is the only intellectually coherent outcome and it can be useful for the industry. There have been widespread suspicions of collusion between the three major music labels, murky deals between the labels and streaming services, and a stitch up between their publishing and recording divisions. It seemed reasonable to want to investigate. The CMA may even have started its market study believing that some kind of forced break-up (or at least operational separation) was a plausible outcome. When the evidence did not support such an outcome, the only thing for them to do is to say so, and accept that they may have to absorb some political heat.

Meanwhile, industry participants may still have legitimate grievances. For example, the fact that one million streams only nets a songwriter an income of £1,000 is particularly striking, especially in combination with the finding that less than 1% of songwriters even achieve that level of streaming. Independent labels will also disagree with the view that deals guaranteeing major labels a share of streaming services’ playlists corresponding with their market shares do not harm competition. This effectively means independent labels are fighting for a minority of places on those playlists, regardless of the quality of their offering.  

Many UK artists will scratch their heads as to why – when the industry would not exist without their creative input in the first place – they are seeing some of the outcomes this market is producing. Whether the CMA has truly “shone a light” (as its press release claims to have done) on these issues is unclear. At a time when competition law is opening up to interventions that approach theories of harm from the point of view of self-employed workers like authors, freelance broadcasting workers and footballers, some will question whether the CMA has fully analyzed why one of the UK’s most successful export industries is not delivering for its creators.

Next steps

The CMA’s findings are only provisional at this stage. Responses to the interim report are invited by 19 August 2022, and the final report is due by 26 January 2023. Respondents can make comments on the CMA’s substantive findings and/or on the CMA’s proposed decision not to make a market investigation reference.

[Disclosure: Geradin Partners represents parties involved in this market study. The author used to work at the CMA, but left shortly before this market study began.]

Leave a Reply