Creators, Copyright and Competition: An Ocean of Difference

EXTRA It seems our suggestion last month that heavily concentrated copyright industries may come in for heightened antitrust scrutiny in the wake of the U.S. Justice Department’s successful bid to block Penguin Random House from acquiring its Big Five publishing rival Simon & Schuster, and its emphasis on the merger’s impact on authors, may have been premature.

This week, after a months-long review of the music streaming market, the U.K. Competition and Markets Authority (CMA) concluded that, while the business is highly concentrated, any harm streaming may have caused to artists and songwriters was not due to a lack of competition. Therefore, no government action is called for.

“We have found that it is unlikely that the outcomes that concern many stakeholders are primarily driven by competition,” the CMA wrote in its 165-page final report. “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 CMA further found that the high degree of concentration in the industry had not translated into excessive profits accruing to the Big Three labels.

While the majors’ profits have been increasing since the lows of piracy, the current evidence does not suggest that market concentration is allowing the majors to make sustained and substantial excess profits.

Perhaps the report’s most surprising conclusion — and most dismaying to songwriters — was the agency’s finding that the major labels’ vertical control over the largest music publishers does not negatively impact writers’ earnings.

It appears unlikely that any strategy of disadvantaging the publishing business would be beneficial to a major’s business as a whole. If a major were to act contrary to the interests of songwriters by diverting revenues to recording instead of publishing, it would likely impact its ability to retain existing songwriters and compete for song writing talent. The major’s publishing share would no longer be competitive, compared to other publishers, so the major would likely lose songwriters to other publishers.

The current evidence indicates that deals with the music streaming services are largely negotiated separately by the recording and publishing arms, and the evidence we have seen does not suggest 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 major labels, unsurprisingly, breathed a sigh of relief at the CMA’s conclusions. But others stakeholders, such as Hipgnosis Songs Fund CEO Merck Mercuriadis, blasted the report for rejecting the findings and recommendations of the Parliamentary committee that had referred the matter to the CMA last year.

 The CMA have spelt out that most Songwriters and Artists do not have access to clear payment statements, the damage done by NDAs and acknowledge the conflict of interests between labels and  publishers which results in revenues that go to publishers and Songwriters being held down – even though without Songwriters there would be no music industry.

Yet rather than using the powers they have to fix the problems they identify, they have simply looked to pass the buck – a double whammy for Songwriters and Artists who are losing out on significant streaming income and now find the CMA unwilling to act.

Then intended recipient of that buck-passing is the current government, and in particular, its intellectual property policymaking arm.

A number of proposals for changes to the copyright framework which may address the weak bargaining position of some artists have been put to us. These include contractual reform (eg limiting the period for which record companies can retain the copyright to recordings or introducing /
strengthening a right to switch for an artist if their content is not being appropriately exploited) or changes to the classification of streaming revenue so that it would become subject to the principle of equitable remuneration. Such wider interventions may have more potential to improve outcomes for
artists compared to measures targeted at increasing competition overall such as reducing market concentration…

A detailed understanding of whether the suggested interventions would lead to material improvements for artists would require more in-depth analysis than we have undertaken. However, such issues are beyond the scope of the CMA’s study given our focus on competition.

The CMA’s conclusions and (null) recommendations stand in sharp contrast with the analyses by the U.S. Justice Department and the District Court in the Penguin Random House case, both of which viewed the proposed merger of PRH and S&S as posing a potential threat to competition (and more specifically to authors), particularly at the high end of the market for the most likely bestsellers, by reducing Big Five houses to and even bigger Four.

Per the court:

In November 2021, the Antitrust Division of the United States Department of Justice (“the government”) brought this action against PRH, S&S, and their parent companies (“the defendants”), seeking to block the merger of PRH and S&S under Section 7 of the Clayton Act. The government’s case sounds in “monopsony,” a market condition where a buyer with too much market power can lower prices or otherwise harm sellers. Essentially, the government alleges that the merger will increase market concentration in the publishing industry, which will allow publishing companies to pay certain authors less money for the rights to publish their books…

After a thorough review of the record and careful consideration of the parties’ arguments, the Court concludes that PRH’s acquisition of S&S is likely to substantially lessen competition to acquire “the publishing rights to anticipated top-selling books,” which comprise the relevant market in this case. The Court therefore will enjoin the proposed merger of PRH and S&S.

The CMA finds exactly the opposite dynamic at work in its analysis of the market for best-selling music acts and artists.

The scale of the majors and their global reach mean they can offer large advances which attracts proven and successful artists…

Despite the concentrated nature of the market, there is competition for some artists especially those who are already popular or are particularly likely to be. Competition to sign such artists can be very intense with offers from many labels.

Notwithstanding their common foundation in copyright, music streaming and book publishing are different businesses, each with its own established practices and modes of consumption. We should not expect market dynamics to operate identically in both. But the two cases illustrate the extent to which copyright law and competition law increasingly are bumping into each other, and the growing potential for conflict between the two as the industries are transformed by technology and a changing economy.

Copyright, at its core, is inherently in conflict with competition, of course, particularly in the U.S. and U.K., where it has a fundamental statutory basis. It is a form of artificial monopoly, created by statute, for instrumental ends. A high degree of market concentration, however, creates its own dynamic, which can heighten the conflict between the two and among the various stakeholders, particularly in times of transition from one mode of production and consumption to new modes.

The question is whether those conflicts are best resolved through copyright law or by regulating competition.

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