IFPI Music Report, 2018 Is Out with A Bunch of Healthy Sale Figures But Persisting “Value Gap”

We are pleased to bring to you a guest post by Simrat Kaur. Simrat is a New Delhi based IP lawyer. She pursued her undergraduate law course from Rajiv Gandhi National University of Law, Punjab and masters law course from National University of Singapore. After having worked with leading Indian law firms (Anand & Anand and Luthra & Luthra Law Offices), she has recently started independent practice under the banner “The Endretta”. While working with the said law firms, she has advised multi-national corporations as well as local enterprises on a wide variety of copyright, trademark, advertisement and goodwill issues. Simrat has guest blogged for us in the past as well (see here and here).

IFPI Music Report, 2018 Is Out With A Bunch Of Healthy Sale Figures But Persisting “Value Gap”

Simrat Kaur

While the people world over are high on the beat of “Shape of you” (IFPI report features it as 2017’s best selling single), music industry is loving the shape of spiky exponential growth curve showing sharp increase in the music sales, last year. Thanks to the surge in subscription streaming; the industry’s healing process is on for the third consecutive year, after 2 decades of massive disaster. Global recorded music revenues grew by 8.1%. Indian music industry also registered remarkable jump in revenues from Rs 570.7 crore in 2016 to Rs 725.6 crore in 2017.

As the overall picture seems bright, digital piracy and ‘value gap’ continue to scar the industry. “Safe harbour” liability privileges which tend to feed the escapist tendencies of tech companies like YouTube are alleged to be the primary spoilers. Successfully placing itself as an “intermediary”, YouTube takes the position that it does not control the music which is available on its platform and therefore could not be held responsible for copyright infringing material uploaded by its users. This is how it immunes itself from accessory liability for infringement which in turn adds to the growth of digital piracy. Further, music labels complain that safe harbour laws also diminish their bargaining power to negotiate licenses with YouTube. Since the songs are anyway uploaded on its platform by users, YouTube refuses to negotiate agreements with rights owners for licensed music, on fair terms, which results in widening “value gap” i.e. the vast disparity in the value generated by user-upload online platforms (“UUPs”) from the online usage of the digital music content and the value actually returned to the music industry which creates, invests in and legally owns the copyright in that content. YouTube, which is earning millions by running advertisements, is estimated to pay meagre 1$ per user as against audio subscription services like Spotify which pay around 20$ per user. The value gap reflects in the IFPI report according to which paid audio streams with only 272 million users generated US$5,569m revenues for the music industry while video streams with 1300 million users returned a much smaller amount of US$856m. Notably, video streaming makes up 55% of the on demand streaming time out of which 46% of the time is consumed by YouTube alone.

Frances Moore, Chief Executive IFPI, has rightly said that “For music to thrive in a rapidly evolving digital world; there must be a fair digital marketplace. To achieve this, we must fix the value gap“. The question is how do we fix it? One option could be a complete reversal of the globally established legal position by pushing UUPs outside the scope of safe harbour provisions [very much on the lines of Australia which has denied immunity to UUPs like YouTube and Facebook for years and continues to do so]. Given the nature of business model of these platforms, this appears be both unjustified and unsustainable. The purpose should be to fix the abuse of safe harbours, rather than just scrap them. In view thereof, the alternative and the better option would be to build on the existing law by imposing stricter duty of care on UUPs. But the critical question is – how do we define the scope of duty of care so that UUPs are strictly obligated to do their best in order to protect the copyright?

Currently, the standard of care followed by most of the jurisdictions including US, India, Singapore is based on the principle of ‘notice and take down’, the effectiveness of which has constantly been questioned by the music industry. The core of the primary argument pressed by music labels is – once we get 10 videos taken down, 20 others, containing the same content, re-appear in no time. We can’t be expected to keep on sending millions of take down notices to UUPs, over and over again. Instead, UUPs should be obligated to use automatic technologies for monitoring content and filtering out infringements, on their own, so that the infringing materials do not re-emerge on their platforms.

In order to make peace with music labels, YouTube introduced a system called ContentID that uses artificial intelligence to identify online content (this came as a response to lawsuit filed by Viacom against YouTube, in US, which was subsequently settled). The system automatically scans uploaded videos against the content that right holders submit to YouTube and notifies them about the videos matching such content. Copyright owners can then choose to block, mute or monetize such videos. Though YouTube claims that the system is a huge success, it has apparently failed to satisfy right holders who continue to question the efficiency of the system, particularly in relation to remixes and edited / altered videos. Therefore, even after ContentID was brought in, music industry kept on calling for changes in law to make UUPs more accountable.

In the wake of constant lobbying efforts of global music industry, the European Commission finally moved a legal reform proposal, in 2016, in the form of Article 13 of the draft Copyright Directive, which is currently under discussion in the European Parliament. The provision proposes to impose content filtering obligation on UUPs so as to improve the bargaining power of music industry in negotiations with UUPs and thereby fix the value gap. It expects UUPs to do something, over and above, what YouTube is already doing through ContentID. While ContentID system follows an ex post approach, the proposed provision will require UUPs to resort to preventive monitoring, to identify the infringing content and then block it before it is uploaded. This will be a huge leap in law and therefore, the provision is receiving sharp criticism from different quarters particularly in view of following undesirable consequences that it is likely to entail – a) content recognition technologies are too expensive [YouTube spent $60m on ContentID] and small or medium sized companies lacking the resources to comply with the filtering obligation will be shut which will in turn feed the monopoly of YouTube and Facebook b) since automatic process of blocking will not take into account fair use, it will lead to over blocking of content by UUPs – the content containing copyrighted material in the form of quotations or for the purpose of education etc. will also be blocked by automatic filters c) censorship of all user uploaded data is likely to have a chilling effect on the freedom of speech and expression.

In light of above, it is clear that a systemic shift from “notice and take down” to “notice and stay down” / “filter and upload” is undoubtedly a risky move but a prudently sketched law could help in achieving the desired results while minimising the collateral damage. So far, it has been a matter of cross subsidisation. Tech companies have grown massively at the expense of content industry which is now saying – it is our turn. It remains to be seen if law making bodies come up with innovative solutions for striking the balance where both the sectors gain, or the cross subsidy continues. The final version of Article 13 is therefore eagerly awaited. If proposed Article 13 is implemented, European experience will set an example for other countries including India. On the basis of Europe’s experience, good or bad, India could carve out a strategy to update Section 79 of the Information Technology Act, 2000 in the best manner possible, which currently immunes UUPs from liability provided they take down specific infringing content, when notified by the right holder.

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1 thought on “IFPI Music Report, 2018 Is Out with A Bunch of Healthy Sale Figures But Persisting “Value Gap””

  1. Morning Pankhuri – Greetings – Thanks to Simrat Kaur for the post – well articulated prompted some thoughts s as follows:-

    • It is apparent from the omissions in the IFPI Global Music Report that once again IFPI does not wish to address the daunting realities who’s coming has long passed

    • The so-called ‘value gap’ belies a much more serious actuality, that being the destruction of the reproduction right, from a value point of view

    • Whilst through the ages of technology stretching back to the Gutenberg press, technology always brought across copyright works a marginal cost along with a marginal value (the wholesale price), digitization, the most technology touching copyright works, expedited by the internet, has brought “click” “copy” “paste” which rather than add value, is an action that has no value.

    • The outcome of digitization on copyright works in the main is as follows:-

    o Uncontrollable reproduction
    o Unlimited supply
    o Zeroing of price
    o Disruption of supply and demand – once made, a digitized copyright work is there forever
    o A paradigm shift in the value proposition

    • For centuries many copyright works, have been valued on the basis of “copies” to the extent that the reproduction right has been a mainstay of the value proposition of copyright works

    • The value proposition represented by the reproduction right has morphed to shares of subscription and advertising revenue – which has few players on both supply and demand ends of the stick so speak. Streams are valued on a per million basis – which is another way of saying that value has dropped to 6 zeros to the right of the decimal point before one finds a number – an endless march to a zero that will never be found

    • One might opine that the writing is on the wall, as ‘content’ and ‘data’ flood copyright works and their value proposition with neither of the ‘content’ and ‘data’ having consistent national or regional legal frameworks to address adequately

    • So the EU in particular squawks about a ‘value gap’ not wishing to address the three truths in front of them

    o Things have changed as far as technology’s traditional impact on the value proposition of copyright works – the only value proposition is constant devaluation
    o Things will never be the same again and there is no going back
    o Pouring huge effort to increase market share in a shrinking market always ends in grief

    • So when Frances Moore, Chief Executive IFPI says ““For music to thrive in a rapidly evolving digital world; there must be a fair digital marketplace. To achieve this, we must fix the value gap“” – it can be opined, with resonance, that she is incorrect and there is nothing right about the comment per se when it is apparent that she is not addressing a truth she must know, the reality of sound recordings have no value in a digital marketplace……….and fixing such is axiomatically chasing an increased share in decreasing market. One may surmise that there are many takes on what constitutes a “a fair digital marketplace” and many incoherent and divergent interests

    • Yes indeed…………..”Tech companies have grown massively at the expense of content industry” however the idea that “it is our turn” is thoughtless if one is to examine “why”……..“Tech companies have grown massively”. The music industry has never been interested in its actual and real customers………..for decades it lived in a cozy wholesale/retail structure……….who the recording industry saw were its customers. Digitization upended that structure and did not take kindly to the cozy wholesale/retail structure being imposed on the internet. Tech, who is customer obsessed because customers have the money, immediately stepped in and “rightly” took control of 90% of the consumer spend which the music industry previously relied on its cozy wholesale/retail structure to access. The music industry did not come up with social media and has failed in all ways since to understand dealing with its customers…………..and tech has taken them. This has nothing to do, one might opine, with “it is our turn” (which is laughable in some ways) and everything to do with being blind to the fact that the horse has bolted….the cat is out of the bag.

    All the best with your work

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