How is export income distributed within the industry?
A third important question to consider is how export income is distributed within the industry, including remuneration to creators of music. As one Australian music industry interviewee commented,
We can all be exporting until the cows come home and supporting things locally, but if creators’ rights are curtailed there’s no way to monetise any of that.
(Interview 23, 2018)
In most countries, the music industxy consists of the following industry groups: Composers and performers, music publishers, recording industry, concert promoters and collecting societies. These groups are connected to each other in a complicated web of institutionalised relationships which date back hundreds of years.
As Kretschmer (2000) shows, the intellectual property rights system for the music industry has roots dating back to the 1500s when intellectual property regimes were first developed in Europe to protect the rights of authors and composers. However, within Anglo-Saxon legal traditions, the Act of Anne (1709) is generally regarded as the origin of modern copyright legislation. Music was not protected under the Act of Anne, as it was considered unnecessary since most musical works would not remain in fashion that long; the most important source of income for composers in that period derived from commissions and performances of new compositions. As it was difficult for composers or publishers to know when and where a certain tune had been played and so claim royalties, it was not until the mid-19th century, with the foundation of the "Agence Central” in France (which later became the Societe des auteurs, compositeurs et editeurs de musique (SACEM)), that it became possible for composers and publishers to monitor the usage of their music and to recover royalties. Since then the SACEM model has become the international model for collecting music royalties.
Three types of rights can generally be attached to a musical work: Reproduction, distribution and performance rights (Citi GPS, 2018). Reproduction rights refer to rights to reproduce the work or prepare derivative work. Originally this referred to the right to reproduce sheet music, but nowadays, mechanical rights, i.e. the rights to reproduce music by mechanical means, are more significant economically. Mechanical rights became necessary following the development of mechanical music-playing devices in the 19th century. Up until that time, music had always been performed live. With the development of mechanical music-playing devices such as pianolas and gramophones, copyright needed to be extended to cover- music reproduction by mechanical means (Kretschmer, 2000). Today mechanical rights have been extended to cover any physical medium such as vinyl or CDs as well as music that is downloaded or used in an interactive streaming service (e.g. Spotify, Apple).
Following the introduction of mechanical rights, performance rights were introduced in the UK in the Dramatic Copyright Act of 1833, enabling opera librettists and composers to claim a performing right for the public performance of their work in theatres, and were extended in the Literaiy Copyright Act of 1842 to non-dramatic musical works (Sevill, 1999). In other countries, similar Acts have been passed to compensate songwriters and composers. Contemporary performing rights cover musical performances via radio and television broadcasts or the Internet (including interactive Internet services such as Spotify, and non- interactive Internet seivices such as Pandora). With the advent of recorded music, performance rights also include the rights related to the public performance of master recordings (often called phonographic or neighbouring rights). A growing subtype of performance rights is synchronisation (synch) rights when music is used in a film, TV show or a commercial. Synchronisation requires two licences, for the phonographic (performance on the master recording) and the performance rights (composer’s royalty.)
Distribution rights authorise a copyright holder to distribute copies or recordings of a copyrighted work to the public. When music was recorded mainly on physical media such as vinyl records, distribution rights referred to the rights to distribute those recordings, and many specialist music distribution companies existed to provide a service to distribute a record label’s products to retailers. With the decline in physical record sales, these companies have largely been replaced by digital distribution companies (also known as digital aggregators) such as CD Baby, Tune Core and LANDR that distribute artists’ music to digital music providers such as Spotify, Apple Music and Amazon.
Although the three rights for music exist in most countries, there are different models for royalty collection in different countries. As it is difficult for individual artists to monitor the usage of their work and collect payments from users, collection societies have developed to manage the licensing to third parties and payments to artists. This makes it easier for artists and/or the copyright owners to license their work. It also makes it easier for those third parties to obtain a licence to use copyright material (Axis Law Center Australia, 2011). In some countries, mechanical and performing rights are administered jointly by the same collecting society, for example, SACEM (France), SABAM (Belgium), GEMA (Germany), JASRAC (Japan) and APRA-AMCOS (Australia). In other countries, different rights are collected by different societies. For example, in the UK, mechanical rights used to be collected by the Mechanical-Copyright Protection Society (MCPS) and performing rights used to be collected by the Performing Right Society (PRS), but they have now been merged to form PRS for Music, while Phonographic Performance Limited (PPL) licenses radio stations, TV broadcasters and digital media services to play recorded music in the UK. In Australia the Phonographic Performance Company of Australia (PPCA) collects royalties for the performance on a sound recording and music video. In the US, ASCAP, BMI and SESAC collect royalties for performing rights, Harry Fox Agency (HFA) collects royalties for mechanical rights, AARC collects royalties for home recording, rental and lending rights, while Sound Exchange collects royalties for online distribution rights. Each collecting society is responsible for collecting the royalties for its members in its home country and collects international royalties for its members through reciprocal agreements with other collecting societies. Thus, an artist can collect worldwide royalties through several different ways, through their local collection societies, local labels and publishers, and foreign sub-offices of their labels, publishers, sub-publishers and licensees.
There is limited information on how export revenues are distributed between the different industry groups in most countries. The most comprehensive study to date is the study by UK Music (2019). For comparison, we estimated the income distribution in the Australian music industiy. This was not as comprehensive as the UK Music study as we were unable to survey all groups in the industry, but based on the combination of estimates provided by APRA AMCOS, AMPAL, ARIA, AIR and data from our surveys of Australian music industry participants, we estimated that 61% of Australian music exports in 2018 was earned by artists, 20% by music publishers and 19% by record labels. Figure 2.5 shows a simplified diagram of the key income flows between different individuals and organisations in the Australian music industry.
In comparison, according to UK Music (2017), the breakdown of music exports in the United Kingdom by the same subsectors is 47% artists, 32% publishers and 21% record labels. Although the figures differ between the countries, generally it appears that most export income is earned by artists as a whole, followed by publishers and record labels. However, it should be noted that this does not consider the number of people in each group. While artists as a whole earn the greatest share of export income, it is shared among a large number of artists, whereas
Figure 2.5 Foreign income flows in the Australian music industry.
publisher income is shared among a relatively small number of publishers in each country (Figure 2.6).
The above estimates for exports per artist in each countiy vary considerably according to the estimate of the number of artists used, highlighting again the difficulty in identifying the number of artists and the difficulty in comparing across countries given the different definitions of who is considered an artist. For example, Throsby and Petetskaya (2017) adjust the official employment figures for axlists in the Australian Census based on then survey that accounts for artists who work professionally as artists but did not list music as their main job in the census. Similarly, UK Music (2014) relies on information from sources such as accountants to augment the official employment statistics from the Office of National Statistics based on the United Kingdom Census. However, it appears that in both Australia and in the UK, publishers earn the most individually, followed by record labels and artists, reflecting the small number of publishers relative to record labels and artists.
Figure 2.6 Exports per artist/publisher/record label in Australia and the United Kingdom, 2016-2017. Source: Compiled from Australian Music Survey and UK Music Report.