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Out-Law News | 22 Dec 2022 | 11:37 am | 4 min. read
A market study conducted by the UK Competition and Markets Authority (CMA) has found that creators’ concerns about the music streaming market are not caused by competition issues.
The study (165 pages / 2.47MB PDF), published last month, found that complaints raised by artists and songwriters about how much they earn from streaming were not resulting from a lack of competition. Instead, the report found that digitisation in the industry had increased customers’ access to music, leading to a large rise in the number of artists releasing music, and greater competition to reach listeners. The CMA also said that, while legal arrangements between major labels and music streaming services are complex, they do not appear to be significantly hampering competition and innovation.
Tadeusz Gielas of Pinsent Masons said: “The CMA’s findings illustrate that concerns about how a market functions will not necessarily stem from a lack of competition nor can always be addressed through intervention by a competition authority. The market study was called for by the Digital, Culture, Media and Sport (DCMS) Select Committee and it appears government and policy makers may now need to find other solutions, outside of competition law, to address the concerns of music creators.”
“It is welcome to see the CMA take a measured approach, noting that conducting a market intervention could result in ‘unintended consequences and worse outcomes for both consumers and creators’ where government and policy action is more likely to address aspects of the UK music streaming sector that have raised concerns for stakeholders,” he added.
Senior Practice Development Lawyer
The regulator found that, although the UK music streaming services market is concentrated with a few larger streaming services and the number of active users is increasing, music streaming services are not making sustained or excess profits. The CMA’s analysis showed that many services have low or negative operating margins. It also found that artists who are not signed with a major record label still have reasonable opportunities to reach new listeners through ‘discovery’ playlists.
For consumers, most services offer a range of price plans, including family, student and ad-funded plans, the cost of which have been falling in real terms because they have not risen in line with inflation. Overall, the CMA found that recorded music now costs consumers less overall compared to when CDs and other physical formats were more popular. As a result, recorded music revenues in the UK have fallen by around 40% from £1.9 billion in 2001 to £1.1bn in 2021 in real terms.
The regulator did, however, conclude that switching between music streaming services is currently limited, a fact it said could become a problem in the future when the market matures. Without a significant threat customer of switching, the CMA warned, subscription prices could rise and service quality could fall. It added that increased ‘portability’ – the ability to readily transfer personal playlists and musical preferences from one platform to another could emerge as streaming companies compete more vigorously when the market matures.
It also said agreements in non-discrimination clauses preventing a music streaming service from favouring music content based on price could plausibly raise competition concerns. But given that consumers expect to access every major label’s repertoire on each streaming service, the CMA said the nature of competition between record companies to supply music to music streaming services is inherently weak. Removing non-discrimination clauses, it concluded, would only marginally improve competition.
The CMA was also not persuaded to intervene to change contractual clauses between major music companies that could contribute to slower development of some innovations because of the complex negotiations needed to secure licensing agreements. It said the sheer volume and complexity of negotiations, which are an inherent part of the licensing process, appeared to be the main barrier to greater innovation.
Explaining its decision not to open a market investigation, the CMA said: “there is a greater risk that a competition intervention will result in unintended consequences and worse outcomes for both consumers and creators. The costs, risks and uncertainty created by a market investigation, which could run for two years, would be imposed on the industry and borne, ultimately, by consumers.”
It added: “While there is limited potential for a competition intervention to improve outcomes, there remains a broader policy debate about the optimal distribution of existing revenues. We think it is a matter for government and policymakers to determine whether the current split is appropriate and fair, and to explore whether wider policy interventions are required, for example those relating to the copyright framework and how music streaming licensing rates are set. We hope that our final findings provide insights that will be helpful for that continuing debate.”
The CMA did not rule out future intervention if the market developed in ways that harmed consumers’ interests. It said it would continue to screen deals that could affect the bargaining power of music companies or music streaming services, and would investigate the use of algorithms that it deemed to be unfair or untransparent. It said it could also intervene if prices rise significantly or if consumer behaviour changes, such as an increase in the use of smart speakers that could disadvantage services that do not have their own.
Angelique Bret of Pinsent Masons said: “While the CMA has not identified significant competition concerns in its current review, it stands ready to intervene if future market developments could adversely impact consumers. The CMA will be particularly vigilant in scrutinising future M&A activity involving music companies or music streaming services as well as changes in consumer behaviour that could hamper growth of certain streaming platforms among other things.”
“Music companies and streaming platforms should be mindful of the CMA’s vigilance, and also look out for potential future legal or regulatory changes that the UK government could pursue in light of the market study findings,” she added.
Senior Practice Development Lawyer
01 Dec 2022
14 Apr 2022
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