Finding harmony in the music industry

As the Competition and Markets Authority (CMA) launches a market study into how the modern-day music value chain operates, we ask what this means for the sector and who should be getting involved. 

What is the CMA proposing to cover ?

Essentially, it will review the music value chain from end-to-end: from the creation of music to the supply of music to consumers and the supply of services connected with the supply of music to consumers. The CMA will establish both whether the industry is operating in the interests of consumers, and whether competition is as harmonious as it should be – paying particular attention to the roles played by record labels and music streaming services.

In light of the study, the CMA will consider whether or not there is a need for a full competition investigation and any subsequent remedial action, such as introducing legislation or enforcement action to improve the music value chain. The CMA has until 26 July 2022 to publish its findings. 

Why is the CMA launching this study?

The CMA confirmed its intention to examine the sector in October 2021 following a report by the Digital, Culture, Media and Sport Committee on the economics of streaming. The report raised "deep concerns" about the position of music artists, which it said made "pitiful returns" under the current system.

The study forms part of a wider initiative to foster effective competition in digital markets. The CMA has also begun a market study of mobile ecosystems as well as launching the Digital Markets Unit (DMU) in April 2021. These studies (and related ones led by the Department for Digital, Culture, Media and Sport (DCMS)) are feeding into the work of the DMU and so it is possible that this will lead to the identification and regulation of companies with "strategic market status" in the music and streaming services industry.  

Scope of the study  

The CMA has said that the music streaming value chain encompasses all steps in – and all the music-related goods, services and licensing provided as part of – the chain of supply from the creators of music through to the consumer, in particular via music streaming services. 

This includes arrangements concerning the acquisitions of licensing of music rights and/or the distribution of digital music and arrangements between music creators, music companies (including music labels and music publishers), and other intermediaries.

While the market study focuses on the interests of consumers, the CMA recognises that these are "intertwined with the interests of music creators" and so will examine the impact of current market practices on creators, including share of revenue and the effects of music curation on music choice by consumers.

As with recent EU proposals focussed on digital platforms and gatekeepers, the CMA indicates it will look at the need for greater transparency, particularly around algorithms and rankings. There may also be an impact on contract negotiations, as the CMA considers the need for greater transparency on issues such as payment terms and marketing commitments.

Key metrics 

As the overall objective of a market study is to understand whether markets are working well and in the interests of consumers, the CMA proposes to focus more on concerns where competition or consumer issues are a key element. 

The CMA will consider whether innovation is being stifled and if any firms hold excessive power. The study will help build a deeper understanding of how firms in the market influence listeners’ choices and experiences.

There will be a particular focus on the recorded music element of the music streaming value chain. This is because past studies have established a key competition or consumer element link back to possible issues in recorded music. The CMA’s proposed approach to this assessment is in two parts: it involves understanding how the industry works and assessing whether there are any specific competition and/or consumer concerns. 

Understanding the industry

The CMA will undertake a systematic analysis of: how the music streaming value chain is operating, how the supply of music has changed since the introduction of music streaming, and ongoing sector developments. In its analysis, the CMA will look at:

• what services and activities music companies undertake in acquiring, developing, marketing, distributing and supplying music that is made available on music streaming services;
• the extent to which corporate groups are active in different parts of the value chain, the extent to which their activities are integrated, and the ownership structure of music companies;
• how consumers choose and use music streaming services; and
• how music companies compete, and how music streaming services compete.

Competition and consumer issues 

Against this backdrop, the second stage involves an exploration of competition:

• between music companies; 
• between music streaming services; and
• issues that may arise from agreements and inter-relationships between music companies and music streaming.

The CMA will look at: 

• the extent to which music companies and music streaming services have market power;
• barriers to entry for new entrants;
• the agreements between music companies and music streaming companies (assessing restrictions/impact on competition);
• other ad-funded and user-uploaded platforms (such as video platforms) and how they compete; and
• other practices, such as collection and use of consumer data.

The CMA does not intend to focus on issues that are part of the wider music ecosystem, such as the physical distribution of music, radio broadcasts and concerts (issues that are ordinarily in the remit of the DCMS, the Intellectual Property Office, the UK communications regulator Ofcom and others), where these do not have a bearing on the interests of consumers. Similarly, the CMA does not plan to focus on factors that may affect overall revenue outcomes.

Osborne Clarke comment

The CMA is inviting comments by 17 February 2022.

Music creators, music companies, music streaming service providers, industry bodies, regulators, and consumer groups will all want to have a say in this potentially far-reaching study.  

If you would like to discuss any of these issues further, please do not hesitate to contact the authors or your usual Osborne Clarke contact.