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Home»streaming»CMA formally launches the music and streaming market study
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CMA formally launches the music and streaming market study

By mulegeek-February 9, 2022No Comments8 Mins Read
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On 27 January 2022, the Competition and Markets Authority (the CMA) formally launched a market study into music streaming services.

The market study will look at whether competition in the music streaming value chain is operating in the interest of consumers, and whether competition is working well. It will focus on three key areas: competition between music companies; competition between music streaming services; and the impact on competition of relationships between music companies and music streaming services.

The CMA is currently seeking industry stakeholders’ views on the proposed scope of the market study. The consultation is open until 17 February 2022.

What is a market study?

Market studies are conducted under the CMA’s general review function pursuant to the Enterprise Act 2002 (as amended by the Enterprise and Regulatory Reform Act 2013). They are examinations into the causes of why particular markets may not be working well, taking an overview of regulatory and other economic drivers of consumer and business behaviour.

The CMA gathers the required information during the market study by issuing information requests. Where necessary, the CMA will use its statutory investigatory powers to ensure that the information requests are answered completely and in a timely manner. The CMA may use its powers to require any person to attend a specified place to give evidence; require any person to produce specified documents or categories of documents; and require any person carrying on business to supply specified forecasts, estimates, returns or other information. Importantly, the CMA has the power to impose penalties for failure to comply. Penalties may be imposed in the form of a fixed amount, by reference to a daily rate, or using a combination of the two. Maximum penalty amounts are £30,000 (in the case of a fixed amount) and £15,000 (in the case of a daily penalty).

Why was the market study launched?

Streaming has transformed the music industry landscape. It has helped to restore growth in the sector and made it easier for new artists to share their music. However, while this shift in how music is accessed has had some clear benefits, some stakeholders have voiced concerns that the streaming market may not be working as well as it ought to. In particular, last year’s publication of the House of Commons Digital, Culture, Media and Sports Committee’s (the Committee) report on the economics of music streaming highlighted that the main issues in the market relate to remuneration, contractual structures, lack of transparency, and competition.

The Committee made a number of recommendations for both legislative reform and policy and regulatory intervention, including:

  • recommendations relating to creator remuneration and music rights – such as a right to equitable remuneration; a right for artists to recapture the rights to their works after a period of time and a right to contract adjustment if their works are successful beyond the remuneration they receive; improving contract transparency; and tackling data issues, such as the provision of metadata identifying copyrights;
  • recommendations relating to music streaming services – such as research on the impact of streaming services’ algorithms; ensuring transparency regarding payments for playlists; greater licensing obligations on services hosting user-generated content; and the clarification and enforcement of copyrights applying to livestreaming; and
  • recommendations relating to competition – a market study by the CMA into the economic impact of the major music groups’ (Sony Music Group, Universal Music Group and Warner Group) dominance in the market; and regulation of competition issues caused by vertical integration and leveraging through the government’s proposed pro-competition regime for digital markets.

After the publication of the report, the government launched a consultation on the proposed pro-competitive regime for organisations active in digital markets overseen by the Digital Markets Unit (the DMU) within the CMA. The DMU will be given extensive enforcement and investigative powers, including to impose significant financial penalties. The consultation closed in October 2021 and the government is currently analysing feedback. More detail on the proposed new regime can be found on reedsmith.com.

The government also noted the Committee’s concerns that the possible market dominance of the major music groups and the potential for agreements between them and streaming services can stifle innovation. However, it expressed the view that the digital era has also created many new opportunities for artists to create and release their music without the involvement of those groups. Therefore, any action by the government would necessarily be led by extensive evidence. The government has written to the CMA, which responded in October 2021 by indicating its intention to launch a market study.

What is the proposed scope of the market study?

The CMA proposed that the study will cover the supply of music to consumers and the supply of services connected with the supply of music to consumers (i.e., the music streaming value chain). The market study will distinguish between two key levels of the value chain, namely the products and services offered by music companies upstream (including in recorded music and music publishing) and the downstream provision of music streaming services.

The CMA’s approach to the market assessment involves two parts:

  • understanding how the industry works; and
  • assessing whether there are any specific competition and/or consumer concerns.

Understanding how the industry works would involve an analysis of the music companies’ business models; a systematic assessment of how the music streaming value chain is operating; an examination of how music companies and music streaming services compete; as well as an analysis of consumer and music creator behaviour. The CMA would also look at how the supply of music has changed since the introduction of streaming and whether there are any ongoing developments.

An assessment of possible competition concerns would be carried out by reference to competition between music companies; competition between music streaming services; and competition issues that may arise from agreements and interrelationships between music companies and music streaming services.

In terms of competition between music companies, the CMA would ultimately seek to understand the extent of the market power of the majors and other music companies. This will be by reference to the bargaining power they have with music creators and streaming services respectively. Firstly, the CMA would look at recorded music companies, and secondly it would move to looking at whether the publishing arms of recorded music companies strengthen their market power. Thirdly, the CMA intends to understand whether there are any factors that limit competition, such as barriers to entry.

When it comes to competition between music streaming services, the CMA intends to assess the strength of the competition and the streaming services’ market power. The CMA would look at the incentives for streaming services to offer different service plans. It would also seek to understand the drivers of and constraints on the prices, terms, features, and content of the different plan options. Other issues the CMA proposes to analyse include the impact of user-uploaded content streaming services, and the safe-harbour copyright protection they benefit from, or any vertical issues that may arise from integration of streaming services and other products.

When looking at the relationships between music companies and music streaming services, the CMA would be interested in understanding how these agreements have developed, and whether these agreements have any impact on competition or innovation.

Lastly, the CMA intends to assess possible harms to both consumers and music creators, with the interests of consumers being intertwined with those of music creators.

What to expect next?

The CMA is seeking the views of industry stakeholders (i.e., customers, businesses and interested parties) on the proposed scope of the market study and has set out 24 questions on which it welcomes input. The consultation is open until 17 February 2022.

The CMA further intends to gather evidence through a range of methods to inform its market review, including information requests to key parties; analysing existing datasets and research; reviewing contracts; and meetings with key interested parties.

What are the possible outcomes?

Market studies may lead to a range of outcomes, including:

  • a clean bill of health;
  • actions which improve the quality and accessibility of information to consumers;
  • encouraging businesses in the market to self-regulate;
  • making recommendations to the government to change regulations or public policy;
  • taking competition or consumer enforcement action; and
  • making a market investigation reference, or accepting undertakings in lieu of a reference (a market investigation is a more detailed examination into whether certain features of the market prevent, distort or restrict competition).

Where the CMA identifies specific competition issues that need to be addressed, it can do so by launching a market investigation, at the conclusion of which the CMA can exercise its order-making powers to impose remedies on industry participants.

The CMA will now have six months to publish a notice setting out whether it intends or does not intend to make a market investigation reference and 12 months to publish its final market study report.

Key takeaway for businesses in the music industry

Companies in the industry should be aware that a market study or a potential market investigation may require a significant level of input in terms of market or financial data. While a market investigation would require a greater level of engagement, companies should be aware that management and other resources would also need to be deployed at the market study stage. Additionally, given the potentially far-reaching consequences of a market study and potential penalties the CMA may impose, it is worthwhile to cooperate with the CMA and involve both legal and economic expertise from an early stage to ensure that the organisation is adequately supported throughout this process and that its commercial interests are represented.  

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