Examination of Witnesses (Questions 120
- 139)
TUESDAY 6 JUNE 2006
BRITISH PHONOGRAPHIC
INDUSTRY
Q120 Philip Davies: Do we know how
much we are talking about, in terms of if it were increased from
50 years to 70 years, how much you estimate that will generate,
how much increase in income and investment that might realise?
Mr Jamieson: We have submitted
economic evidence to Gowers on this basis, but it is very, very
difficult because it is so predictive. It is because of this explosion
of British popular music in the fifties and the sixties it is
very, very difficult to ascertain the economic impact of money
not coming back to Britain, with people everywhere duplicating
the recordings, it is very, very difficult to do that. The sort
of economic evidence the Treasury require is very difficult to
do, but our estimates are there, notwithstanding that.
Q121 Philip Davies: Will consumers
continue to buy an album which comes out of copyright when it
can be made available at little or no cost on the internet? How
will that change things?
Mr Jamieson: I think that the
album being made available on the internet is something of a red
herring there. I think that what is at issue at term, first of
all, is the availability, and the availability on the internet,
in our view, is far more likely to come from the owner of the
recording who is interested in it than a flurry of mixed-quality
recordings made available by other people, which are difficult
to trace, difficult to find and of varying quality. I do not think
price here is an issue. I did not really understand the question,
I am sorry.
Q122 Philip Davies: The Music Managers
Forum pointed out that record companies continue to sell albums
and earn higher profits at the end of the copyright because they
do not have to pay the performer. The point is, will people continue
to buy the album when it can be made available free of charge
on the internet?
Mr Jamieson: It is not available
free of charge, obviously, it would not be.
Q123 Philip Davies: Or at a low cost?
Mr Jamieson: I think that what
you are facing here, what you are pointing out, is the moral dilemma
that companies face currently. If an enduringly popular recording
is about to go out of copyright, let us take, for example, a Vera
Lynn recording, Vera Lynn would go to her record company of 50
years' standing, shall we say with `We'll Meet Again', and the
conversation will ensue. Now who is going to stand up and say
"Vera, as of tomorrow we're going to carry on selling your
recordings, we're not going to pay you a sou; the writers of the
song will still get money, Bloggs round the corner is probably
going to duplicate your records as well and sell them, and he
won't pay you anything either," so this is the moral dilemma.
At the moment it varies; not as a generality but some situations
exist where companies will carry on paying their artists, and
some exist where they do not. We do not think that public domain
is suited for enduringly popular recordings because one of the
ancillary reasons is this moral dilemma that companies face.
Ms Groome: There is another issue
as well in relation to, for example, the artwork; the copyright
on the artwork will continue beyond the length of the life of
the copyright on the sound recording, and the artwork will attach
to the physical album and not to the public domain copy that is
available on the internet to which you were referring. I think
people will continue to buy where they are interested; for example,
in classic albums like `Sergeant Pepper's' they want the artwork.
Mr Jamieson: It deals also to
the main point that a sound recording ex gr at 50 years, which
is the soonest expiry of all the creative copyrights, deals unfairly
and discriminates against the recording artist, and the recording
artist, in many ways, has made that song his own property by his
interpretation. Suddenly, that song lives for another 50 years
and he does not get anything from it, and the company has this
dilemma as to whether to carry on paying him or not; also they
have to compete with various other people who may decide to market
the recording. It is not right that situation occurs with very
popular works. That is why I was saying that 50 years ago that
is when the change occurred, the global market happened and the
longevity of the recording happened and the quality, and all these
things make it far more appropriate today to extend that term
of recording in line with other copyrights.
Q124 Chairman: A lot of the argument
about the extension of copyright term has centred upon the rights
of the artists to go on receiving income for their creation. It
was suggested to us that perhaps the copyright term should remain
with the record company for, say, 25 years, after which the artist
would have the right to resign it to wherever he, or she, chose.
How do you respond to that?
Mr Jamieson: Every single recording—and
I have noted already that 31,000 albums are produced in this country
every year—is a private contract between a recording artist
and a company and, whereas there are some similarities, they are
all different. It is very, very difficult to try to deal from
this point of view, and a general point of view, between the individual
contracts between the companies and the artists and I do not suggest
it would be sensible to try to divide it up in any way. However,
we would listen to, indeed discuss, as we are, all sorts of suggestions
which may help, shall we say, make palatable or make more clear
to the consumer why an extension of term should be introduced
and make sure that, by codes of conduct, or anything else we can
think of, companies treat their copyrights properly.
Q125 Helen Southworth: We have had
evidence that royalties are going to be a very significant issue,
in terms of distribution, in digital reproduction, and that a
record company royalty which may be 20% of the dealer price for
CDs is currently in place, and that in digital reproduction you
are not going to have the same issues of production costs, distribution
costs, storage costs. What are your proposals for how you could
get an equitable distribution in digital, also bearing in mind
that if somebody is selling a CD they have got a package of their
product together and so they are getting the most popular songs
plus a series of other songs for which they are getting royalties?
If they are getting 79 pence to be distributed around digitally
they can end up with just three to five pence as a creator royalty.
Mr Jamieson: Let us start off
by saying that record companies, by and large, are purveyors of
music. They invest with recording artists as their partners in
a recording and, by and large, the manufacturing and distribution
are outsourced, actually, as a cost from the current recording
business. The costs that the record company, in partnership with
its creator partner, has to bear are considerable, upfront costs.
Let us hear from an independent practitioner, who will expand
on that.
Mr Richardson: The carrier is
a final solution of getting the product to the customer, the listener,
or whatever. The greatest expense is in making a record and marketing
a record, providing people round artwork, and stuff like that.
None of the costs of producing a record in the studio are going
to change because it is distributed digitally. Producers and musicians
are not going to discount their costs because we are selling it
digitally, or via CD, or vinyl, or whatever. No-one along the
chain, in terms of advertising, from any of the TV stations or
press, is going to discount because we are selling it in a digital
format. Primarily, at the end of the day, whatever carrier it
is, a lot of the basic costs of marketing and making the music
and promoting the artist, which is the primary function of what
we do, change because of the carrier. At the moment, I think,
pretty broadly, I know it happens with us and I think for EMI,
we are talking about 5% of our turnover is based in the digital
area. I think, without a doubt, that is going to increase because
we are in a new format, but at the moment you are doing CD as
well as digital. In fact, our own distributor has a higher charge
for distributing our digital products than it has for our physical
product; we pay a couple of per cent more. That is purely I think
because we are at the very early stages of a developing format,
as we were with CDs when that took over from vinyl, and I think
some of the savings will come through, as will some of the deal
points change, with that format. I think also the way that people
consume music will change, because, as you pointed out, it has
been an opportunity to develop a track-based culture, whereas
before, with albums, you had a peep through the door with buying
a single and if you wanted to get the album you had to buy it
to hear it. I think now the digital age is fantastic because it
makes music more sampleable, more listenable and increases the
audience and changes the way that people take music. In terms
of the costs associated with delivery to market, none of those
are going to change, whether we put it on an omelette, or we put
it on digital or a CD, because of the big investments actually
to make the thing. Once it has gone to market, yes, if I sign
something and make a record and then suddenly I sell 20 million
copies around the world, digitally, the economies of scale of
that affect me; but my investment, whether I sell 20 million or
100,000, in making the record are pretty much going to be the
same. It is when I actually go to manufacture and advertising,
things like this, that those can alter, but those initial investment
costs, before you know whether it is going to sell, especially
with the business which is built up with new artists, do not change
and, in fact, in a moment, are higher, because it is just a new
area. I think it is a positive new area but it is very early to
say exactly, to make a sweeping statement that it is going to
be cheaper.
Mr Jamieson: I think in the early
days of any technology it is also going to be more difficult and
more expensive to distribute via two or three different formats
than the traditional one. Currently the industry is distributing
via physical, via online and now via mobile format. All the new
players in this particular music arena—the record companies,
the music publishers, the artists, the mobile operators and the
online service providers—are currently engaged in discussions
in the run-up to a government tribunal on how to set fair rates
for this particular new method of distributing music. I hope,
and believe, that there will be a voluntary settlement achieved
with all parties together in these discussions prior to the need
for a tribunal, but if it is not resolved the tribunal is a mechanism,
a device, which has been set up by government to answer these
questions for us.
Q126 Helen Southworth: Can I just
clarify, are you saying that it costs more to distribute digitally
than it does to manufacture and produce and transport CDs?
Mr Jamieson: I think, at this
stage, we can say, unequivocally, yes, because of the costs of
digitisation and because of the other ancillary costs which are
part and parcel of distributing digital music. If we achieve this
great opportunity which sits in front of the music industry, of
achieving fantastic volumes through digital distribution, then
the cost we believe will go down and it may enable the cake to
be divided differently. At the moment, at this particular starting-point,
we are saying, until the mechanics of the business model are made
more certain let us sit with the formulae established under the
physical distribution of music for the last 50 years and let us
do a short-term arrangement until we are all more aware of the
various costs involved. It is very much an experimental time.
Q127 Helen Southworth: Within your
business model, what is the point at which you would expect that
you would get a shift, so that digital became, as everybody would
expect it to be, far cheaper than physically producing CDs and
physically putting them into boxes and physically putting them
into vans and physically taking them to places?
Mr Jamieson: I have to stress
once again what my colleague said, which is, there are other costs
in the digital arena and, in fact, the costs of distributing a
CD, which costs pennies to manufacture, are hugely outweighed
by the constantly escalating costs of creating recordings, marketing
them and bring them to market. In our discussions with the other
industry players, we have agreed, and this is part of a voluntary
negotiation, that we should look to do an arrangement for three
years which will take the industry that much further forward until
such a time as we can all be more aware of the different costs
involved.
Q128 Helen Southworth: Are you expecting
that for the next three years it will remain more expensive to
use digital reproduction than to use physical?
Mr Jamieson: I did not say that
exactly, but I did say that parties are talking about the sense
of creating a three-year agreement to enable everyone to be more
aware of the new costs involved in the digital arena.
Q129 Helen Southworth: What about
the other part of the discussion about the actual return to the
creator from digital reproduction, the fact that the evidence
we are getting is that it is going to starve the creators if they
have such a low return?
Mr Richardson: As a general point,
I do not think that varies from any other contract you make with
your artists. You start at a point and various market forces of
success, or whatever, shape the deal that you have with them,
and that proportions the share of where they are. A young artist
starting that has no platform gets a certain deal, which be it
his lawyer, his manager or the desire or the competition to sign
that artist dictates, and then, as it goes through, as we have
seen with a very public case with Robbie Williams, the deal changes.
Within the parameters of that, you will get a change between artist
and record company. I think, between the aggregator and the record
company there will be a change, between the digital retailer and
the record company there will be a change, based upon who has
got control and a share of dividing up the cake.
Mr Jamieson: I think we need to
establish the difference between the creators we are talking about.
Obviously, there is the recording artist creator that is in partnership
with the record company, and that is governed by every company
currently redoing contracts with their creative partners to ensure
that digital rights are included, and they are the subject of
private contract. The other creators are the composers and song-writers,
to whom I suspect you are referring, who are quoting the pence
rate that you refer to, and this is driven mostly by the low pence
sale rate, if you see what I mean. We are suggesting that the
percentages remain the same, but because of the lower selling
price obviously the pence rate comes down. It is particularly
important too to the record company and why I stress constantly
that we have got to enter into an age of enormous volume, because
with the lower prices currently at which music is selling, both
in the physical and particularly digital formats, recouping the
original cost of the recording and the marketing and promotion,
in order to break and establish the artist, is taking longer and
longer. This deals also to term extension, because if you are
selling for less the return is a finite pence return, and every
year for the last 20 years record companies have seen an increase
in their costs, in terms of recording and marketing, and they
have seen a downward price move over 20 years. If you have noticed,
CDs today are somewhat less than they were 20 years ago and not
even in real terms, in actual terms, and digital music is lower
still, so that is why I have to say that volumes are going to
be absolutely crucial if we are going to recoup the risk/reward
investments that the record companies make.
Q130 Helen Southworth: So many people
want to be within the record company industry?
Mr Jamieson: Sadly, at the moment,
it is parts of the record industry outside the record companies
that are seen as easier wins than inside record companies; hence
the contraction of the majors and the difficulties being experienced
by the independent sector, what my friend Mark was talking about.
Mr Richardson: The attraction
of it is because it is fantastic. It is in the early stages like
betting on horses because you are putting all your money up front
and you do not know what is going to come in, hence probably the
majority of the excitement about being in the business. Also it
is wonderful when you do find that gem of an artist that goes
on and continues to make great music and inspires other people.
I think, one of the key things, the digital age brings greater
access to sampling and hearing music before you purchase than
anything else. With that comes stretching, it has elongated the
development process, which personally I think is a good thing.
When we had one radio station and a couple of shops that were
selling it, the winners came out from it and you could control
to a certain point, or certain record companies could, in terms
of what got seen and what got heard. I think, with the elongation
of the process, it makes more music accessible, and with sampling
things take longer to come through. I think also with the digital
age it allows a lot of those great pieces of music to remain gettable.
I think one of the things that we do, and I think we all do this,
whether it be with books or anything else, once you start getting
into something, you do tend to crawl back into history to find
the root of where the inspiration came from. If you look at a
lot of the music today, it leads back maybe to the Beatles or
to Dylan and beyond there to Woody Guthrie, you can go far back,
and being able to access that over a period of time is a valuable
resource and also keeps the educative process of music and the
inspiration and the wonder of it alive.
Mr Jamieson: Mark, you have the
World Cup song, do you not?
Mr Richardson: Yes; but that could
be a poisoned chalice.
Mr Jamieson: Let us not lose track
of the fact that the British recorded music industry is so successful
around the globe; it is the second most important music market
in the world. It is very, very important culturally and economically
to this country and despite its difficulties of transition from
the physical to a digital age it is still enormously successful.
I was in Germany just last week, at British Music Week, and the
Ambassador kindly lent us his Embassy to use the launch of this
week-long occasion to promote British music, and his Chargé
d'Affaires kindly agreed to make a speech. I said, "Thank
you so much for making a speech;" he said, "Of course
I had to make the speech; because do you know the three most important
things that Britain exports?" and I said, "No; what
are they?" and he said, "Whisky, Formula One and Music,
and, do you know what, of the three, music is the most important
because it's a cultural as well as an economic export." We
are doing occasions like this. British music is enduringly popular
around the world and we are so proud to be part of it.
Q131 Helen Southworth: That is why
the creators were making such strong evidence to us that they
wanted to make sure they could still afford to do it?
Mr Jamieson: Yes; but we need
the volume, in a digital age, absolutely.
Q132 Chairman: Although some creators
have managed to use technology to bypass the record companies
completely, and there have been lots of media stories of artists
who record in their kitchens and then put it up on the web and
do not actually need record companies any longer?
Mr Richardson: I think what they
have done, actually, is they have used the internet to get themselves
a better deal with the record companies, and I think the Arctic
Monkeys, probably, and Sandi Thom currently are the key examples
of that. The Arctic Monkeys were getting a lot of attention from
the internet, probably more than anything because their music
was great, but, again, used that and got a fantastic deal off
their record company and actually got their remunerative success
from being signed to a record company. Just to speak on behalf
of my company, or the independent companies, I think you go into
this game to promote and develop the career of an artist and their
work, and the business of that process is to sell music, or their
music, in a carrier, but the primary focus, when you sign an artist,
is to get in there and develop a career. For our company, I know
we cannot really do that successfully by doing it on one album,
so my nature, if you like, is to develop a career. What the internet
has done for us, I think it makes work available, whereas the
guy sending in a demo, or 'phoning up, saying "Please listen
to my music," it makes that process easier for people at
this stage to say, "Listen, there are other people who like
my music; you should be taking note of this. I think, at the end
of the day, their skills need to be associated with people who
have some expertise in making marketing and distributing music,
not only domestically but globally, and obviously there are differing
qualities of that work throughout. What we have got is a great
system at the moment where the internet is making it available
for people to make a noise, if you like, to attract some of the
business behind them, but I still think, of the investment, producers
are not going to discount because some guy is doing it himself,
they are in the business as well. People who take their records
to radio, people who advertise, TV advertisers are not going to
discount it; there is a big fund that has to come before a single
record is sold. We do that off our own back and that is our risk,
if you like.
Q133 Mr Sanders: You are benefiting
now from the income streams through the digital distribution of
music. Which one offers you the best income stream, the single
download of a piece of music or the `all you can eat' subscription
downloads?
Mr Jamieson: It is a developing
market-place and obviously we have started with the strip download
and the bundle download and at the moment subscription services
are very, very much in their embryonic infancy and we are trying
to work out ways in which the industry can ensure that creators
are properly remunerated and compensated for subscription services.
It is obviously more difficult than the sale of individual downloads,
which are much, much easier to track. I think it is possible and
I think there are economic projections accordingly which show
that subscription services will begin to play a role in a year
or two from now and gradually increase in importance, and these
are our economic forecasts, but trying to compare which will be
more beneficial is a difficult question at the moment. Roz, do
you want to expand on that?
Ms Groome: I think it is difficult
to predict at this stage.
Mr Jamieson: Both can play a role.
Mr Richardson: Personally, I think
it is the consumers' choice. In general, you either like a song
or you do not and, probably like stream TV, at the end of the
day, you switch it on and watch that programme you want to watch;
just because you have paid for the whole channel does not mean
you sit there all day. I think people will still go in and buy
the song that they want and if they buy a lot of music they might
calculate that, overall, a subscription service is a better economic
thing for them. I think, at the end of the day, it will work out
even.
Mr Jamieson: I have to stress
again the volumes that are needed to make all this work, because,
at the moment, albeit that Britain is the most resilient market
in the world, the recorded music industry market globally has
taken an almost universal downturn of quite some significance
in the last five years. We are still boasting that we are the
best but we are only stand-alone, in terms of revenue. Huge amounts
of volumes have to come still from the digital arena, in both
the ways you mentioned, before we can have completed successfully
this transition that we are in.
Q134 Mr Hall: I have got the extensive
Rolling Stones collection on vinyl. If I wanted to copy that onto
a CD to listen to it in my car, it is my private collection, British
copyright law does not give me an exemption to do that, but in
your evidence to the Committee you said you did not think there
would be a need to change the law. Can you explain why?
Mr Jamieson: This is a very key
point and I think we should clarify it slightly, because we have
moved on in our thinking since the written evidence. Traditionally
the industry has turned a blind eye to private copying and used
the strength of the law to pursue commercial pirates, and it has
worked very well for all. There are two changes really which have
caused us problems. One is, the quality of copying via digital
is now so much better than ever it has been; and, secondly, the
ability to disseminate a copy that is made illegally via the internet
or any number of ways is so easy, including on a global scale,
it is very, very damaging to music. We are having to rethink the
distinction that we used to employ between a commercial pirate
and a private copier, and I think it is quite correct to say that
we are unhappy at the moment, that we think there needs to be
a new distinction drawn between those who copy purchased music
for their own private use and those who pass music on. We believe
the latter must remain an infringement and we believe that we
have to authorise the former; in other words, to make the consumer
unequivocally clear that he has the right to copy any music that
he buys for his own use, multiple, from format to format, anything
at all that he wishes to do for his own use he is able to do.
We are in discussions with other sectors of our industry at the
moment, and indeed our own members, to try to get a consensus
position on how best this can be achieved, to leave the consumer
sure that he is allowed to copy, that you can copy your Rolling
Stones collection, that Nigel Evans, who has just bought an iPod
is able to take his CDs and put them on the iPod. You are correct
in saying it is all technically illegal currently, but that is
not right, because we are happy with it, we think it should be
allowed and we think it is possible to do it via authorisation
from the copyright owners and rights holders, rather than by rewriting
the law. That is our current position, but it is still very, very
much a matter of discussion and obviously it is something we are
going to be taking to Gowers.
Q135 Mr Hall: The next part of that
question is how do you actually distinguish between those things
which are copied legally for personal use and those which are
copied without authorisation and probably not for personal use?
How are you going to distinguish between those two, using your
example of an industry agreement rather than a change in the law?
Ms Groome: There are two answers
to that. Firstly, in relation to digital copies which are bought
from, for example, iTunes, DRM enables the purchaser to make copies
of that download for their own private personal use, but it prevents
that person from then dealing onwardly with that music file. DRM
kicks in, if you like, at that point. In relation to a physical
copy, if somebody copies privately and then decides to sell, the
only way in which we can enforce against them is to go after them
for the selling. If we have authorised to make the personal copy,
the only wrong that they will be committing then is any further
distribution of that copy, so a sale or, for example, distribution
via an illegal peer-to-peer file-sharing network, so any kind
of onward dealing with that copy would be the wrong that we would
be seeking to stop.
Q136 Mr Hall: What would be the distinction?
If I were on the internet and wanted to look at a remix of, say,
Simon and Garfunkel's `Bridge Over Troubled Water', did I know
that came from CBS, then it is a legally copied piece of music,
or if it is illegal, how would I know?
Ms Groome: If you were downloading
it, you would need to be paying for it.
Q137 Mr Hall: If I have not paid
for it, I am doing it illegally?
Ms Groome: In all likelihood.
Mr Jamieson: Unless it was an
authorised download.
Ms Groome: Sometimes you can obtain
free downloads, or clips, more likely, from the internet.
Q138 Mr Hall: That is a personal
thing for me, so that is me and my conscience; is that the 79p?
What about the producers in the industry, how would you distinguish
between what was going on?
Ms Groome: We would have to look
at the additional act. If we had authorised private copying, or
if there was a private copying exception, for example, we would
have to look then at the additional act, so what was being done
with that copy. We look at the harm to the industry. If somebody
is making a pile of copies in their bedroom for their car, that
is one thing; if they are making those copies and then taking
them to a car boot sale and selling them for a fiver a piece,
that is another thing. We would look at the additional act.
Q139 Chairman: Is it not the case,
however, that with DRM coming in it may actually prevent people
from carrying out some copying which up until now you have been
prepared to allow?
Mr Jamieson: Obviously, digital
DRM has been pretty successful in enabling businesses like iTunes
to happen even, and without DRM you could not have the monetisation
of music online, which is what is going to take this industry
so much further.
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