Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



  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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