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How the “Value Gap” Rhetoric Endangers the Whole Tech Sector

· August 1, 2016

Over the past months, the music industry has denounced the “value gap” over and over again, with the help of open letters signed by or interviews of music stars such as Taylor Swift. According to the music industry, this obscure notion has now replaced the previous spectre of piracy as the main threat to artists’ livelihood.

But what, you may ask, is this “value gap”? According to the music industry, the “value gap” is the “unjustified difference” between the income obtained by the music industry from ad-funded online services (including online hosting services like video-sharing platforms YouTube, DailyMotion and Vimeo, but also the free, ad-supported tier of Spotify) and the income perceived from dedicated, subscription-funded online music services like Spotify Premium and Deezer.

The claim that this difference is “unjustified” or somehow “unfair” should be challenged. The music industry’s revenues have always differed depending on the sources (i.e. the sales of sheet music and phonograms, live performances, radio and TV broadcasts). Online services have become additional sources of revenue, with different business models and technologies generating different incomes – reflecting the current situation in the offline world.

Moreover, innovation is key. After years of watching the collapse of its revenues due to piracy, the music industry saw a surge in digital revenues and a return to overall profitability thanks to many innovative online services. Diversity of services and business models should be encouraged, so as to develop as many sources of sustainable revenues for artists as possible. Consequently, any imprudent measure hitting the digital sector would harm EU creative industries – ultimately harming their competitiveness and the emergence of new European artists.

Among the potentially very harmful measures considered by European policymakers to solve this “value gap” is the “clarification” of the right of “communication to the public” – i.e. both user and online hosting services would be “communicating to the public” each time a user is uploading a content online. Online platforms, today only indirectly liable for copyright infringement, would become directly liable. All online hosting services would de facto fall outside of the scope of the liability protection regime of the E-Commerce Directive.  

Such a measure would have far reaching consequences.

Firstly, it could cause online services to shut down their upload and sharing services, thereby chilling innovation.

Secondly, this would severely restrict users’ freedom to impart and receive information, something that policymakers have struggled to grapple with in the past.

Thirdly, it could cripple the growth of the digital economy – when the purpose of the Digital Single Market is the exact opposite.  

There is no need for such a radical solution, as rights owners have control over how their content is used online. Under the existing notice and takedown system, content that has been uploaded illegally is taken down by online services upon requests from rights owners. If rights owners are convinced that only fully licensed music services will maximise their income, they can demand the removal of every song appearing on online hosting services. However, when offered the possibility to monetize their content thanks to market driven solutions like YouTube’s sophisticated content scanning system Content ID, most rights owners choose to do so.

Therefore, it seems that this whole debate is in fact about a commercial issue, and not a copyright-related one. It appears to be motivated largely by the current negotiations of new licensing deals between the video-sharing platform YouTube and the three main global music labels Universal Music Group, Sony Music and Warner Music – and should be left to the market to solve.

Additionally, it seems that the music industry does not suffer from a “value gap” but rather from an information gap between legacy music intermediaries and artists, the latter unable to get a full understanding of their income streams. Should the European Commission decide to help artists by introducing transparency in their relationships with legacy music intermediaries, online services could also help by making available data such as precise numbers on downloads, streams, and views.

Finally, any measure should consider the counterfactual: its potential to reduce revenues to the music industry. It is quite plausible that there is a value surplus today given that advertising revenues provide money from cash-strapped consumers who may not be able to afford to buy CDs, pay to download a song or subscribe to music services. If the Commission were to make user generated content platforms liable for copyright infringement, platforms might decide not to authorize users to upload content anymore. That would be in nobody’s interest.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.