There has been industry-wide applause over the past week for a new digital music Code Of Conduct ushered in by the French government.

The Code, jointly signed by major and independent labels, publishers, digital services and artist reps alike, seeks to ensure the following:

• The development and vitality of the music industry;
• The preservation of cultural diversity and growth in innovation;
• The creation of greater transparency in interactions between participants;
• A fair distribution of value created by musical recordings.

All healthy ambitions, but what do they really mean – and how can France’s Minister for Communications Fleur Pellerin (pictured), who announced the Code, hope to achieve them? Especially when it comes to the most heated talking point of the modern music business, ‘fair distribution of value’?

The full Memorandum of the Code has now been published in France, and is largely divided into seven objectives.

MBW has dug through the document to bring you the translated highlights below. Objective 5 is of particular importance…

OBJECTIVE 1: SUPPORT THE DEVELOPMENT OF LEGAL MUSIC OFFERINGS

‘The music industry has seen a considerable decline in volume due to the development of new offerings, some of which have been illegal. In 15 years, the global music market has contracted by over 50% in value terms, the average price of an album has fallen by over 35% and the average price of a track by over 80%,’ reads the Code.

‘Accordingly, the public authorities and stakeholders are aware that supporting the development of legal, fairly remunerated offers is a key requirement in ensuring the recovery of the industry as a whole.’

There are four action points mentioned:

1. Implementing the protection of authors’ rights and ancillary copyrights, which has already resulted in the Code of Practice for online advertisers [to avoid pirate sites];
2. Ensuring that the European Commission’s plans to modernise authors’ rights and ancillary copyrights fully recognise the issue of sharing value with new digital actors;
3. Working with participants in cultural industries and with all stakeholders to improve the European response to infringements of intellectual property rights;
4. Contributing to the consultation of the European Commission on the economic role of online platform and to the debates regarding the European strategy for Digital Single Market and to the building of a European framework that is favorable to the development of legal online music offers.

OBJECTIVE 2: MAKE THE MUSIC INDUSTRY’S ECONOMICS MORE TRANSPARENT

‘It is difficult for artists to understand how they are being remunerated in return for assigning their exclusive rights, and questions are being raised about the fairness of that remuneration,’ notes the Code.

The French government and music biz stakeholders have therefore agreed to create a Music Economics Monitoring Unit (Observatoire de l’économie de la musique), whose brief includes the following:

• Preparing and publishing the industry’s main economic data… which is currently sparse and incomplete;
• Monitoring revenue flows, disparities in remuneration and the distribution of value between all participants;
• Monitoring the exposure given to original French artistic works across all media;
• Organising, with the agreement of online music service providers, studies about their remuneration models: comparison between the values of back catalogues and new music etc.

Music biz stakeholders have agreed to contribute actively to the study initiated by France’s Department for Media and Cultural Industries (DGMIC) to measure the distribution of value based on a sample of contracts.

OBJECTIVE 3: ENHANCE THE EXPOSURE OF MUSIC AND CULTURAL DIVERSITY

‘Paradoxically, the almost infinite availability of works on digital platforms – on which over 30 million tracks are available – creates a challenge for diversity in the dissemination of music,’ reads the Code.

‘The exposure given to works by platforms and recommendation algorithms have a key influence on the choices made by users, who seem to be concentrating on a limited number of famous artists or successful
tracks, more so than in the past.’

To preserve cultural diversity, the French government has agreed to increase the effectiveness of undertakings to broadcast original French songs on the radio.

Meanwhile, the online music service providers have agreed to ‘ensure that their offering gives significant exposure to original French artistic works and thereby increases and promotes diversity in musical catalogues’.

OBJECTIVE 4: PROMOTE CONTRACTUAL BEST PRACTICE

This dates back to a ’13 commitments for online music’ code signed in January 2011 by digital services and labels.

However, it only applied for a two-year period and was not renewed. Now both sides have committed to new rules.

The most interesting of these is probably the labels’ agreements when it comes to advances from digital music companies. Some highlights:

• To limit advances to amounts that are closely linked to real data from the digital music market or to precise and identified costs or services (technical services relating to catalog access, marketing costs, etc.).
• To favor the staged payment of advances throughout the contractual period; in the event of significant unpaid bills, online services agree to withdraw the catalogues of [labels and publishers];
• To define reasonable profit targets in good faith with effect from the first contract renewal;
• To define the terms and conditions of distribution and payment to performers of the advances that they receive from online services.

Guaranteed revenue payment requirements from online services to labels/publishers, says the code, should be based on ‘transparent methods of calculation using real data’.

There is also a stipulation for free on-demand music services – think SoundCloud, YouTube – ‘to implement paid added-value services in order to increase the rate of conversion of users of free services to paid services’.

When it comes to the emergence (and licensing) of new players in the digital music space, the labels have agreed to:

• Limit the advances potentially required from the publishers of online music services to a significant proportion of the guaranteed minima – and to limit the guaranteed minima required in a service’s launch year to ‘reasonable amounts’;
• Allow digital services to continue indefinitely to recoup advances paid pursuant to previous contracts;
• Not to artificially inflate their market share data to get a bigger slice of the pie.

OBJECTIVE 5: ENSURE FAIR REMUNERATION FOR ARTISTS

‘The artist community is expressing increasing concern about the effect of [streaming payment methods] on its revenues,’ reads the Code. The complexity of the financial circuits involved in the new music economy is creating, among artists, a great deal of misunderstanding about how value is really distributed, difficulties in tracking their entitlement to revenues, and growing scepticism about how they are being treated.

‘The stakeholders are aware of these developments and believe that it is vital, in the interests of the whole industry, to restore confidence by ensuring the most transparent and fair distribution possible of all revenues generated by the digital usage of musical works.’

So what’s to be done?

• Labels agree to share with artists ‘all revenues and remuneration they receive from digital music broadcasting and distribution services when monetising their recordings’. (‘Revenues and remuneration’ means monetary and non-monetary benefits directly linked to recordings, including where those benefits cannot be specifically attributed to a rights-holder. This must include all the unrecouped advances/minimum revenue guarantees obtained from online music service providers – aka “breakage).
• When it comes to label equity holdings in digital businesses, it’s an ongoing discussion. The Code notes that ‘labels agree that questions raised by [equity stakes] should be addressed within an appropriate international framework, to be defined by the relevant parties”;
• Contractual reduction. This will comply with the following principles: (i) discounts set at a reasonable level and based on justifiable reasons connected with digital operations, through the implementation of specific actions; (ii) no structural discounts (not justified by a specific action) related to digital usage; (iii) account being taken, when calculating discounts, of all net expenditure actually made by labels (e.g. advertising campaigns).

One big development is that labels appear to have agreed to give artists a mininum revenue guarantee ‘in consideration for the digital usage of their recordings’.

Adds the Code: “That guarantee may take various forms, such as proportional minimum revenue or a minimum advance. The arrangements and level of the minimum revenue guarantee will be set by collective agreement, which must take into account the diverse circumstances facing companies in the sector.”

And there’s also big new when it comes to royalty statements. Labels have agreed to report royalties to artists in a form that is ‘transparent, understandable and can easily be used by artists and their managers’. This format of statements will be examined by a working party featuring representatives of artists, managers and rights collection and distribution societies.

But that’s not all. They’ve also agreed to:

1. Show an overall summary of reductions, explicitly showing their cumulative effect on the artist’s revenue as a value and/or percentage;
2. Make statements available to view in electronic form;
3. Show royalties by main distributor, type of sale and territory; and
4. Designate, for companies with more than ten employees, a representative to handle all questions relating to these statements.

Artists and performers will also have a contractual right to audit accounts relating to their recordings.

OBJECTIVE 6: USE AVAILABLE RESOURCES TO FACILITATE DIGITAL TRANSITION

The Code calls for:

• ‘Further streamlining and modernisation of general-interest organisations serving the music industry’;
• A direct employment support fund for musicians, jointly managed by social partners, to which resources will be re-directed within six months from now;
• Rights collection and distribution societies that are signatories to this Memorandum undertake to use some of their resources, in a co-ordinated manner, to address issues acknowledged to be important by and for the music industry. This includes a ‘minimum wage’ for artists and performers employed by ‘very small companies’.

OBJECTIVE 7: ENSURE EFFECTIVE AND SUSTAINED IMPLEMENTATION OF THE CODE

The Code – or ‘memorandum of understanding’ – is renewable and applies for a period of three years.

A music industry steering committee, chaired by France’s Minister of Culture and Communication and consisting of all signatories to this Memorandum, will meet at least once per year to monitor the achievement of the Objectives and to take the measures needed to ensure that they are operational and sustained.

[Music Business Worldwide]