The state should refrain from intervening in the music industry

Sam Collins

December 9, 2021

Sam CollinsThere was a sense of depressing familiarity to the chorus of demands this week that ‘something must be done’ about the supposed ‘market failure’ in the music industry, led by the Musicians Union and a cross-party group of MPs led by Labour MP Kenneth Brennan.

In this case the claim that musicians are being short-changed by the music industry in general, in the music streaming sector in particular, have been accompanied by a handy comparison: that the pay package of the CEO of the Universal Music Group, the biggest music company in the world with a value of around £35 billion, is equal to the entire domestic earnings of UK-based songwriters this year.

This has been used to claim that nasty big music corporations are profiting at the expense of poor hardworking staff and contractors. And this is now being used to justify demands for state intervention in the industry. A Private Member’s Bill put down by Mr Brennan sought for British copyright law to be reformed to regulate how different elements of the music industry are reimbursed for their work, as well as introduce so-called ‘equitable renumeration’ for streaming services.

It’s a line of argument that has an easy narrative and sounds enticing – but it’s the kind of reform that would potentially destroy huge swathes of the British music sector while doing little to improve the situation for most musicians.

At the moment, it is estimated that songwriters currently take around 15 per cent of the earnings each time one of their songs is streamed online using services like Spotify (incidentally, a percentage that has doubled since music streaming began). Around 50 per cent of the earnings are then paid to the recording company, with the rest being retained by the streaming services themselves.

For some this suggests that songwriters are somehow being exploited. But they fail to appreciate that the 50 per cent of a song’s earnings that go to the recording company are used to pay the artists who perform the song. This split in earnings also fairly represents the comparable risk between the different groups.

When an original song is created by a songwriter, all the risk and investment beyond that point usually falls on the recording label. It is the company who underwrites all the costs associated with production, advertising and selling the song to the wider world. Most of these costs are upfront, such as advances on royalties to both songwriter and artist, as well as substantial sums on marketing. These ‘artist and repertoire’ (A&R, the music equivalent of research and development) costs are equivalent to an estimated 40 per cent of an average record company’s revenue. Little of these sums can be recouped in case of a flop, and in some cases the sums advanced to artists and songwriters (which they are not expected to repay) exceed the entirety of the sales income.

Only an estimated one in ten musicians return an sort of profit to recording companies, so music labels need to invest large amounts of time and money before they get a single hit.

Too often both media and activists assume that the creator of something deserves all the rewards that flow from it – until the creator actually gets rich. But, in many cases, the content creator has only taken the first, tiny step towards making something a song or other hit a worldwide phenomenon. Record companies are in many ways the unsung heroes who provide the capital to actually make things happen.

Even if there is currently an unfair distribution in royalties, it is far from obvious that there is any role for the state to make things better. As with policies like minimum wages or rent controls, intervention often just creates winners and losers. The winners will be the few artists who will see a larger share of the (probably smaller) pie. But the losers may well be smaller songwriters and artists who would receive smaller advances for their work, since record labels would be less confident that they would recoup enough from the small number of hits to cover the costs of all the failures.

This would put artists even more at the mercy of the marketplace – they would only receive a healthy payment if their songs are true hits. British music companies, one of our great exporters and surely one of our hopes for a Brexit Britain boom, would see the value of their intellectual property fall and their costs increase.

Happily, at the moment cooler heads have prevailed and Mr Brennan’s Bill failed to proceed in the House of Commons. But with the Government undertaking a full review into streaming market, the tenor of the debate indicates both a worrying lack of knowledge and is the perfect example of Hayek’s ‘fatal conceit’ – the belief that the state would do a better job than the market in managing large tracts of the economy and the billions of complex economic decisions that are key to our day-to-day lives.

British music, and especially independent labels, have a history of being the rebels kicking out against the straitjacket of society. It would be tragic for the state to kick back, and destroy them entirely by listening to these baseless calls for copyright reform.


Written by Sam Collins

Sam Collins is Senior Advisor at the Institute of Economic Affairs.

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