Merlin CEO accuses majors of market share manipulation

In a scathing attack¸ Charles Caldas, CEO of global independent-labels digital-rights agency Merlin, has accused the major labels of manipulating sales figures to boost a false impression of their actual share of the music industry.

He was speaking during a keynote presentation at yesterday’s (30 April) Music Connected event organised by UK independents trade organisation AIM in London.

As Rockol.com pointed out in an article in January, the US independent sector’s trade body A2IM has questioned how market share is calculated in their country.

And, during his speech, Caldas threw down the gauntlet and urged independents to reject what he insisted was the majors’ deliberate tampering of market-share figures using a new approach called “breakage.”

“Breakage is a new (jargon) that is going to have greater implications in the coming years,” he said. “The way you maximise value in breakage is by manipulating the market share.”

As the gradual decline in physical sales globally is replaced by the accelerating growth of subscription-funded streaming music, royalties paid out to rights owners is on a pro-rata basis, he said. “That suits us (the independents) very well. We’re taking a piece of that set pie, and the majors are moaning about getting less of it. And (to compensate), we’re seeing the majors finding new ways of extracting pieces of that pie before its gets to the market.”

They try to do this by, among other methods, acquiring an equity stake in digital-music services (as they have done in Spotify) “to extract value from the service that is not part of the pie. It’s integral that we get an equitable share instead of getting what is left after all the value is extracted.”

To illustrate his point, he referred to the US music sector. He said Nielsen SoundScan, used to calculate the Billboard music-sales charts, does not include streaming in its calculation of the US market share.

Furthermore, Caldas argued, it evaluates market share of recordings by basing it on the distribution of the recordings as opposed to the ownership of the master rights.

He showed the Music Connected audience two charts: one illustrating market share by distribution rights, and the other by master-recordings ownership.

Based on distribution rights, which is Nielsen’s published figures, US independents had an estimated 15.15% market share in 2012. In contrast, their shared soared to about 32.5% when based on who owned the master rights of the recordings sold.

The Nielsen data represents 17 percentage points fewer, he stated. If, as anecdotes indicate, each percentage point amounts to $10 million in value, then US independents were losing about $170 million worth of value a year in terms of the impression given to licensed digital services.

“It explains why (some majors) have been buying up labels’ distribution rights,” he added.

Caldas also noted how far the streaming business has come since Merlin started accepting members in 2008. Streaming is a format that he said suited the flexibility independents can afford (as opposed to the entrenched strategies behind the majors’ businesses).

The agency has members in 39 countries and they account for about 10% of the total global music sales.

During the year ending 31 March 2014, Merlin had collected $89 million in royalties for its members. He predicts it will grow to between $145million and $150 million in the next 12 months, compared to the original $100 million predicted.

Income from streaming is growing faster than revenues from digital download and Apple’s iTunes stores. In the UK last year, revenues from streaming jumped 41% higher. And Spotify recently announced that the number of UK active users during the last three months rose by 1 million. In Norway, the streaming market rose 11%. Meanwhile, in Sweden, 71% of the recorded music’s revenue is from streaming.

“These are examples of what a healthy digital-music market can look like. This growth dynamic is currently unstoppable,” he continued.

He admitted frustration at seeing artists complain about the alleged minuscule amount of royalties they receive from streaming. In addition to the emerging issue of value ‘breakage,’ however, he said indies need to be aware of other challenges.

Streaming’s rapid growth is attracting non-music companies who want to make a quick buck without any commitment to the creativity, he said. “There is a land grab for consumers by companies not interested in creating a greater consumer experience.” While he was not specific, there was an understanding that he was referring to companies like Amazon.com and Google’s YouTube.

He said he was also dismayed by the way technology giants like Amazon and Google have been lobbying to rewrite copyright laws in their favor and not in creators’.

Music Connected was organised by AIM, the UK independent-labels trade body, at Glaziers Hall in London.

This is reproduced with kind permission from music business journalist Juliana Koranteng and publishers Rockol.