Written Submission Of The Recording Industry Association .

5m ago
1.15 MB
67 Pages

Written Submission of the Recording Industry Association of America(RIAA) before the United States International Trade CommissionGlobal Digital Trade 3: The Business-to-Consumer Market, Key Foreign TradeRestrictions, and U.S. CompetitivenessThe Recording Industry Association of America (RIAA) is the trade organization that supportsand promotes the creative and financial vitality of the major music companies. Its members arethe music labels that comprise the most vibrant record industry in the world. RIAA memberscreate, manufacture and/or distribute approximately 85 percent of all legitimate recorded musicproduced and sold in the United States. Our membership includes several hundred companies,many of which are small-to-medium-sized enterprises (SMEs) distributed by larger record labels.The RIAA welcomes the opportunity to provide this written submission to the United StatesInternational Trade Commission (the Commission) in response to 83 Fed. Reg. 3185 (January23, 2018) with respect to Investigation No. 332-563, Global Digital Trade 3: The Business-toConsumer Market, Key Foreign Trade Restrictions, and U.S. Competitiveness, for the purpose ofpreparing the second and third of three reports requested by the Office of the United States TradeRepresentative (USTR) on January 13, 2017 under section 332(g) of the Tariff Act of 1930 (19U.S.C. §1332(g)). In addition to providing information responding to Parts 2 and 3 of theCommission’s investigation specifically, this written submission updates various aspect of theRIAA written submission, including the latest available data as well as analysis reflectingdevelopments following RIAA’s filing with the Commission for its investigation no. 332-561,Global Digital Trade I: Market Opportunities and Key Foreign Trade Restrictions.Specifically, in this submission RIAA will provide information on the issues identified by theCommission for Parts 2 and 3 of the Commission’s investigation, including: Measures in key foreign markets – i.e., European Union (EU), China, Russia, Brazil, India,and Indonesia as well as other top ten recorded music markets, i.e., Australia, Canada, Japan,South Korea, France, Germany and the United Kingdom, and other priority markets such asMexico – that affect the ability of U.S. firms to develop and/or supply business-to-businessand business-to-consumer digital products and services abroad;

RIAA Written Submissionbefore the United States International Trade CommissionGlobal Digital Trade 3August 15, 2018 The impact of these measures on the competitiveness of U.S. recording industry as well as oninternational trade and investment flows associated with digital products and services relatedto significant business-to-business and business-to-consumer technologies. In addition, RIAA will also address issues raised in Part 1 of its investigation, including: Regulatory and policy measures currently in force in important markets abroad that maysignificantly impede digital trade. Such measures affecting digital trade might include:o restrictions on foreign direct investment and other means of market access;o limitations on cross-border data flows; ando regulations on Internet service providers (ISPs), including limitations on ISPsintended to protect intellectual property rights; rules determining liability for thirdparty content; and intellectual property rights enforcement.IntroductionThe American recording industry is a driving force in global digital trade. Our industry isdigitally intensive and technologically innovative. Record companies invest heavily in creativityand innovation adapted to the Digital Age, including 16.9 percent of their global revenues inartists and repertoire (A&R; the industry’s research and development equivalent).1 Likewise,sound recordings are digital products that fuel digital growth through a diverse array of onlineand cloud-based music services, including increasingly streaming. In fact, the music industry isthe leader in terms of sectors for which e-commerce is the dominant channel for trade.2 We havebecome a pioneer in the provision of digital products and services through both B2B (mostly)and B2C channels and work closely with our digital partners to promote digital growth.The recording industry is at the cutting edge of digital trade, including with respect to streaming.Driven by fans’ engagement with streaming – especially paid subscription audio streaming –digital revenues now account for more than half (i.e., 54 percent) of the global recorded musicmarket. In fact, global growth in streaming revenue for recorded music was 41.1 percent in2017, and for the first time became the industry’s single largest revenue source. After 15 yearsof decline – i.e., 54 percent from 1999 to 2015 – the recorded industry has recorded three1Investing In Music: The Value of Record Companies; International Federation of the Phonographic Industry (IFPI)and Worldwide Independent Network (WIN); p.11; available at: i-iim-report-2016.pdf. (The proportion of revenue invested in A&R remains higher thanthe equivalent spent on research and development by any other sector: Pharmaceuticals (14.4%); Software &Computer Services (10.1%); Technology Hardware & Equipment (8.0%); Leisure Goods (5.8%); Aerospace &Defense (4.5%); Electronic & Electrical Equipment (4.5%); and Automobile & Parts (4.4%).)2Van Heel, Bas; et al; “Cross-Border E-Commerce Makes the World Flatter”; Exhibit 1.2

RIAA Written Submissionbefore the United States International Trade CommissionGlobal Digital Trade 3August 15, 2018consecutive years of growth driven by streaming. However, to put this recovery in context, totalindustry revenues for 2017 were still just 68.4 percent of the market’s peak in 1999.3 For thisrecovery to continue and be sustainable, the digital marketplace must be fair. It is critical toaddress the massive disparity between the value created by some digital platforms from their useof music and what they pay those creating and investing in it.Streaming is also emerging as a critical component of the U.S. economy that offers tremendouspotential to deliver U.S. economic growth, to grow high-quality American jobs, and to enhanceU.S. trade competitiveness. To realize the full potential of the streaming economy, it is vital thatthe U.S. government take active steps to ensure that its policies, both domestically andinternationally, reflect today’s streaming economy and ensure tomorrow’s streaming future forall Americans. An agenda for promoting a streaming economy that is legitimate and sustainableconsists of high-quality consumer-oriented digital products and services in an ecosystem thatadvances creativity and innovation through strong copyright protection and enforcement, powersdigital trade through licensing music, secures market access for digital products and services,promotes fair competition between content delivery services, ensures digital platformresponsibility, and ensuring the freedom of contract.The music industry contributed 143 billion annually in value tothe U.S. economy in 2016, and created, directly and indirectly, 1.9 billion jobs across a very wide variety of fields.The digital products and services of the U.S. recording industry help fuel digitalization at homeand around the world. A U.S. digital trade policy that promotes the creative sector, in turn,benefits the U.S. economy, and its businesses, its workers and its consumers. For example, a2018 study found that the music industry contributed 143 billion annually in value to the U.S.economy in 2016. The music industry created, directly or indirectly, 1.9 million U.S. jobs acrossa very wide variety of fields (see Music Business Universe below).4 Likewise, a 2016 studyfound that copyright-intensive industries, including the music industry, contributed 1.2 trillionto the U.S. economy, and grew at an aggregate annual rate of 4.81 percent from 2012 to 2015,compared with average annual growth rate of 2.11 percent for the U.S. economy generally.53IFPI; Global Music Report (2018): Music Consumption Exploding Worldwide; pp. 6-8; available k, Stephen; The U.S. Music Industry: Jobs & Benefits; April 2018; pp. 5, 7,5Siwek, Stephen; Copyright Industries in the U.S. Economy: The 2016 Report; Economists Incorporated; Preparedfor the International Intellectual Property Alliance; 2016; p. 2; available at:3

RIAA Written Submissionbefore the United States International Trade CommissionGlobal Digital Trade 3August 15, 2018Likewise, copyright-intensive industries supplied 5.6 million jobs in 2015,6 and thecompensation paid in the copyright intensive industries far exceeds that of U.S. workers overall –amounting to a compensation premium of 38 percent over the average U.S. annual wage.7The contributions of the sound recording industry to the digital economy are significant. Musicpopulates the Internet and brings users online generally. For example, visitors tohttp://www.iipawebsite.com/copyright us economy.html. The 2018 update to this report is currently underdevelopment, but was not available at the time of this filing.6U.S. Economics and Statistics Administration and U.S. Patent and Trademark Office; Intellectual Property and theU.S. Economy: 2016 Update; 2016; available ents/IPandtheUSEconomySept2016.pdf.7Siwek, Stephen; Copyright Industries in the U.S. Economy: The 2016 Report; p. 2.4

RIAA Written Submissionbefore the United States International Trade CommissionGlobal Digital Trade 3August 15, 2018www.musicfuels.com can see how musicians are some of the key drivers of social mediaworldwide, making up nearly all of the top ten most-followed individuals on Facebook,Instagram, Twitter and YouTube.8 (See Music Drives Social Media below).989See http://www.musicfuels.com/.Music Watch; Music & Social Media Study; 2018.5

RIAA Written Submissionbefore the United States International Trade CommissionGlobal Digital Trade 3August 15, 20186

RIAA Written Submissionbefore the United States International Trade CommissionGlobal Digital Trade 3August 15, 2018In terms of video, 28 of the top 30 most watched on YouTube are music videos.10 In fact, musicvideo streaming makes up more than half (i.e., 55 percent) of on-demand music streaming time.Notably, YouTube accounts for 46 percent of all on-demand music streaming time (see VideoStreaming Makes Up More Than Half of the On-Demand Streaming Time below).11 However,while the estimated annual revenue per user on Spotify is 20, the annual revenue per user onYouTube is estimated to be less than 1.12 According to RIAA research, it takes 58 hours ofstreaming of a music video on YouTube for the creator to earn 1.Music companies license over 43 million sound recordings to over 360 digital music servicesworldwide. Our ability to license our content on commercial terms to our digital partnerscontributes to U.S. digital services exports, which help power the U.S. digital services tradesurplus. Enabled by strong protection and enforcement of intellectual property rights, the digitalproducts and services of the U.S. recording industry help fuel digitalization at home and aroundthe world. IPR licensing, therefore, has become critical driver of global digital trade. For thesound recording industry, copyright licensing enables mutually beneficial relationships betweenmusic companies and our digital partners, which in turn catalyze access to legitimate contentaround the world. Such licensing is, therefore, a vital feature of the digital B2B landscape and acrucial component of legitimate and sustainable digital trade.Music companies license 43 million sound recordings to over360 digital music services worldwide.Likewise, online copyright protection is critical to the recording industry as part of its provisionof B2C digital products and services. Over 82 percent of the sound recording industry’s U.S.10RIAA research.Global Music Report 2018; IFPI; p. 27; available at: http://www.ifpi.org/downloads/GMR2018.pdf.12Global Music Report 2018; IFPI; p. 27; available at: http://www.ifpi.org/downloads/GMR2018.pdf.117

RIAA Written Submissionbefore the United States International Trade CommissionGlobal Digital Trade 3August 15, 2018revenues in the United States are digital, with nearly 67 percent of its U.S. revenues derived fromstreaming. Copyright licensing, and related information and communications technologies (ICT)services, are therefore fundamental to the music sector as well as other sectors that make ourcontent available. These services in turn help fuel the U.S. economy and power global digitaltrade.Over 82 percent of the sound recording industry’s U.S. revenuesare digital with nearly 67 percent of its U.S. revenues derivedfrom streaming across a very wide variety of fields.The profound importance of the provision of such services to the U.S. economy is exemplifiedby the considerable contributions of IPR to the U.S. digital services trade surplus. According toa January 2018 report by the U.S. Department of Commerce, entitled Digital Trade in NorthAmerica, the U.S. digital services trade surplus13 was 159.5 billion or 64 percent of the totalU.S. services trade surplus in 2016.14 This report found that IPR licensing (i.e., charges for theuse of intellectual property), is a key driver of the U.S. digital services trade surplus. In 2016,IPR licensing generated an 80.0 digital services trade surplus, exceeding all services categoriesin the report – i.e., financial, insurance, telecommunications, computer and information services,and government goods and services – with the exception of travel services. As part of IPR13The study defines these services as those that can be traded remotely using the Internet or some other digitalnetwork, i.e., potentially information and communications technology-enabled (PICTE) services.14Nicholson, Jessica; U.S. Depa