Industrial Strategy for the Creative Industries 2016

September 2016

Industrial Strategy for the Creative Industries

Executive Summary

The UK music industry contributes £4.1 billion to the UK economy. The sector is in a pivotal position to achieve further growth. UK Music needs the freedom to trade in order to increase global reach and maintain its position as an attractive place to produce and perform music. An industrial strategy for the creative industries is now required and should be based on three pillars of trade.

• PILLAR 1 – FRAMEWORK TO TRADE

o Maintain a strong level of protection for copyright, providing certainty for UK creators, performers and rightsholders.

o Strongly support enforcement of the law.

o Clarify that existing employees from other member states have the right to remain working in the UK.

o Follow the EU VAT action plan to ensure a harmonised and straightforward application of VAT rules.

o Tackle obstacles associated with withholding tax by maintaining existing exemptions and seeking improved international cooperation.

o Resist any attempts at introducing cultural exceptions and ensure the creative industries are not traded away in any new arrangements.

o Support a system that introduces temporary short-term permissions and exemptions for musicians and crews whilst touring the European Union. 

o Avoid double taxation or unfair deductions of expenses, social security or VAT for touring artists and crews.

• PILLAR 2 – INCENTIVES TO TRADE

o Extend to music the existing assistance to other creative industries.

o Seek assurances from the European Commission that UK music companies can continue to apply for funding through schemes such as Creative Europe up until the point that the UK leaves the EU and that BREXIT will not prejudice these applications.

o Ensure new broadcasting rules encourage international broadcasters to remain in the UK.

• PILLAR 3 – REGIONALISATION OF TRADE

o Support cultural and creative infrastructure, including the introduction of regional development regeneration funds that provide skills and mentoring support in the nations and regions through music.

o Exempt grassroot music venues from business rates and review available funding needs to allow UK venues to compete on a European and international stage.

Introduction

We need an industrial strategy for the creative industries to ensure the freedom to trade at a European and international level. This needs to be in place from the beginning of the process of withdrawal from the European Union; i.e. from this point onwards. It should continue throughout and be firmly embedded within any future trade deals that are negotiated once the UK leaves the European Union. This is particularly important in these times of uncertainty regarding the future approach of the Government. Leaving the European Union will entail a number of negotiations over a period of years. UK Music needs to be consulted at each and every stage. Placing the creative industries at the heart of industrial strategy would provide for the certainty that the creative industries seek. An industrial strategy for the creative industries would be the right approach for what is a developing situation.

The UK creative industries are of huge economic and cultural importance. According to the most recent DCMS economic estimates the creative industries account for £87.4 billion in GVA and have an export value of £19.8 billion. 

The music industry is a key part of the creative industries. The sector contributes £4.1 billion to the UK and provides £2.2 billion in exports.  The music industry employs over 119,000 people.

In addition to the economic impact of the UK creative industries, we also lead the world in terms of soft power. The reach and volume of our national cultural output supports our strength in soft power. According to The Soft Power 30, the UK is second to the US in terms of cultural soft power.  The global success of the UK music industry and artists such as Adele and Sam Smith contribute much to the UK’s ability to attract financial and creative investment through soft power.

Evidence of the UK’s global draw is further reinforced by our ability to attract music tourists to live music festivals and concerts.  In 2015 there was a 16% increase in the number of music tourists visiting the UK. 767,000 people came to the UK from overseas to attend music events, spending a total of £1.1 billion in the process.

European Union member states are a key export market for the creative industries. 42.5% of creative industries exports are to the EU.  British artists account for 25.9% of European album sales in 2015, up from 23.4% in 2014. When considering the six largest markets in Europe (excluding the UK) British artists and labels were responsible for 17.4% of all albums purchased in these jurisdictions. This is comparable with the 17.6% market share enjoyed by British artists in the US during the same 12-month period.  The US remains the key export market for the UK music industry.

Even though the UK is leaving the European Union, Europe will remain a crucial partner and market for our country. A close future relationship should be sought and one which allows future agreements to be reached. 

UK Music is concerned that the UK creative industries must not be used as a bargaining chip in any trade talks. Similarly, the ideas and principles which underpin this paper should apply to the UK’s non-EU trade negotiations also.  Here, international conventions, such as the WIPO Performances and Phonograms Treaty and the WIPO Copyright Treaty, should be included to guarantee revenue for UK rightholders.

An industrial strategy for the creative industries will provide for the freedom to trade and be based on three pillars – (1) framework to trade, (2) incentives to trade and (3) regionalisation of trade. Underneath these pillars there are several issues which the UK Government should act on in order to specifically support the music industry.

The Government should be mindful that in many cases the status quo will need to be preserved to provide certainty to the market, avoid disruption and maintain the protections that the industry enjoys. Where this is not the case we support policies that can be delivered to make the most of the opportunities presented to us.

I. Framework to trade

A. Copyright and related rights

(i) Overarching legal framework

Copyright is of fundamental importance to the music industry. It enables creators to derive a financial return for their work and provides an incentive for businesses to invest in creative content. The European Union’s competency over copyright means UK domestic legislation is based on Directives emanating from the EU. At present the EU provides a high level of protection for copyright works. The current framework needs to be maintained and strengthened where appropriate. Certainty is required, particularly given that creative businesses deals are based on advance planning.

The music industry has been successfully operating under the existing national copyright regime, (the Copyright, Designs and Patents Act 1988 as amended (CDPA).   Whilst the basic concepts of copyright have been agreed at an international level via the Berne Convention, TRIPS and the WIPO Internet Treaties many provisions of UK copyright constitute the implementation of European Directives.

At UK level, creative industries need reassurances that the established standards of copyright protection are not reduced. Any limitation to the protection would put UK creative business at a competitive disadvantage to its European and international competitors.

At the moment there is uncertainty as to the application of the provisions of UK copyright law which constitute the implementation of European Directives. In particular it is not clear whether secondary legislation implementing European Directives will continue to apply should the European Communities Act 1972 be repealed. Government needs to clarify at the start of the withdrawal process how it intends to deal with UK copyright law derived from European Directives. This could be achieved by adding a clause in any repeal Act that guarantees the continuation of secondary legislation implementing European Directives. This would cover whether the secondary legislation amended existing primary legislation (CDPA) or if a standalone new regulation, such as the one implementing the Collective Rights Management Directive, had been created.

Additionally, we note that certain concepts of the European copyright framework such as the “country of origin” principle which currently applies for satellite broadcasts are based on membership of the European Union. For satellite broadcasting, the Satellite and Cable Directive establishes that the copyright-relevant act takes place in the European Union country of origin of the broadcast. Such concepts need to be considered as to their suitability for the UK once we have left the European Union.

This equally applies for the period where new law from the EU is implemented domestically shortly before the UK leaves. Where the Government may look to change UK law derived from the EU we believe it is essential for consultation to be carried out on an “item by item” approach in order to assess the full implication and impact for our sector.

Similarly, UK Music would like confirmation that all historic decisions concerning pertinent EU law will continue to be binding authority in the UK, to provide certainty to the market. We presume that EU decisions made post-BREXIT will not be binding but nevertheless have persuasive or advisory authority.

The Digital Single Market (DSM) is at a critical phase. The outcome of this will have a profound impact on the way creative rights are licensed and traded across the EU. The UK Government must maintain engagement and robustly support its position up to the point of withdrawal from the European Union.

• To guarantee a framework to trade, the UK Government should maintain a strong level of protection for copyright, providing certainty for UK creators, performers and rightsholders.

(ii) Enforcement

To support the copyright framework we expect strong enforcement of the law from the UK Government. Creating a legitimate marketplace increases our capacity for growth and supports overall economic wellbeing.

Strong enforcement can be addressed by introducing backstop powers into the Digital Economy Bill should voluntary attempts to tackle infringement fail.

It is argued that at present, European Union laws prevent further activities regarding enforcement. For example, safe harbour laws need to be clarified to ensure services pay a fair license fee for the use of music. This forms part of the DSM discussions that are currently ongoing.

The Government should also seek to ensure the anticipated DSM enforcement package protects the UK creative industries. This can be achieved by introducing measures to require online platforms to adhere to a duty of care to rightsholders and adopt “notice and stay down” in relation to infringing content.

We would like to see the UK Government continue to work within the EU in relation to commercial-scale infringements (the “follow the money” approach) and specific action regarding cross-border enforcement.

In relation to trade marks, which informs an important part of a copyright strategy as well as playing a crucial role in creators’ career, registered and unregistered Community Designs and EU Trade Marks (EUTM) will no longer have effect in the UK once the UK leaves the European Union. There is an opportunity here to consider a grace period for transition to ensure this area of the law can continue to be adequately enforced.

• To guarantee a framework to trade, the UK Government should strongly support enforcement of the law.

B. Employee nationals

Creative industries such as the music industry employ many residents of other European member states within the UK on both a short and long term basis. It is paramount that the status of these employees and their ability to work in the UK, including once the UK has withdrawn from the EU, is clarified. Not only is the situation disconcerting for the respective employees, it also makes it difficult for UK business to plan for the required human resources. The right to stay in the UK for existing employees should be guaranteed. Reciprocal arrangements with other member states should also be established. UK businesses already note an increase in questions by their European employees. There is the real danger that they would leave the UK in the face of uncertainty of their status without being replaced in the medium-term. This would lead to considerable uncertainty for UK creative business.

• To guarantee a framework to trade, the UK Government should clarify that existing employees from other member states have the right to remain working in the UK.

C. Tax

(i) VAT

The UK should follow developments outlined in the EU VAT Action plan to harmonise rules. This would make the administration of VAT rules simpler for companies and individual creators and performers which are active internationally. Compliance costs and cash flow may be affected by certain rules no longer applying that currently allow the reclaim of VAT by some UK music companies and individual creators and performers. Following the EU Action plan would mean music companies only have to apply one set of rules for the European single market. The export potential of small and medium businesses, of which there are many in the music industry, stands to benefit from greater harmonisation of VAT. 

Unlike other member states, the sale of sheet music in the UK is zero-rated for VAT purposes. European services are unlikely to pass a VAT rise onto customers in the form of higher prices making royalty values vulnerable to reduction from European sales.

• To guarantee a framework to trade, the UK Government should follow the EU VAT action plan to ensure a harmonised and straightforward application of VAT rules.

(ii) Withholding tax

Cross border royalties is a key income for many creative businesses. The regime of withholding tax is complex and often leads to delays in payment which in turns creates cash flow problems in particular for small and medium companies.  There are also additional costs involved in the administration of withholding tax.

Whilst taxation is generally outside the scope of European harmonisation there is Directive 2003/49/EC  on a common system of taxation applicable to cross border interest and royalty payments which alleviates the situation of withholding tax for some creative businesses.

As net exporters of music, the UK and Sweden are the only member states in the European Union which are at risk of a net loss and costs due to the withholding tax regime. Government needs to ensure that the withholding tax system will not be rendered more complicated by the withdrawal from the European Union. 

Tax withheld at source also presents significant challenges for live music tours and events performed overseas. Overcoming these hurdles should also be prioritised (see section E: Touring).

• To guarantee a framework to trade, the UK Government should tackle obstacles associated with withholding tax by maintaining existing exemptions and seeking improved international cooperation.

D. Cultural exceptions and quotas

Based on the recent experience of the TTIP negotiations, some European member states have sought to protect their culture against the dominance of Anglo-American culture e.g. by providing for national, European Union quotas, subsidies and offering special support for European Union originated creative works. The UK’s membership of the European Union has assisted in keeping this approach to a minimum. UK withdrawal from the European Union may change this. The UK Government should be very wary of an approach where other nations seek protectionist measures such as quotas and subsidies that would have a disastrous impact on the export of our cultural goods, damaging £2.2 billion to the UK economy in the process.

Customs duties on CDs, DVDs and other physical media have been eliminated under the World Trade Organisation’s Information Technology Agreement. This has been implemented in the EU by Regulation 2016/1047.  The WTO agreement eliminates duties with North America, China and Japan also. Withdrawal from the EU must not lead to changes in the way the UK can benefit from this Agreement, particularly as much manufacturing of physical products occurs outside of the UK.

• To guarantee a framework to trade, the UK Government should resist any attempts at introducing cultural exceptions and ensure the creative industries are not traded away in any new arrangements.

E. Touring

(i) Movement and visas

Leaving the EU could result in restrictions for musicians, crews and freight in relation to live music tours across European member states. This is because freedom of movement may no longer operate in the way that it currently does. European tours for UK bands are important for building fan bases across Europe. As demonstrated by sales data, there exists a great appetite for UK content within Europe. Live income from EU member states to UK music royalty collecting societies is also significant. Promoting new music overseas and deriving income to UK music companies and creators from European tours needs to continue without new bureaucracy which leads to costly administration. The burdensome performing visa system that operates in the USA already acts as a significant impediment to new and emerging UK acts and artists. The UK Government should resist any attempts to instigate a similar system with the European market.

The UK Government should take a diplomatic approach and avoid punitive measures to maintain the UK Music industry’s £2.2 billion export contribution to the UK economy.

International touring and productions also raise issues relating to tax withheld at source for UK companies and individuals. Overcoming the hurdles of reclaiming tax from member states for the live sector should be prioritised too.

• To guarantee a framework to trade, the UK Government should support a system that introduces temporary short-term permissions and exemptions for musicians and crews whilst touring the European Union.

(ii) Withholding tax, social security and VAT

The current withholding tax treaties and EU rules for VAT and social security allow UK artists to tour in Europe with a minimal amount of financial barriers. While withholding tax treaties would remain unaffected by Brexit, many EU nations may remove the ability for UK touring artists to deduct their expenses at source, leaving to a net loss on the tour. Brexit also brings a significant risk of double taxation for UK touring artists that does not exist currently, again limiting the ability for UK artists and suppliers to export their talent or services.

Additionally, UK artists touring Europe would likely be subject to local deduction of social security contributions, which does not currently happen due to EU regulation. And with the removal of the reverse charge VAT system, UK artists and suppliers may have to charge VAT in each market and may not be able to recharge VAT on foreign expenses.

• To guarantee a framework to trade, we need a system that does not subject touring artists and crews to double taxation or unfair deductions of expenses, social security or VAT.

II. Incentives to trade

A.  Extension to music of existing assistance to other creative industries

The music industry should benefit from the same level of fiscal support that film and video games enjoy. The UK Government has introduced a number of creative sector tax credits to incentivise new productions. At present music does not receive an equivalent assistance from the Government. Leaving the EU presents an opportunity in that bureaucratic state aid rules will no longer apply. These rules have been used by other member states in attempts to deny incentivised support for domestic industries.

Measures to incentivise the UK as a destination for music recording, touring and videos via tax credits are required to support the development of new artists and ensure content creation within the UK is retained. They are also vital to the grassroots of the industry, such as recording studios, enabling them to continue to thrive. They can also be a means for increasing social mobility and providing opportunities to the financially disadvantaged.

In New York State a new recording music tax incentive has recently been created. Music tax credits in other American states, as well as Canada and France, also exist. The UK industry risks falling behind unless incentives are put in place in the UK too. Music industry tax credits will have a substantial impact on new content generation and the attractiveness of the UK for music industry inward investment.

• To guarantee incentives to trade, the UK Government should extend to music the existing assistance to other creative industries.

B. Funding programmes

It is anticipated that music will receive priority support from the Creative Europe EU funding programme. Creative Europe has a budget of €1.46 billion to support Europe’s cultural and creative sectors.  Currently, this is divided into two sub-programmes (culture and media) and is also supported by a cross-sector strand. Since December 2015 the European Commission has been in a dialogue with the music industry as part of the Music Moves Europe initiative.  This has attempted to identify the challenges that the music industry faces and how EU policies and funding programmes could support music start-ups. As it stands UK music companies and individuals could unlock much needed funds when this prioritised support is made available. Leaving the European Union will restrict this funding from being available to UK music companies, putting them at a competitive disadvantage. 

In addition to losing access to Creative Europe and other programmes, including Horizon 2020  which supports innovation and could be beneficial to other music industry initiatives, will also no longer be attainable.

• To guarantee incentives to trade, the UK Government should seek assurances from the European Commission that UK music companies can continue to apply for funding through schemes such as Creative Europe up until the point that the UK leaves the EU and that BREXIT will not prejudice these applications.

C. Broadcasting licences

There is a danger that European Union broadcasters who are currently based in the UK will decide to move to continental Europe to be able to benefit from harmonised broadcasting rules in the European Union. Government needs to ensure that new rules on broadcasting do not create a deterrent for broadcasters to be established in the UK. The UK and a vibrant music community needs to continue to be an attractive place for international broadcasters. Broadcasters pay monies via their fees to collecting societies but they also commission writers in the country in which they are established for their productions.

On a related point, broadcasting quotas for European works reduces the potential market for UK originated music. These should be rejected for as long as the UK is part of the European Union.

• To guarantee incentives to trade, the UK Government must ensure new broadcasting rules encourage international broadcasters to remain in the UK.

III. Regionalisation of trade

A. Music development projects

Music plays an important role in economic and cultural activity that occurs in the UK’s nations and regions. UK Music’s latest Wish You Were Here report found that in 2015 216,000 music tourists visited North East England. 4,323 jobs in North West England were sustained by music tourism and £295 million was generated by music tourism in South West England.

Music development organisations in the nations and regions play a vital role in mentoring local talent, equipping the future UK music industry workforce with the skills it needs and supporting businesses in the process. Generator, based in the North East of England, is a market leader in this field and has run programmes supported by the European Regional Development Fund (ERDF).  Business of Music received 50% of its funding (£925,000) from ERDF, Music Futures received £653,000. These programmes support the development of regional music businesses and have tremendous outputs. Leaving the European Union will mean funding schemes for similar projects will no longer be accessible.

• To guarantee the regionalisation of trade, the UK Government should support cultural and creative infrastructure, including the introduction of regional development regeneration funds that provide skills and mentoring support in the nations and regions through music.

B. Venues

Music venues play a vital role in supporting the industry’s infrastructure and ensuring a healthy music industry across the country. They also nurture the music industry’s talent pipeline. Venues are increasingly finding it difficult to operate with 35% closing in London in the past eight years. Venues in Birmingham, Manchester, Edinburgh, Glasgow, Bristol, Plymouth, Newport and Swindon, to mention just a few, have either closed or had considerable threats of closure placed on their businesses in recent years.

Whilst legislative changes have been attempted, a flourishing music venues sector, in particular at a grassroots level, is difficult to foresee whilst prohibitive business rates and a lack of comparative funding exist. According to UK Music’s Wish You Were Here 2016 report there were 5.6 million visits to UK small music venues in the previous year, generating spend of £231 million. Currently a fifth of live music audiences attend gigs in grassroots venues yet only 6% of music tourist spend is generated at these venues. To strengthen UK music venues and their ability to attract audiences and artists from overseas, exemptions from business rates are needed.

In addition UK music venues are unable to compete with European music venues in attracting international talent and providing comparable performance spaces for emerging UK artists due to a huge disparity in the levels of funding received. Across mainland Europe (including Germany, Belgium, Holland, Denmark Sweden and Austria), venues receive subsidies that average 42% of operating costs, or as high as 50% in France. Facing such a stark disparity, the UK Government should call a review of all available subsidies of the grassroots music sector so that funding would fall closer in line with what European venues receive.

These two measures will protect a vulnerable part of the music industry ecosystem from any economic shock of Brexit, as well as enabling UK grassroots venues to operate at a similar level to their European counterparts.

• To guarantee the regionalisation of trade, the UK Government should exempt grassroot music venues from business rates and review available funding needs to allow UK venues to compete on a European and international stage.

Annex

UK Music’s membership comprises of:-

• AIM – Association of Independent Music - representing over 850 small and medium sized independent music companies.

• BASCA - British Academy of Songwriters, Composers and Authors – BASCA is the membership association for music writers and exists to support and protect the professional interests of songwriters, lyricists and composers of all genres of music and to celebrate and encourage excellence in British music writing

• BPI - the trade body of the recorded music industry representing 3 major record labels and over 300 independent record labels.

• FAC – The Featured Artists Coalition – the voice of the featured artists.

• MMF - Music Managers Forum - representing 425 managers throughout the music industry.

• MPG - Music Producers Guild - representing and promoting the interests of all those involved in the production of recorded music – including producers, engineers, mixers, re-mixers, programmers and mastering engineers.

• MPA - Music Publishers Association - with 260 major and independent music publishers in membership, representing close to 4,000 catalogues across all genres of music.

• Musicians’ Union representing 30,000 musicians.

• PPL is the music licensing company which works on behalf of over 90,000 record companies and performers to license recorded music played in public (at pubs, nightclubs, restaurants, shops, offices and many other business types) and broadcast (TV and radio) in the UK.

• PRS for Music is responsible for the collective licensing of rights in the musical works of 114,000 composers, songwriters and publishers and an international repertoire of 10 million songs.

• UK Live Music Group, representing the main trade associations and representative bodies of the live music sector

For more information please contact Tom Kiehl, Director of Government and Public Affairs, UK Music on tom.kiehl@ukmusic.org or 020 3713 8454.

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