UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 7 4 3 -ii i

house of commons

oral evidence

taken before the

CULTURE, MEDIA AND SPORT Committee

SUPPORT FOR THE CREATIVE ECONOMY

Tuesday 4 DECEMBER 2012

GEOFF TAYLOR, JO DIPPLE, ANDY HEATH and ALISON WENHAM

FRAN HEALY, STEVE LEVINE and STEPHEN BUDD

Evidence heard in Public Questions 218 - 287

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Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 4 December 2012

Members present:

Mr John Whittingdale (Chair)

Mr Ben Bradshaw

Angie Bray

Conor Burns

Tracey Crouch

Philip Davies

Paul Farrelly

Steve Rotheram

Mr Adrian Sanders

Jim Sheridan

Mr Gerry Sutcliffe

________________

Examination of Witnesses

Witnesses: Geoff Taylor, Chief Executive, BPI, Jo Dipple, Chief Executive Officer, UK Music, Andy Heath, Chairman, UK Music, and Alison Wenham, Chief Executive Officer, The Association of Independent Music, gave evidence.

Chair: Good morning. This is a further session of the Committee’s examination of support for the creative economy. I would like to welcome Andy Heath, Chairman of UK Music, and Jo Dipple, the Chief Executive; Geoff Taylor, the Chief Executive of the BPI, and Alison Wenham, the Chief Executive of The Association of Independent Music.

First, I should make reference to my entry in the Register of Members’ Financial Interests that I am a non-executive director of Audio Network plc.

Q218 Steve Rotheram: For the last three months I have been involved with the music industry to try to see whether we can get a single out for Christmas, He Ain’t Heavy, He’s My Brother by the Justice Collective-shameless plug-which is hopefully going to challenge for number one single this Christmas. I genuinely had no real understanding of the complexity of the industry before that-I did not know what pluggers were and so on-but I have gained a greater appreciation for what the industry is about and what it does in the last three months, working with an organisation called Porcupine Management, who have literally dragged me, kicking and screaming, into all these different aspects. Given the complexities of the industry, can you outline the roles of each of your organisations in supporting the industry?

Geoff Taylor: Shall I start? I am Chief Executive of the BPI. We represent about 350 independent labels and the three major record label groups. We represent them in the media and in Parliament, we collect statistics, we organise the BRIT Awards, and we do a lot of work in practical terms in trying to deal with piracy on their behalf. So we both represent them and take action on their behalf.

Jo Dipple: UK Music is the public policy body of both British musicians and the British music industry. We represent the record labels, large and small, the music publishers, large and small, songwriters and composers, music producers, music managers, the two music licensing societies and the live music sector. We aim to develop with them a strong framework of copyright and intellectual property, so that we can license and sell our music assets.

The UK is very good at music. It defines us on a global platform and is worth £4 billion. There are various things that make it so good in this country and I would say those things are raw talent and fierce entrepreneurial drive and, on top of that, great management and business leadership. All depends on the legislative framework that you give us, and I would like to take this opportunity to thank you for the Live Music Act. I always thought that you could not legislate for a new Rolling Stones but you may well have just done that. It should pave the way for a new generation of new musical talent and I am very grateful to Parliament for that.

Andy Heath: I am Chairman of UK Music. I am non-exec, whereas everyone else here is an executive. I help run a music company, which is probably the biggest independent record company, certainly in Europe and maybe in the world now, and I also run the publishing side of that. I was instrumental in the formation of UK Music because I felt that the industry could come together and offer you guys a unified and coherent voice that you could understand and follow. The point of the organisation is simply to protect and exploit the commercial music industry, which I believe represents a fundamentally important national asset: the cultural IP that resides in this country. It is extremely valuable, it makes this country a huge amount of money, it has been the dominant contribution of this country culturally throughout the planet for the last 100 years, and I am very determined that we should protect it and make it grow and make it more important.

Alison Wenham: I am Alison Wenham, Chief Executive of an organisation called AIM. AIM was begun in 1999 in response to what was clearly a big change coming for all the creative industries. My organisation represents the British independent music industry from the very largest independent companies who have been operating in the market for 30 to 40 years through to bedroom start-ups, artists who are going it alone and all manner of different diversified business models generating revenues around music in its broadest sense.

Q219 Steve Rotheram: Thanks. I have just noted that on the BPI statement it says that you represent the voice of the recorded music industry and it mentions Universal-Universal are the distributors-so I need to declare an interest in that.

In regard to the main challenges facing the UK music industry, could you go in turn and highlight quickly what you think are those challenges?

Geoff Taylor: I think what we need is for Government to implement policies that allow creative businesses like ours to flourish in the digital environment, and in particular help consumers access their entertainment safely and legally on the internet. This is the number one challenge that faces all those companies, small and large, who invest in creating music.

Specifically, I suppose there are three things. First, we need Government to provide a strong IP framework and advocate a strong IP framework in export markets for us abroad. Secondly, we need them to take some real action to deal with IP theft because the biggest problem that our small and large member companies face is that they invest hundreds of millions of pounds into creating new creative work, which is very popular with consumers, but very often they do not get paid for doing so. Thirdly, we would like Government to encourage investment in the UK in new creative content. One of the reasons we have been so successful is that we have, traditionally, a very high level of investment in A&R, and we believe that if Government could take some measures to encourage higher than average, so higher than historical, levels of investments in artists and repertoire-that is the music industry’s R&D, effectively-it would help us to grow our businesses and export more. I could go into the details on the IP theft point later, but there are quite a few subheadings under that.

Jo Dipple: I would say: support for the three rungs of the music ladder. In terms of raw talent, like I said, I think the Live Music Act is a great piece of legislation that will help. I back the CBI when they say that music and the creative industries should be part of the E-baccalaureate and I think that will help a lot. Skills and training are very important because they will nurture the creative talent that comes up the route into industry.

On the entrepreneurial bit, it is crucial to create the right investment framework for small businesses and music businesses: 92% of our music businesses are SMEs and employ fewer than 10 people, so getting the tax and business and access to finance environment right is critical, particularly now in this part of the economic flat growth period. Last is business certainty: we need to know what we are operating on; we need legal and licensed markets. We need consumer certainty and we need business certainty so we know what we are investing in and how to grow our businesses.

Andy Heath: I am sure you do not want me to repeat any of that stuff, but I endorse all of it. From my perspective, I think one of the biggest problems for the music industry and the cultural industries generally is the bewildering attitude that we seem to be getting from the Government about its ambivalence towards the benefit of copyright. It seems to me that Governments for some time, but especially this Government, have bought the line that intellectual property is a barrier to growth, and that simply is a lie. It is not true. That line has been bought by some very important and influential politicians in this country and I do not understand it. We have an asset that is very valid, that has been built up over 100 years-the theatre, the music, the films, the TV. It would be madness to create an atmosphere where that is at risk-absolute craziness.

I work with various businesses, I am involved with fundraising to license various forms of entertainment generally and I am also involved with start-ups from my own business and help them. The business community and the finance community always say to me, "Yes, but Government hates copyright. They are going to bring in all sorts of laws that are going to make it easier for Google to steal your music that they already steal, so why should we invest?" and that is a story I get every month of every year. It is this bewildering ambivalence, if not outright hostility, towards copyright that comes from the powers that be in this country and it is very, very damaging.

Alison Wenham: In conclusion, I would say: access to finance. We survey our members every year and ask them what their concerns are and what would enable their businesses to grow more quickly, more sustainably, more profitably, and it is access to-and I think the words are quite important-appropriate forms of finance. There is a lot of finance available, but appropriate forms of finance are much more difficult to come by, particularly when you look at the caricature of the independent entrepreneurial nature of music businesses being somewhat countercultural to traditional finance mechanisms, institutions and language. It is a cultural barrier. So although the Government has gone some way with the seed fund to try to address this, the scheme is very Treasury, it is very labour intensive, it is a lot of paperwork, and I do not think it is going to meet the need. We would be happy to work more closely on something that I think would meet the need and we are talking about really quite small sums. It does not cost a lot these days to start a music company.

Secondly: the effects of piracy. It is most important to understand this. I have heard a lot about the effects of piracy being damaging to only major companies, but that is simply not true. In fact, it is disproportionately damaging to small companies because they have invested in one, two or three artists. They are small, light-footed, agile companies. They go to market-market: it should be a commercial, economically viable market-and 12 o’clock lunchtime, their first legal link is on page 54 of a Google search. I have actually found that. It has improved, but it is by no means sufficient to address the enormous gap between entrepreneurial endeavour, investment of time, of risk, of money and return.

Skills and internationalisation-I think this country could do a great deal more to leverage international sales. If you look at other countries like Sweden, Canada and Korea, they are beacons of investment and they certainly see the reward in terms of their domestic sales abroad being much higher than the expected level.

The other thing that scares me rigid is the copyright exception proposal, but I guess we might move on to that?

Chair: I believe it might crop up.

Alison Wenham: I thought I might lead you into it.

Q220 Steve Rotheram: A number of the issues that you have picked out will be covered in the next section, certainly IP, which I know is very important. That is going to be in the next section.

Nobody mentioned the advances in technology. For instance, just to give an example off the top of my head, if you were to text 80010 and put in the text box Justice, you could download He Ain’t Heavy, He’s My Brother by the Justice Collective and that will come to your phone directly on 17 December without your doing anything. It automatically comes there. That was an omission.

It was quite a wish list that you just highlighted. How is the industry itself helping with those sorts of challenges? What is it that you can do, rather than just relying on the Government to put everything right that you identify as being wrong?

Geoff Taylor: Firstly, I think you have missed your career as a plugger in the music industry, and you obviously know how to use technology to plug, which is one of the key skills these days.

We have done an enormous amount in the UK to embrace technology, to adapt to the new environment and to offer consumers different ways to get music in the way that is most convenient for them. There are more licensed music services, digital music services in the UK than any country in the world. That is one of the reasons why we found it a little hard to understand the view from some parts of Government that there is a big problem with copyright holding back technological innovation. We are majority digital businesses now. The labels I represent were 53% digital businesses in the first three quarters of this year and we consider ourselves largely digital technology businesses, because most of our income now comes from partnerships with innovative services like Spotify, Deezer, Amazon, iTunes and so on. We have worked very hard to answer the criticism that it has to be incredibly easy to get the music on any device, anywhere you want, really simply, and it has to be affordable and it has to be a really good consumer experience. There are now more than 20 million tracks on most of the licensed services, so there is unbelievable choice. It is even available for free on some of them, like Spotify.

We have worked very hard to create an environment where it is easy to get the music legally. We still feel that those businesses are growing well-for example, subscription is growing about 60% year on year, and overall digital is growing 20% to 30% year on year. There is very encouraging growth, but that growth is not as large as it should be because so much of the potential revenue for those digital services is being siphoned off by illegal websites, many of them outside the jurisdiction that pay nothing back into this country. That is why we feel there is a strong relationship between growing the digital market and dealing with illegal downloading.

The only other thing I would mention, since you asked about technology, is just how well we are doing embracing things like social media to market our artists abroad. If you look at the success of One Direction, for example-number one in 32 countries-or at the fact that Mumford & Sons and Muse were numbers one and two in the US Billboard charts a few weeks ago, we have had extraordinary success with British artists overseas over the last year or two and that is not a coincidence. It is down to the fact that British labels now are using the internet and, in particular, are using social media to market to fan bases all around the world. The fact that so much of the internet population speaks English is a great competitive advantage for us. The combination of being able to use that technology, our heritage of music and the fact that we have so much credibility as a music nation, and the ability to reach fan bases all around the world means that we are extremely well poised to increase our exports. We already have four times as high a share of trade in recorded music as the UK has for goods generally. So we are already very good at this and we firmly believe the internet is a great opportunity for us to grow our share.

Chair: We will move on to Ben Bradshaw who, as far as I know, does not have a Christmas single out.

Andy Heath: Excuse me, Mr Chairman, could I just-

Chair: Yes, of course.

Andy Heath: You said what would we like the Government to do. I do not want the Government-

Steve Rotheram: No, what can the industry do rather than just relying on the Government?

Andy Heath: Okay, but the imputation was that we are relying on the Government. We are not relying on the Government. If you were asking me what I would like ideally from the Government, I would like it to close the book on copyright reviews, of which we have had 20 in the last four years and another 15 in Europe. I would like it to close the book, put it back in the drawer and push off, because we are doing fine, thank you very much. What we are having to devote tonnes of unnecessary resource to is the unnecessary and wilful attacks that come from the new technology industries that have done such a good lobbying job. We would quite like it all left alone. Leave us alone. We are getting on fine, thank you very much.

Q221 Mr Bradshaw: I am going to focus on this IP issue and ask you to elaborate your concerns in the specific context of two things: the implementation of the Digital Economy Act and the Hargreaves Review.

Alison Wenham: I referred to the copyright exception that comes under one of the proposals from Hargreaves, and I will speak to that. The copyright exception with no compensation for creators would be tantamount to giving away the music industry to the technology industries, wholesale. It involves the transfer of value from the music industry to the technology industry without any means of remedy.

Q222 Chair: Which particular exception are you talking about? Is it the format shift?

Alison Wenham: Well, we are not quite sure what the IPO is proposing, but any copyright exception to copy-including the Cloud. It is the Cloud that we are most concerned about. We do not mind, we do not care, we have evidenced that we do not mind or care, about copy and share. We have lived with it for 10 years-20 years. Piracy is a feature of a successful industry. But what we do care about is when new technologies come along like the Cloud, which is very valuable to the consumer-it is a storage locker; it is a large library. How music gets into that library is not in scrutiny, so a lot of the music that goes into the library may not have been purchased in the first place. How it comes down to the consumer at the moment is licensed by some companies. If the exception includes the Cloud, it will divorce the relationship between the music industry and its ability to monetise what it does. It is as fundamental as that.

Q223 Chair: Can I explore that a bit further? The Cloud is the latest technological development of where a consumer may wish to store their music, but the consumer has bought the music. If they originally buy it as a download or as a physical product in a CD, they might choose to put it on a Cloud storage system in order that they can access it remotely, but they have paid for it.

Alison Wenham: Well, I think that is arguable. Have they paid for it? How do you know?

Q224 Chair: They might not have done, but that is a different problem.

Alison Wenham: They might not have done. They very well might not have done.

Q225 Chair: But that is not the problem of the Cloud.

Alison Wenham: The Cloud offers a type of music laundering on a wholesale level, but it is a service, Mr Whittingdale; it is a service that is being offered around content that has been created over 115 years and it involves access on an open basis whenever you like, wherever you like. It is a service that involves our content. If it is a service that has a monetisable value, which the Cloud services clearly believe that it does, it is only there to store content. So why shouldn’t the content industries enjoy the value that is created from the existence of the Cloud services in the first place?

Geoff Taylor: They already do.

Alison Wenham: And they already do.

Geoff Taylor: If I might just add to that, I think the concern is that a new licensing market is emerging for Cloud services. We have already licensed Google, we have already licensed Apple to offer these services, which is great and that creates value within the UK. What we do not want Government to do is introduce an exception into copyright law that means they can run those services without having to get a licence, in which case they capture all of the value, which largely is exported outside of the UK, and none comes back to the UK creators whose music is at the heart of the service they offer. We believe it would be better to leave this to the market rather than Government intervening.

Q226 Chair: Putting it on the Cloud is now an opportunity because that is the latest technological development. Previously I could transfer my CD on to my iPod. Arguably, putting it on the Cloud or putting it on the iPod is not vastly different. It is just a question of what is most convenient for me in terms of being able to listen to my music. I know there are some in your industry who want to have a charge on the iPod as well. Why do you see the Cloud as any different?

Geoff Taylor: I see it as different because it is a commercial service operated on an ongoing basis for revenue around music rather than simply the sale of a device of which a company no longer has any involvement in its use. That is why I think they are different. Jo may want to elaborate.

Jo Dipple: On the consumer certainty, we do want the consumer to be absolutely certain about what is legal and what is not legal. Since 2001 there has been a European directive that would have offered the British Government the ability to introduce an exception for private copying, and we support that. We want the consumer to be absolutely sure about what they can do and we want the businesses that we run to be absolutely sure about what they can do. The detail of how that exception is introduced may take a while to be negotiated with Government when we see their proposals, but I think we are all absolutely clear about there should be absolute consumer certainty in this digital market.

Andy Heath: It is not the music industry that has made the act of putting your CD on to your iPod illegitimate. The music industry did not make that happen. This Government made that happen. Both Governments made that happen by ignoring that directive. We are the only country in Europe where it is an illegitimate action because elsewhere they have found forms of compensating for that. You say, "If I can put my CD on to my iPod, what is the difference in putting my CD on to the Cloud?" Well, actually you can’t put your CD on to the iPod. What Alison has said is that we have tolerated that. We have managed to tolerate that. We have managed to stay in business by tolerating that illegitimate action which, by the way, is not tolerated anywhere else in Europe, but we have tolerated it and we have had to because the Government has let us down on that. So you want to replace one illegitimate action, which we maybe have been able to afford to tolerate, with another illegitimate action, which we will not be able to afford to tolerate.

We have it thrown at us that, of course, the copyright system in America is so much more comfortable than it is in the UK. It is not true. It is absolutely not true. If the copyright system in America was any more comfortable, why has my company licensed Apple and Google for Cloud usage in America? Joanna Shields who runs Facebook over here also launched RealNetworks in America-a very unusual experience. She said quite recently, within the last year, that in her experience the complexities of the American copyright system were probably worse than the complexities of the UK and European system. So we have not created this problem. This problem has been created by the Government completely ignoring it.

Alison Wenham: If I can say one more thing in respect of the word "levy". Every time this issue is raised with Government officials or the IPO, they go, "Oh, but you want to levy. You want to put a levy on. You want to put a tax on the consumer". It is completely untrue. The word is unhelpful. A brave man would defend the way in which the copyright directive was implemented around Europe. I am not here to defend that. What I am here to advocate is that we are a sophisticated licensing business; we are a copyright-based industry; we have existed for hundreds of years licensing. This is no different to us. This is no different to any new business that emerges, like commercial radio or the printing press. This is an opportunity to license so that the value that is created between industries can be shared and there is a balance of interests. At the moment what we are seeing is a race to the technology industries taking the value from the content industries, which would be a disaster for this country’s creativity at its root.

Andy Heath: Wherever that compensation culture exists, it is at no cost-no cost at the point of consumption to the consumer. This is entirely a business-to-business licensing arrangement that has no impact on consumer expenditure.

Q227 Mr Sanders: You have more or less answered my question, but I do have difficulty in understanding the difference between the Cloud and an MP3 player or an iPod. If I go and buy Steve’s excellent record before Christmas and put it on to my iPod, you are saying that that is an illegal act.

Jo Dipple: Current law exists in Europe to make that legal, but it has never been introduced at domestic UK level.

Q228 Mr Sanders: Therefore, if I were to put Steve’s excellent piece of music onto my iPod, I would be breaking the law?

Jo Dipple: We think the consumer should have much more certainty, so we support this harmonisation.

Q229 Mr Sanders: But am I breaking the law or not? I do not want to be a lawbreaker.

Andy Heath: Well, you are, yes. However, as Alison has said, we have tolerated the breaking of that law because we have realised that it is a no-win situation.

Q230 Mr Sanders: It is not for you to determine whether a law is broken. That is actually for a court to decide. Either I am breaking the law or I am not and it is not for you to determine whether I am breaking the law.

Jo Dipple: We would like this to be sorted out. For our industry, for consumers, we would like this to be clarified as soon as possible.

Q231 Chair: But the answer is that you bring in the private copying exception and then it is no longer illegal.

Andy Heath: No, but then you get the cataclysm that-

Alison Wenham: But you are intending to include the Cloud, which is a very different proposition.

Q232 Chair: I am not intending anything, but your understanding is that the private copying exception will extend towards Cloud-based storage?

Alison Wenham: That is what we are led to understand by the IPO.

Q233 Chair: Just to clarify, if I store a piece of music that I have purchased on the Cloud, you are not losing any sales?

Andy Heath: No. What you are not understanding is that the whole engine room of any IP industry is its licensing structure. We license the use, we license value transference. That is exactly how an IP industry operates and it is exactly how an IP industry has operated for the last 100 years or so. You have a licensing architecture that covers the transfer of value. What Alison is saying is that Apple and Google are not creating Cloud storage lockers for fun. They are doing it for immense profit. It is another brick in their moneymaking machine, and it is completely immoral for the transfer of the value to occur without any level of compensation.

If you check the research and you go through the consumer’s value of their digital tools-their phones, their computers-the extent to which they attribute the value of that product, sometimes a £400 or £500 product, is 30% or 40% of that value is so that they can have music. At this moment in time, we have no benefit at all-zero-for the transfer of that value. All of that value goes to the manufacturer of the device. The evidence in Europe is that none of those devices are more expensive in Europe. In Spain, where they did away with that levy-I have used the word, sorry-and replaced that compensation from central taxation, the manufacturers dropped the price of those devices by 0%. All that happened was that they increased their margin by the extent of what was originally going to creators. By the way, it does not just go to music; it goes to film and TV and all sorts.

Q234 Chair: You want to apply that to the iPod?

Andy Heath: No, we have already said we are likely to tolerate the physical transference. The Cloud storage is something that we simply can’t contemplate. It would be a disaster.

Jo Dipple: I think it fits into the whole growth agenda. The UKTI said that the Cloud market would be worth £6 billion by 2014. We are looking for growth policies and the Cloud is one area where there really is growth potential, particularly for IP and copyright owning industries. We just want to be part of that growth story for the UK.

Q235 Angie Bray: I am not a techie person and I think I am probably being quite thick here but I still don’t quite understand the principle. I have chosen to store some of my stuff from my computer on the Cloud, which I guess will include my music but it is all music that I have legally downloaded or, indeed, have been lucky enough that you have tolerated the fact that I have bought a CD that I have then downloaded on to my iTunes library or whatever it might be. But what I do not understand is when I put my stuff for storage on the Cloud, it is only me that will still access it, so it is no different to my relationship with the music when I was listening to it from any other source-so I do not quite understand why it damages you because nothing has changed. I am listening to the music that I have legally downloaded.

Geoff Taylor: There are two points. The first is that we want to continue to be able to do business with the companies that offer that service to the consumer so that we can share in that value chain and generate some value in the UK. The second point is that in terms of the sharing being-

Q236 Angie Bray: I have chosen to go on Cloud. They have asked me whether I want it and I said yes.

Geoff Taylor: Yes, but companies like Google and Apple will make money from offering you that convenience around the music and we would like to be part of that value chain. The second point is that we have not seen exactly how a private copying exception will be drafted, but we fear it may be drafted in such a way that it will also help all of the illegal cyber lockers. There are many illegal locker services against whom we already have many difficulties in taking action.

Angie Bray: That can be extended.

Geoff Taylor: If they can argue that all they are doing is storing people’s individual files on their behalf, which is copying by a private copying exception, and therefore they should have no liability for that, that would make it even more difficult for us to deal with what is already an incredibly difficult environment where these lockers are making enormous amounts of money from advertising and from subscriptions from people who go to them to download music for free. None of the creators of the music benefit in any way from that. It is illegal but is very difficult to enforce against. Introducing a private copying exception that applies in the Cloud will only make it more difficult to take enforcement action in those sorts of cases.

Q237 Angie Bray: Can I ask one other question about downloading? It would appear that if you download from Apple iTunes it limits your usage of that music to five separate PCs, whereas if you download from someone like Amazon-not a great name at the moment, I know-they place no such limits on that? Can you talk me briefly-

Jo Dipple: Can I make one point about the downloading? I went on to Google, an internet search company, yesterday and I looked for Adele, Rolling in the Deep to find out where the download market was and where the legal source of downloading an Adele song was. The first legal site that comes up is number 15 and iTunes is number 16. So even if you wanted to download an iTunes version of Adele, Rolling in the Deep, you would have to try 16 times before you get to a legal iTunes site.

Geoff Taylor: This is something we would very much like to come on to because the BPI currently sends I think about 1.5 million takedown notices to Google a month and still we find-

Angie Bray: But why does Apple-

Chair: I need to get back to poor Ben who has slightly been hijacked.

Angie Bray: Yes, sorry.

Q238 Mr Bradshaw: We have spent a lot of time talking about the Cloud. It is important but it is just one element. There was a bit of Hargreaves. I wanted you to sum up your view of Hargreaves and the state of the implementation of the Digital Economy Act in more general terms. If you want to go back into some of the detail, fine, but we have not really done that.

Geoff Taylor: Yes, we have not spoken about the DEA really at all. We are very concerned that it will have taken more than four years to get from the passage of the Digital Economy Act to it having any impact on the ground. That is obviously slower than other territories like France, where they have moved ahead. We are very concerned about the level of the costs that are associated with that and that all of those costs are being passed on to the originators of the content. For the music industry alone, we expect that the first year of the Digital Economy Act will cost more than £12 million. It is a very large sum of money. In France, where HADOPI was put into place, those costs were borne by the Government. In the United States, a system is being put into place that will be much more cost effective again. We are concerned that UK creators of copyright content will be at a significant disadvantage. With every year that goes by and no action is taken, we are losing more sales and more revenues, and when we finally do get some action taken, we hope, it is going to be much more expensive than in other territories. It is a concern.

Q239 Mr Bradshaw: In your written evidence you say that the BPI strongly welcomes the Government’s efforts to press ahead quickly with implementation of the Digital Economy Act, but we have heard from other witnesses in their evidence that they do not think it has been very quick or is happening very quickly.

Geoff Taylor: Perhaps we were being too diplomatic. We are concerned about how long it has taken. Obviously part of the reason for the delay was the fact that there was a judicial review case brought by some ISPs that held things up, but equally it has taken a very long time for the codes of practice to be issued. We think four years between the passage of a piece of primary legislation and managing to get it up and running is very difficult to explain.

Q240 Mr Bradshaw: Mr Heath, you used refreshingly plain language a moment ago when you accused Google of stealing your music.

Andy Heath: I would put it that they enable the theft of my music.

Mr Bradshaw: Okay. Well, we will check the record.

Andy Heath: I definitely said stealing but I would like to-

Q241 Mr Bradshaw: It was refreshingly not beating about the bush. You also said you were bewildered by politicians or governments on this issue. You may be bewildered by it but you must have also wondered why the direction of policy is one that you are so unhappy about. What is your explanation for it?

Andy Heath: What, the direction of policy?

Mr Bradshaw: Yes.

Andy Heath: I think it is very effective lobbying from the technological industries. So far as those companies are concerned, we are an obstruction to their rapacious business practices. Yes, I can understand that, but the fact of the matter is that if the only thing you create in this world is advertising revenue, it is going to be a very poor world. We are going to end up with a content-free life if we are not careful. They have no respect for cultural content at all and it is a very important part, not only economic part but social part, of the life of this country and others. We have been very successful at it. I am at a loss; I don’t really understand why. I think it is pure commercial greed.

Q242 Mr Bradshaw: What form does this lobbying take? When we had Google before us in another Committee in a slightly different context, we were very withering about their evidence, their arguments. What nature is this lobbying taking?

Alison Wenham: Can I just say that when David Cameron announced the Hargreaves Review, he stood at the new site where the technology hub was going to be built-

Andy Heath: Where I have had a company for two years.

Alison Wenham: -and he said that Google would not have launched in this country under current copyright law. If that isn’t evidence of predetermination of outcome, I am not quite sure what is, if you think about the impact of those words. We know full well that there has been a lobby for some time to gently move aside this rather troublesome, repetitive, pestering content industry, so that we can have seamless highways where the consumer enjoys everything in his own place in his own time in his own way. We do not have an issue with that, believe me.

Q243 Mr Bradshaw: The question I am asking is what form does this lobbying take?

Alison Wenham: I do have a map, if you would like me to send it to you, of the extent to which lobbyists across the world are purveying a copyleft agenda to governments right across the world. Would you like to have it?

Jo Dipple: One thing about Google is they have changed the way we work. They are our shop front into the digital market. All we are asking is that when you get into that digital market, you have access to legal content that we can license and make a living from.

Q244 Mr Bradshaw: But you say it is over the world, so it is no worse in Britain than it is in other countries?

Alison Wenham: What, the lobbying?

Mr Bradshaw: Yes.

Andy Heath: No.

Alison Wenham: No.

Geoff Taylor: I do not know if the lobbying is worse. I think they clearly have had a lot of influence at very senior levels of Government over the last few years. There have been policy advisors in No.10 who have been known to have a very close relationship. I have personally experienced talking to a very senior member of the Government about the implementation of the DEA and other matters that we were hoping to progress and being told-and I won’t say any more than this-"Geoff, you don’t understand how much pressure we’re under from Google." This was following up on the developments around the SOPA and PIPA legislation in the United States. This goes back a year or so, and there is no doubt there was a climate at that time that they clearly exerted a lot of influence at the very top levels of Government. So even if we were able to get a good hearing from sponsoring departments, it was not easy to get policy progressed because there was a lot of influence at the most senior levels.

Q245 Mr Bradshaw: Just to be clear: it is your view that lobbying from Google has led to the Government dragging its feet on implementation of the Digital Economy Act.

Geoff Taylor: No, I do not want to make the link specifically to the DEA. I think we are talking more generally here about the view, which I think Alison was referring to-

Alison Wenham: I think that I can happily, comfortably say that Google’s lobbying most certainly led to the Hargreaves Review-not the DEA.

Q246 Paul Farrelly: Later on we will have a few questions on tax and tax reliefs and what the Government might do, but this is probably a good point, when Angie says that Amazon is not flavour of the month at the moment and you are talking about rapacious business practices, to get an opinion from each of you about tax and tax avoidance, whether legal or not.

I attended quite an interesting seminar in Brussels back in May where the likes of NBCUniversal, Vivendi and Bertelsmann were represented and it was all about the tax evasion by the likes of Google, Apple and Amazon. The point was made very clearly that not only are we fighting to exist in terms of copyright licensing, but we are not operating on a level playing field on tax either because these people don’t pay any. Of course, that affects-end of my statement here-how much money is left in the Government and Treasury kitty to extend tax reliefs to help other parts of the industry. I wondered, without this being too leading a question, what each of you think about the tax avoidance and how is that of concern to you?

Jo Dipple: I think the American tech companies should pay a fair rate of tax in the UK. That is the very least we can ask of the companies that operate in our constituencies, in our local communities, and I think they should pay a fair rate of tax. I also think they should seek a fair price for the IP assets they use to sell their businesses.

Alison Wenham: I am happy to sit here next to one of the directors who represents one of the British companies who looks after Adele’s recorded music interests and is to make a statement in January to say that his company has paid more tax in the UK this last year than combined Apple, iTunes, Amazon and Google. I may not have the line-up right but the message is very clear.

British independent companies are not smart enough, frankly, and they are not that motivated to avoid tax. What they want from the taxation system is support for growth and we would love to see the introduction of an enabling tax break for music companies because we are a very high investment heavy industry. There is plenty of evidence that enabling growth through tax breaks would be very advantageous.

I am probably not on the subject you wish to speak about. I am not entirely sure that the issue about taxation is going to solve the problems of creativity and growth from creativity in this country, but one of the big problems that we suffer from is double taxation treaties and the enormously burdensome administration around double taxation treaties. That would be a light-touch approach. An HMRC that actually got a response back to the companies within less than four months would be quite helpful, a modernised-

Q247 Paul Farrelly: We are going to come on to some tax reliefs, but I was addressing the broader picture, interest in which is growing day by day. Andy, I am sure you might be outspoken on this.

Andy Heath: I do not know whether I am pleased or not, but we paid just under £12 million in corporation tax this year, which is a big chunk of change, frankly, and it is actually double what the tech companies paid between them. It does not feel like a level playing field when you have companies with market caps in the hundreds, if not thousands, of billions and we are paying twice as much tax as they all are collectively. So that does not feel right, although to a degree I am not sure taxation is an issue for a review of the creative industries.

What I think it signifies is the company philosophy and the company ethic that is demonstrated by these types of companies-on whom, by the way, we are dependent: Apple is our biggest customer by a country mile. But the fact of the matter is that these companies are run for themselves: they believe themselves to be above society, above Government, above any sense of social or moral responsibility. This is what they are like, and it is demonstrated by the way they approach their chip back into society, i.e. nothing. We have the chief executive of one of these companies telling the President of the United States, "I’m not coming. Push off." This demonstrates the way these companies regard their own interest. They regard their own interest as absolutely paramount and above the interest of any other players.

We have within the cultural industries-not just the music industry, I keep emphasising this-a very developed value chain that is relatively respectful of each other’s contribution to the value chain. There is the creator at one end and there is the consumer at the other. There are obviously commercial arguments in that chain of money but nevertheless the respect for each other’s position in that value chain is there and it is real, whereas the large technological companies see themselves as, and are, very different animals.

Q248 Paul Farrelly: Geoff, is there anything that Jo, Alison and Andy have left out?

Geoff Taylor: Not really. I would like to concentrate on what the Government can do to help us, in particular the smaller labels, to invest. As I said earlier on, we are very proud of the fact that we invest more in A&R than biotech or pharma do in their R&D. That is one of the reasons why we have been so successful. I believe that if we can do anything to encourage growth in that level of investment, despite the fact that revenues have been falling for labels, if we can encourage a greater percentage-it is already about 20% of turnover goes into A&R-and if we could have some form of tax relief that would encourage investment above those historical levels, that would be a really good thing for UK plc.

Paul Farrelly: We will come on to that subject in a few moments.

Geoff Taylor: Okay.

Q249 Mr Sanders: Are there any examples around the world where you think governments have got it right in relation to these issues; and, if so, which?

Geoff Taylor: Perhaps I could give the example of South Korea. I do not know if any of you have been enjoying Gangnam Style by Psy, a massive YouTube hit, number one in many countries, but South Korea was a market that was in extraordinary trouble. They had superfast broadband very early and the content industries were virtually wiped out by it. In fact, most of the major labels pulled most of their investment out of South Korea and it was a very dire situation around 2005, 2006. What we saw is that the Government there did a number of things. First, it enacted legislation that meant that letters were sent to people who were using cyber lockers illegally. It cracked down on illegal websites. They also did a very big education campaign funded by the Government, and that saw an extraordinary revival in South Korea. So there is this phenomenon called K-pop, of which Psy is one example, where they are now exporting Korean pop all across Asia, and it is now coming to Europe, and they are doing phenomenally well. There is a connection there.

Similarly, in the United States, the Government appointed Victoria Espinel as the IP Enforcement Coordinator, reporting directly into President Obama, to take responsibility for making sure that the copyright industries in the United States were protected and action was taken against illegal sites overseas.

We have seen some good examples and we are looking for similar leadership from the UK Government.

Q250 Mr Sanders: What are the chances of the UK becoming a global centre for copyright?

Geoff Taylor: First, we have a great opportunity, as I said before, because of the internet, and we are already showing that. Secondly, the work that Richard Hooper is doing, to which perhaps others could speak, on the Digital Copyright Exchange is a real opportunity for the UK to become a licensing hub internationally. That might be something the Committee would like to explore.

Andy Heath: The work is going ahead to create global hubs for copyright clearance. It is a big job-an enormous job. The job is probably being led-well, it is not probably being led, it is definitely being led-by the British music industry. PPL have done a fantastic job in creating an international recordings database and the global repertoire database-sorry to get a bit technical-is in the process of being created; I suppose the person mostly in the driving seat is PRS. However, whether that global repertoire database is going to reside in the UK is very doubtful right now, and I go right back to the ambivalence being shown by the Government in its attitude towards copyright. It would be completely barking to centre it in the UK if the UK is not a country that is sympathetic to copyright.

Jo Dipple: The one thing we do in this country better than anyone else is we have the raw creative talent. We are the country that gave Iron Maiden to the people and the Sex Pistols and the Clash and David Bowie and The Beatles. It goes on and on.

Alison Wenham: It is worth mentioning that in four of the last five years the world’s biggest selling album has come from a British artist. There is an enormous appetite for British artists and music around the world.

Q251 Mr Sanders: Shouldn’t you be making the case for Britain to be that global centre for copyright and expounding what the likely benefits would be to the UK?

Alison Wenham: Yes.

Andy Heath: Yes, but we are not only making the case, we are carrying out the work. It is in process. It is being done.

Q252 Mr Sanders: What are the benefits? Tell us what the benefits are.

Alison Wenham: We were working with PPL and PRS. They were working on the building of global repertoire databases before, in fact, Hargreaves and Hooper recommended that there should be such a thing. I think Hooper’s vision is slightly broader. We were looking after our own interests with music. If it is broadened to include film and other copyright industries-as Andy says, don’t underestimate the challenge-in theory it would be of great value.

What it is there to then enable is a question we both need to focus on. If it is an identification platform, if it is to remove the uncertainty of who owns what-a signposting platform-that will be of some value. If it enables certain types of licensing collectively, that will be of more value. If it provides a statutory environment where infringement of copyrights held on the exchange would attract much more serious remedies in this country, I personally would welcome that. If you go and build a copyright hub and you put your copyrights up there, and those copyrights are infringed, at the moment we still have, frankly, bits of paper-takedown notices is our only remedy. It is very recidivist really when you think about where we are technologically.

Andy Heath: The benefit of having a global copyright exchange in the UK is, in the same way that the City of London became pretty much the world centre for trading capital, we can become the world centre for trading intellectual property licences. That has immense commercial potential. Apart from anything else, it would take quite a lot of people to organise it, but also it would mean that the revenue flows would probably centre quite close to where the hub is. It would just make sense for that to be. If we were able to create that, and I believe we are able to create that and we are in the process of doing so, it would be absolutely tragic if it was not centred in the UK. The potential for having that global exchange of licences based in the UK is absolutely enormous.

Geoff Taylor: To try to put some scale on it, Government figures are that the contribution of the music industry, in terms of greater value added, from investment in new copyrighted works is already £1.3 billion, so there is a very strong base to start from. We are growing all our licensing businesses very strongly year on year. We believe there is an extraordinary opportunity and the internet only makes that more powerful.

Q253 Mr Sutcliffe: Just for the record, I want to mention that I asked the Prime Minister in Prime Minister’s Questions a couple of months ago how many times Google had met at No.10 and I was told 22 times. I think that is good information for the Committee to have.

On funding and where we are heading in terms of finance, Alison, you talked about appropriate finance for the small sector. What do you mean by that? What would you want to see happen in terms of support from the Government or from elsewhere?

Alison Wenham: Appropriate means small. Most small businesses need small sums of money. They are not playing at the VC level where the level of interest kicks in at too high an entry fee and the exit strategy, in and of itself-the language is countercultural-to what an independent company would seek to derive from a financial partner. We need small sums of money-it might be in the way of a loan, or matched funding, or even a grant-to enable growth in a way that is reasonably easy to access and easy to report on. It is as simple as that really. I could spend a great deal more time talking about it but it is not really complex.

Andy Heath: Can I add to that? I think this Chancellor has intended very well in terms of trying to create schemes to help small businesses. I don’t in any way fault the intention. Actually, the Enterprise Finance Guarantee-was that the last Government or was that this Government? I can’t remember. Anyway-

Alison Wenham: Well, what this Government has added is the S, which is the seed, which is the interesting thing.

Andy Heath: Yes. Well, that is EIS. That is a different thing. A lot of these schemes that are brought have very, very, very good intentions and they are simply, but when you get to it-the Enterprise Finance Guarantee apparently seemed god given for our industry-one of my members conducted a survey and they found one person in a four or five-year period who had managed to get a loan from their bank under the Enterprise Finance Guarantee Scheme, which just means that it was not functioning. It just was not working. There can’t possibly have been one out of thousands of applications that qualified.

What I think should happen is that the Treasury, the banks, the financial whoever they are need to sit down more closely with the people at the coalface and say, "We are quite happy to enable this lending. We are quite happy to encourage this lending. We are enthusiastic about the principle. We want to create new enterprise and so on, applaud all of that. How do we come up with a system for her members and for our members and the small publishers?" I am sure they are there.

Q254 Mr Sutcliffe: Lending to risk is the issue, isn’t it?

Andy Heath: Yes, lending to risk is the issue.

Alison Wenham: When we formed in 1999 and we came to see Government, they were very pleased to hear from an association that did not have piracy and copyright front of house. I am not saying those issues are not fundamental, but small businesses don’t spend all night sweating about copyright piracy. They are looking at how to grow their businesses.

I did a bit of maths last night and I will give you some statistics. Despite a very turbulent decade, in gross profit my sector has grown from £77 million to £130 million in the last five years. If you look at the figures from 2000 to 2010, what you have is a decline to 2005, so lots of red numbers-this is the top 100 independent companies-and then from 2005 it starts to sort itself out because people are beginning to diversify. They are beginning to live with the environment. They are beginning to enjoy the disruption and actually take advantage of it. As I mentioned earlier, we have a lot of diversified companies now who are into lots of different income streams.

So we are up to some very decent figures, but when you take a copyright business that writes down its asset value on its balance sheet to zero, because that is the SAP 9 requirement, the Standard Accounting Practice, you are already slightly compromised because you are showing nothing against which to lend. In the traditional lending environment it is bricks and mortar, stocks and debtors, and, of course, in a knowledge economy there are no bricks and mortar and no stocks and debtors, so you remove the four cornerstones of lending protocol. You have to think in a more modernistic way. We would be very happy to help to enable that to happen, but I think that there still is a disconnect between old land-based lending and knowledge economy lending.

Q255 Mr Sutcliffe: I think we are finding that the whole way through, but the purpose of this inquiry is to look at how we can develop and grow the creative sector. You look at the Olympics and the Paralympics and see the success that that has been to the country and the opportunity for creative development or creative talent right across the range, from music all the way through. Reflecting on that and hearing the problems, which I am afraid some other sectors are facing as well in terms of the lending to risk issue, what practically can Government at central level or local level do to support the sector? While we are on to the Olympics-I am looking at Jo-as a Minister, I had a problem with the secondary ticketing market and the issues around all of that, so you might want to talk about that and why people have to pay £25,000 to see the Rolling Stones.

Jo Dipple: I would like to answer both. The Olympics, as the Prime Minister said, made this country open for business. If we are open for business, we need the capital and investment to grow those businesses and that is a problem at this stage in the economic reality. The Chancellor said the road we are travelling is much longer than maybe we thought. It will affect all the SMEs in this country and it does affect the music industry. The one particular thing about a music loan or music access to finance is that, if you are a young musician with a guitar over your back, your bank manager is probably less likely to lend you the money than they would do if you were an accountant opening a pizza franchise. There is a problem with that, but that can be addressed and we are going to help do that. We would like to signpost the finance available.

On the secondary ticketing issue, I am very pleased you raised this. It goes back to our desire that consumers have certainty in the market and there is a legal and licensed market in which they can operate. The Olympic ticket market was heavily protected by the laws that were introduced to host the Olympic Games. As a result, the resale of Olympic tickets was not affected by huge price hikes. Football in the Premier League is another area where there is legislation that protects the resale of tickets to the club or the hosting organisation. The secondary ticket market is something that we would rather did not exist. We think it is bad for consumers, it is bad for the industry, and we would work with Government, if Government chose to, to look at ways to reduce the secondary ticketing market in music sales.

Q256 Jim Sheridan: Could you expand on what you are saying about this young performer with a guitar on his or her back and how you are going to help them? The other question, particularly for small companies who have to go on tour and so on, which all costs money, is what is the relationship with the banks? I know your industry is regarded as somewhat risky, but how do people starting out perform when it comes to banks and what are you doing for this young chap with a guitar?

Jo Dipple: I am going to pass over to Alison on the detail. UK Music is talking to many people now, but what we would like to set up within the UK Music host site is details of the finance that is available. We would like to be a signpost to young musicians and SMEs in the music industry and give them information on what finance is available, but Alison will know best about the-

Alison Wenham: On the detail, unfortunately traditional lending comes very low among our members, and I think our members are a good demographic of a national music industry at work. I can send you the percentages later, but a reasonable percentage is family and friends, so organic funding. 7% of our members remortgage their houses, so they take considerable risk to finance their businesses. Very little comes from any form of Government or Arts Council grant funding or loan funding or matched funding. I think we need to do a great deal more work to take down the barriers that exist, that may be self-inflicted. The cultural industry does not help itself that well in this area.

Q257 Jim Sheridan: Could you identify maybe a current star who has got through the difficult times in terms of banks, lending, assistance-somebody who has made it?

Alison Wenham: I think all of us have. We have all made businesses out of it. I have run a business over many, many years and-

Q258 Jim Sheridan: Is Adele a classic example of someone starting at the bottom and working through all these difficult times?

Alison Wenham: Not really, but I can take you to any number of businesses who have been on lean times and have not particularly minded. You don’t expect to be otherwise-you are building a business around music. The point at which you can employ two or three or four is a little bit in the distance but, funnily enough, those businesses eventually do find themselves with four or five employers. Several of our companies were struggling in the mid-2000s and now have 10 employees and over £2 million turnover, so they have turned the corner and they have done it mainly through friends and family finance. We have worked very hard to access-there was, for example, a London fund of £10 million that none of my members were able to access. It was supposed to be for the creative industries, but none of my members were able to access it.

Geoff Taylor: That is the role of the record label. The record labels are culture banks. That is what they do. If you are a performer and you are trying to make a career in music, who lends you the money to go on tour, who pays for you to make the recording, who pays to make your video, who allows you to live and work fulltime as a musician? It is a record label. That is our job. Small labels and big labels do the same thing. They really have the key role. What I hear from them, the small labels in particular, is they would like better access to finance. When they have a hit, that has to pay for all the next artists that they sign, but the problem they face now is they have a hit but it only sells 20,000 copies, whereas it used to sell 200,000 copies, because an awful lot of it is taken for free and they do not get any revenues back in. The big concern is how do we maintain levels of investment in British talent and in British artists if, ultimately, they can’t monetise those investments and get a return? That is the biggest concern for many of them.

Andy Heath: It goes beyond just straight talent. Geoff is right, the record industry and the publishing industry have been the investors in this business. Over the last 15 years our margins have been shot to pieces by the internet. I think we have survived very well and we are now beginning to grow again but, frankly, our margins have been absolutely shot to hell. Ten or 12 years ago you would happily take licences, you would take newer companies. They would come to you with products. They want a licence from your company. Okay, we will go with you. We will help you grow. We will go along with you. That was a very successful business model for 25, 35 years. Smaller companies could go to bigger companies and do a licensing deal. The bigger company would take a risk, which it could afford to do out of its margins. The smaller company would grow and become a big company themselves. Lovely, it went very, very well. But as the margins have been shot to hell, that business model has pretty much vanished.

Q259 Jim Sheridan: I am reliably informed that Adele is already complaining about paying too much tax, so if you have any influence with her, please ask her to concentrate on making music not avoiding tax.

Andy Heath: Adele has been very good for our company and we are very nice to each other.

Q260 Angie Bray: Getting on to the subject of tax, I know that Mr Heath said that he did not think tax is necessarily the key to what we need to do to promote the creative industries, but the film industry has made a great thing about what reliefs might be available to help draw investment into this country. Do you think the music industry does merit tax relief of the kind enjoyed by the film industry? I don’t know who wants to start with that.

Alison Wenham: It was just to recognise that the cost of production of a film is exponentially greater than the cost of production of music. That is why I think tax breaks were there, quite properly, to enable the British film industry to survive and to compete in the world markets. That said, what I think we would see from a tax break in the music industry is a much lower risk profile, a basket of risk that you see in record companies because you have more than one artist. It is not just one film; it is 10 artists or it is 20 artists. You have probably heard of the strike rate. Not all artists are Adele. We are a high risk business. We invest in maybe one in five or one in 10 or one in three, depending on how good you are, basically, at spotting the hits. It gives you a greater than breakeven. All you are looking at is that your strike rate is greater than breakeven. I think that it would be mutually exciting to enable growth in a copyright industry where you have a portfolio risk profile rather than one film with one return prospect.

Q261 Angie Bray: Do you think we need to look at equal treatment?

Andy Heath: I get a bit grumpy about the whole subject, to be honest. I can completely understand the requirement that the film industry had for tax. It made me a bit grumpy when they seemed to be getting all sorts of help that we were not being offered, but we were much more successful than them anyway and made miles more money so it did not matter. What I find most frustrating is I think the money is there. I said it earlier, I think the schemes are already there. People want to do this from the Treasury and other parts of Government and local government, but there is insufficient effort going into talk to us at length and, with respect, we are not going to be able to get into that length in a conversation like this. But we all have lots of ideas about how this can be done and it needs a period of consultation with the Treasury. If we could count the money that is sitting in pots in different places all around the country in different departments, it would probably be plenty of money. All we need to do is to get it to flow through to the people who need it on terms that they can be helped by it. I don’t have a huge faith in taxation solving the music industry’s problems. I really don’t think that because we have been very successful by being entrepreneurial without much taxation help.

Q262 Angie Bray: You don’t want to raise a tax incentive on the artist and repertoire investment?

Andy Heath: Yes, we have.

Q263 Angie Bray: Do you want to quickly talk to us about that?

Andy Heath: I sit on two tech company boards who distribute through the digital medium and both of those companies survived their early years on R&D tax rebates. I would sit there and be jolly pleased that this cheque has just arrived from HMRC for £125,000, or whatever the rebate was, and think, "Blimey, it would be really nice if this happened in the music business one way or another," because our investment in talent is just the same as their investment in people who are writing code. It is the same, but on one side of the fence you get an R&D tax rebate, and on the other side of the fence you get absolutely nothing. If the risk was ameliorated in some way or another that would be a good thing, It would encourage raw talent and I think would lead to growth.

Q264 Angie Bray: Are you talking about an incentive on investment above a threshold of 20%?

Andy Heath: If you are talking to me individually, I think the details of the A&R tax rebate need to be teased out. I would be more enthusiastic about spending more time on finding ways of helping small companies.

Alison Wenham: Can I speak to that? If you go across the Channel to France, there is a tax break scheme in operation. It is successful and it covers more than A&R. The cost of making music relative to previous decades has plummeted. It is really quite cheap. You can, in theory, sit in your bedroom-Steve, you might know quite a bit about this, I don’t know-and you can create a CD-quality piece of music, whereas 20 years ago you would have needed to have a lot of people and musicians and rooms and engineers and such like. What we really need to see is enabling taking the artist to market, internationalising their career. In France, they have allowed marketing promotion, sales costs and even people costs to be included so that they are enabling the whole company to go to a new level and that, I think, would be very exciting.

Andy Heath: The Canadian Government, for some 10 to 12 years, have subsidised overseas touring by their artists and, candidly, I thought they were mad. However, the impact internationally of Canadian talent 10, 12, 15 years later is enormous. It is absolutely disproportionate to their size and output, and that policy has absolutely worked. The nice thing about that policy is that ultimately it brings touring revenue back to the country. It is self-supporting.

Alison Wenham: I mentioned Canada earlier. They invest $67 million a year in a number of different ways into a number of different schemes. I think that the current UKTI budget for helping music to travel abroad is £120,000 or somewhere around there.

Q265 Angie Bray: Is touring one of the big things going forward, because that is now, all over again, where quite a lot of the money is?

Alison Wenham: Absolutely, and also building a fan base, building popularity. Another really enticing thing about the market possibilities is that you can sit in your bedroom and in theory your fan base is the world if you can get out there, find where they are, meet with them, build them-and our members are assiduous about this. If they didn’t know who their fans were down to their URLs, where they live, what they do, what they have for breakfast and when their birthdays are, they would not be in business. It is an intricate approach. Touring is one of the great flagships to bring that fan base to a monetisable community.

Q266 Tracey Crouch: Turning very briefly to the issue of talent, I think UK Music say that the heart of our industry is the creative genius of the British people and that we should continue to nurture and invest in talent. With that in mind, could you give me an outline of perhaps how you think we can improve skills and training, what you think should be in the school curriculum, both for music and copyright?

Jo Dipple: Absolutely. As I said earlier, the CBI and UK Music support the creative industries and music as being a central plank of the new E-baccalaureate. Since the English baccalaureate was introduced about two years ago, GCSEs in music have dropped by nearly 4%. We think that the new E-bacc should really keep a central plank of its education on creative industries and music.

There are other bits of skills and training that I think are very important. We have 800 apprenticeships in the music industry and there are 2,000 in the creative sector. We want to build on that and UK Music wants to set up an apprenticeship scheme. We are already starting a mentorship scheme so that the expertise and talent around the board at UK Music can go back into the communities and talk to the young talent coming up in the industry. We have 14 rehearsal room schemes around the country. They were set up in areas of multiple deprivation. So far we have had 33,000 kids coming through the schemes and they are all going to be nurtured more as a result of that. There is a huge importance to seeing that route of diverse and talented new workforce coming up through the industry, which we will support at any level.

Geoff Taylor: Perhaps I could add to what Jo said. In the record labels there are very active internship schemes, certainly at all the majors, and I think there are about 150 interns currently working on those schemes. They have a very good track record of taking people on after the internships. For example, I think Universal have about 30-something at the moment, they pay all of them London living wage and they have a very good track record. I think they have taken on nearly 40 interns into fulltime employment from their scheme over the last few years. All of those labels understand that reaching out into the community and finding talent and bringing it into their businesses is really important to their development, as well as just being the right thing to do.

On top of that the BPI, through our charity, the BRIT Trust, is funding five independent labels to take on interns, because it is very often more difficult for indies to afford to do it. We think it is important that some of the money we raise from the BRITs we use to help indie labels take on interns and hopefully they will find jobs in the industry as a result. You can sometimes get more rounded experience working in an indie label than you might do working in a big company. We think that is really important.

The final thing I want to mention is the BRIT school. Through our charity, the BRIT Trust, we helped to found the BRIT school and have funded it ever since. We give them somewhere between £500,000 and £1 million a year every year. We are very proud of its achievements because not only has it done brilliantly academically but also in the last few years there have been a lot of stars you will know who have come out of the BRIT school-Adele, Amy Winehouse, Katy Melua, Katy B, Kate Nash, Athlete, Kooks and so on. That is down to the fact that they instil in the young people there a great deal of confidence to experiment and just be who they want to be creatively. It is a very supportive atmosphere and I hope that we can develop more schools like that. In fact, we are talking to one very well known artist at the moment who is trying to develop a free school in east London, and we hope to support that. So there is a lot going on in the music industry on skills.

Jo Dipple: I would like to add one thing. There was a guy called Dylan Mills who was kicked out of every class that he was in at school apart from music, and it was being kept on in the music classes at school that led him to be mentored by his music teacher. He then went on to be mentored by his music mentor, Wiley, and he is now Dizzee Rascal. He is selling millions of records. But it was the music classes that kept him on in that education and it is that nurturing that is so important that we need to maintain in this country.

Q267 Tracey Crouch: I am going to come to the music classes in a second, but picking up on what you said about apprenticeships and internships-and I am pleased to hear that you are paying London living wage-can I ask about work experience schemes? I am hearing stories in the wider communications industry where organisations are finding it very difficult to take youngsters on in work experience schemes because of the huge bureaucracy that is involved. That is really inhibiting their opportunity at a very formative age to discover whether or not they are interested in doing this for the long term. Are you finding very similar problems in the creative industries?

Andy Heath: We have a work experience scheme for youngsters. Well, we had an intern scheme that is now in the process of turning into an apprentice scheme. But we equally run a work experience scheme for, on the whole I would say, 16 to 18-year-olds; certainly they are at school. We have one most weeks, I think. We have them one at a time-we are not big enough to have more than one at a time. I am not aware of red tape that stops us having them. Maybe we are breaking all sorts of regulations, I don’t know. I hope not. We are for work experience. We are inundated with requests. It is impossible to give everyone a place and it is equally impossible to devote resource to selection processes. So bluntly, it is a bit random but we do have work experience schemes, and I know lots of companies that do.

Alison Wenham: My experience is the same as Andy’s. We are part of the local work experience scheme. We take kids in from school on a two-week work experience programme. I think what you may be referring to is insurance in the workplace because they are under a certain age. I think it is a problem of insurance.

Q268 Tracey Crouch: It is often just the surrounding related bureaucracy. If you take somewhere like local BBC radio, for example, it is the number of forms that they have to fill out to have somebody do work experience, particularly if they are of a certain age-they are not allowed to be left in the studio by themselves with a presenter or what have you. So it is things like that and whether or not-

Alison Wenham: You may well be right.

Andy Heath: Compared to the BBC, music companies are this big and we do not have those regulations.

Alison Wenham: That is probably a clash of bureaucracies.

Q269 Tracey Crouch: Going back to the core education, it is a very long time since I did music at school. Presumably it has evolved to include lots of other aspects of music, so it is not just about bashing a triangle. Can you see improvements required within the actual course of music so that it expands to more than just being tuneful on an instrument, or not in my case?

Jo Dipple: We were talking to our Minister, Ed Vaizey, about maybe getting the issue of IP and copyright written into the core curriculum, because it is-

Q270 Tracey Crouch: Just for music?

Jo Dipple: No, across the creative sector. It is often a misunderstood area and I think if we could try to explain more to that age group of kids who are the ones who are looking to download music, probably from sites that they don’t know whether they are legal or not, I think there is a big opportunity for the curriculum to educate young people on the kind of world they are living in when it comes to the creative industries that they love.

Q271 Tracey Crouch: Where would you put that in the curriculum? The curriculum is incredibly crowded.

Alison Wenham: Personally, I would put it in citizenship, what used to be PSHE. It is the absolute right place for young citizens to understand the importance and value of copyright since, if you ask them what they want to be when they grow up, 80% of them will tell you that they want to be a footballer or a film star or a music star. It is what you would expect but it is really quite strange that copyright, which is the foundation of any of those careers, has a very low place in the curriculum.

There is now a music technology programme that was added on to the more pure music programme of some years ago, but the need to be ever alert to change in technology is a challenge for the music education fraternity, and maybe we can help them there.

Andy Heath: I don’t pretend to be an expert on music in schools but I sit on boards with people who are. I am also a trustee of a charity that is training young musicians, the Mayor’s Fund for Young Musicians, which was formed to fill a gap that had appeared for eight to 12-year-olds who were learning instruments. The people who are expert on music education in school are all very, very depressed at the moment. I can’t say that I know enough about it to go into the reasons why but they are very unhappy people.

Q272 Steve Rotheram: Geoff mysteriously missed off LIPA, which is the Paul McCartney fame school in Liverpool and-

Chair: It just distantly crossed my mind you might want to mention that. I am so glad. I think we need to move to our next panel so can I thank all four of you very much.

Jo Dipple: Can I just make one point? I would like UK Music to back Steve Rotheram and his charity single for the fans of Hillsborough to become number one for Christmas.

Chair: You have missed your calling.

Steve Rotheram: Thank you.

Examination of Witnesses

Witnesses: Fran Healy, singer songwriter, Steven Levine, record producer, and Stephen Budd, music industry executive, gave evidence.

Chair: Good morning. I am sorry to have kept you waiting. I welcome to our second session Stephen Budd, an executive of the music industry, Fran Healy, the lead singer and songwriter of Travis, and Steve Levine, a record producer. I am going to invite Gerry Sutcliffe to begin.

Q273 Mr Sutcliffe: To start the ball rolling, could you give us a potted history of how you three got involved with the music industry and what barriers you encountered to your progression? In that context-perhaps you, Fran-how do we help the next generation? It is really a bit about yourselves and about how you got involved.

Fran Healy: I picked up a guitar when I was 13 after seeing Roy Orbison playing on The Last Resort with Jonathan Ross and I asked my mum to get me a guitar instead of something else for Christmas. At that point we didn’t have a record player or anything and as soon as I got a guitar, I started writing my own songs. I joined my first band when I was 15, played in my first show in front of the school, slagging off the headmaster. Bit by bit you take your baby steps and you start playing gigs when you are old enough to get into bars. Then the record companies start sniffing about, and they sniffed about us and they did so for six years. It took us a very long time and when you are 17, 18, 19, six years is a really long time. Six years now feels like two years but six years back then-and you have just got to stick on it.

Everyone comes up and you get the lectures saying, "Oh, you should get a proper job." I was signing on for the dole and getting a housing benefit and stuff and every week or two weeks you go and you do the interview, "What you are doing to get work?" You sort of go, "Well, I’m in a band and we’re really…" and they just glaze over and they are like, "Yeah, but what are you doing to get work?" and you have to give them the stock answer to get your £50.

I just kept writing and writing and writing and got, I guess, better at that. The record companies had always a little problem with us, I don’t know why. The door we entered the business through was publishing. We got a publishing deal. Publishers are, I would say, the unsung heroes of our business and if it had not been for a guy who liked my songs, I wouldn’t have a manager, I wouldn’t have a record deal. For me publishing was the doorway in. Our story is quite struggly. We went for four years and eventually we got very successful. We were very lucky. I think it is luck, a lot of it.

Q274 Mr Sutcliffe: Did you see a lot of people give up, other people that were in it in a similar-

Fran Healy: Yes, totally. But I think it is the same with anything that is hard. Someone mentioned it is easier to start a pizza business, but pizzas are really easy to make. It is really hard to write a song. I still don’t know how to do it and songs are the currency of our business. You can talk all you like about this and that and the next thing, all the figures, but for me all the artists you have mentioned today all have one thing in common: they have had hits. Hits are these elusive things. Like I say, I still don’t know how to do it.

Stephen Budd: I do three or four different things. I manage artists, several of them, and have done for over 30 years, going right back to the early 1980s. I have managed people like Heaven 17 and Tanita Tikaram and Gang of Four and Magic Numbers, all sorts of people. I manage a lot of record producers and songwriters, like Steve here, and I own festivals both in the UK and abroad, in India-I own three festivals in India. Taking British music to India is one of the key things that I do.

I started when I was 15 years old. My first ever paid job was as a roadie for Motörhead at their first ever gig, which was at the Winning Post in Twickenham, and I have been deaf ever since. I went on from that to work on the road for three or four years and then started managing bands and ran a little indie label out of my bedroom when I was 20. I then got into managing artists off the back of putting out singles just of artists that I was passionate about. Throughout the 1980s and 1990s I have managed many of the bigger record producers in this country and abroad. I have been back in the artist management game for the last 10 years or so and I am running festivals. That is what I do.

Steve Levine: I am a record producer currently and I am also chairman of the Music Producers Guild, which represents producers, engineers and remixers, and we have a place on the UK Music board. That is my current job and in that role I actively produce brand new artists. I also do several production master classes. I am proud to say I am a LIPA Companion and I go there regularly-I was up there last week-and teach the next generation production techniques. It is an additional skill that you can impart to the next generation.

I started very much like Fran. In fact, there is a parallel there. I was 13 but I absolutely didn’t want to be in a band when I was at school. I wanted to record, initially as an engineer. I started as what then was called a tea-boy but I guess it is the same as an internship/apprenticeship/whatever. Record companies in the mid-1970s, when I started, very often had recording studios-sadly they don’t have those any more-and CBS Records had a recording studio, so I was a tea-boy for about six or seven months and then progressed to tape-op, to assistant engineer, then engineer and then ultimately a record producer.

Interestingly, like Fran, my first money came also from a publisher. I wanted to produce and no one wanted to work with me. I produced my own records with a few artists that I had found and we managed to produce something that had some validity and I signed a publishing deal. That money not only allowed me to go fully freelance but also enabled me to invest in technology, and the 1980s was a very important time for technology changes. So I invested in some new technology, which enabled me to have the leading edge on some of my competitors.

One of the first bands that I started developing and working with was Culture Club, which became an enormous worldwide hit. So you could argue that my route as tea-boy to record producer brought a substantial amount of income into the UK economy because Culture Club were not only a huge success all around the world but very particularly a very large success in America, and at a time when records were selling substantial amounts. We were saying about a hit being 20,000 sales; at its peak Karma Chameleon was selling 60,000 a day, just to put it in perspective.

My time is spent now developing new artists, so all the things that were debated earlier this morning have an impact on my career, an impact on my artists and I would argue that I am very much at the coalface. I think that phrase was used. I am at the coalface working with artists and some new artists. In fact, the artist I am working with currently, Natalie McCool, came through LIPA. She is from Widnes. We have struggled immensely with piracy and it has had a devastating effect on where we are. We will go into that, I am sure, in greater detail. So there is my role as a record producer and looking after my artists.

Q275 Mr Sutcliffe: Thank you for that. What interests me is you have come through long careers in terms of background and perhaps have seen it all, so what are the barriers to new people entering? What are the things that you would like to see happen to nurture and develop talent? Given your point, Fran, about the benefits system and things like that, it is even harder for people now in terms of the fortnightly meeting or they won’t get the benefit. What are the barriers? What would you like to see happen to help things move forward?

Fran Healy: I think that at the core of our business there are two important things. One is this really special relationship between a fan and the artist. This is the core for businesses that orbit around that one very special relationship. The other is you also have very cool, creative people at the core of our business when it is really successful-people like Brian Epstein, Martin Mills and Geldof. All these kinds of guys are maverick, very creative thinkers. For me, this idea of creativity, creative thinking, I found that coming up through school. I think it would be wrong to sort of pigeonhole creativity as just in the paint-box or with a guitar. I have a little six-year-old and all he does is make stuff and draw and paint and is creative, and he gets confidence from this. Then you go to school and it is, "That goes over there, this goes over here."

It’s the same with funding. When I was at school our art class, our music class struggled to get the funds just to get basic stuff, and it is even worse now, I hear. I think the reason is that when you are thinking about funding, schools are different departments. It is very much like, "Science is this thing here and it is really important to do that because it is industry and business." They look at art as sort of like a little bit of fluff or decorative or whatever, but I see art and creativity in everything, in all industry. I don’t think anyone else sees it like that. I think if I could change anything, it would be to sort of nudge that definition and look at it as people who go through art and music classes at school and get immense confidence. You learn to think in a slightly different way and it is always a nice thing to do. If the funds are not put into secondary schools and this kind of thing, then I think it affects not just the music business but it all business.

Steve Levine: I had a situation recently in a traditional school-Jo mentioned earlier about the rehearsal spaces-and we did a little forum. I recently went up to Nottingham and they have a situation there where they have a rehearsal space under threat of closing down from the council. It needs something like £5,000 for the year. But what was really interesting there was that the range of students using it-it was a bit like an old-fashioned scout hall-youth club-were from about 10 up to about 45; there was a huge range of demographics.

Fran said technology definitely is one thing, but what I find is also a difficulty is the type of music. Within this group, there was a 10-year-old. I said, "What do you want to do?" This was a black, inner-city kid. He said, "I want to play a cello." Now how the hell is he ever going to get a cello?

Some of the older people had been excluded from school and were clearly really poorly educated. They had managed to cobble together really ropey old bits of equipment and I sat with one guy and he said, "Can I play you my song? I’d like to show you what I’m not happy about, and could you help me?" So I started working with him and they all crowded round and you absolutely had them in the palm of your hand.

If you looked at those kids, a lot of them, if you saw them walking down the street, you would cross to the other side of the road, and yet when they were talking the language of music they were there. So I started programming a bit and I said to the guy, Trevor, "Look, why don’t you do it because I don’t want you to-" and he said, "Can I just watch you again?" He got his phone out and filmed what I was doing. It then occurred to me at that point-this is a guy that was probably 30-he couldn’t read or write and yet he had learned through music to have a communication power. So he filmed me doing the keystrokes because he couldn’t use an alphanumeric keyboard to write the words, because I was changing the filenames.

That really brought home to me how that is a sector of society who really have a contribution to make. Jo mentioned Dizzee Rascal. There are hundreds of those that really have a skill. They communicate through culture and art and yet they are excluded from the mainstream of society. They are in some cases probably a whisker away from being in prison because they are ducking and diving because they don’t have access to money and they are forced to tread a very strange line, but if we could encompass their skill set they would make a very valid contribution financially but also a huge cultural contribution. They are not tied down by music lessons or the way it was done before. They come up with things that are completely new and breathtaking.

Stephen Budd: I think the whole landscape of the business and the economics of the business has changed so dramatically in the time period that I have been in it. We should be thinking now more about how we can empower artists to take control of their own business structures and start to think from the artist, where all the music comes from, downwards. I think we should be aiming to build artist-centric businesses where artists retain their own copyrights and license outside entities to perform functions for them. This includes record and publishing companies.

We spent a lot of this morning talking about the recorded music business, which is extremely important to this country, and the value of it and the history of it, as well as the publishing business-as Fran said, if that didn’t exist, he would not have been here, but that represents 25% of an artist’s income these days. It has changed. The economics have completely changed from when I entered into management, and now the live side of the business is so much more important. From my point of view it is how we can seed people to get on the ladder where they can create careers that largely involve performing live. I have made a couple of notes that I would like to quickly, with your permission, read you. It will take about a minute.

From my point of view, the end game is to have global music stars that generate significant revenue for the UK-music revenue, taxes, tourism. The starting point is the kid who becomes interested in music. The kid learns to play an instrument and sing or write music and after this is when the help is needed. This is the beginning of commercialisation. Whether it is a record company, a management firm or the artist themselves via their mum and dad, there are hurdles that need to be overcome such as recording, creating videos, marketing and touring and so on. These things cost money but not necessarily a lot.

When these activities are funded, a few of these artists can make it to the next step where they can stand on their own without assistance. However, if they don’t make it to that point there is no future: no next Beatles, Coldplay, Adele, nothing. Other countries are supporting music because they recognise what it means to the economy and if the UK doesn’t it just means that somebody else will. We don’t have some special right or skill that grants us some guaranteed global music status. Instead there will be more hits coming from other countries.

I have been inspired by looking at the technology industry and what has gone on there and how simple it is for young companies to get grants to get going and I am starting to think that artist-centric businesses need to get that kind of simple access to finance to allow themselves to get on the track. A board of experts from the music industry could manage distribution of such funds and small grants of £5,000 or £10,000 can help an artist in a very significant way at the early stages of their careers. I think that is what we should be looking at. We want to be building entrepreneurs; we want to link the artists to their entrepreneurial spirit early on in the game because really those artists need to have an understanding of how business works and how they can interface with it. I am very much enthused by the idea of creating a fund that could make bursaries and effectively start off many small, independent businesses that are centred around the artist. I really want to start focusing on that.

We have seen what kind of investment has gone into athletes over the last 20 years. When you look back at Atlanta and they won one medal and we look at what has happened in these last Olympics, I think it has shown that it works.

Steve Levine: I think investment in an artist’s career is very similar to the training and dedication. It is very hard for artists when they are not funded because they do have to take second and third jobs and it all becomes a piling on. For example, most rehearsal spaces are cheaper during the day and more expensive in the evening so consequently, if they are taking a second job, they then have to pay a premium rate for the evening and it means that the professionals can have the cheaper time.

These funds are very important. I have to fund everything myself by going to the bank. I have to pay ludicrous rates of interest, I have to put my house on the line every time, and I still have to have auditions.

Stephen Budd: And musicians can’t go to the banks.

Steve Levine: We are not taken seriously. It is even just things like the infrastructure. My car insurance is more expensive than your car insurance because I am in the music business; my life insurance is more expensive because I am in the music business, and so on. The interest rates I pay on my credit cards are going to be greater than yours because I am considered a risk.

You mentioned tax. Two things that I think other countries do, and certainly other areas-we did mention technology and Stephen talked about countries having a leading edge. In the 1990s Sweden offered a tax break for record producers who invested in studios and equipment and there was an explosion of Swedish producers who are now taking on the world. All the programmes like Glee and everything were made by the Scandinavian team.

Stephen Budd: All those songs that you hear on X Factor, all written by Swedish writers.

Steve Levine: That is because they gave 100% tax relief on what then was cutting edge equipment, so their producers had the leading edge on us, whereas I remember back to the 1980s Government-which I think was the Thatcher Government-still brought it in where we could lease equipment and you could get all of the leasing back in the first year, which again enabled you.

Here is where it is really important with equipment technology. This country also punches above its weight in technology. Two of the leading manufacturers of recording consoles around the world are SSL and Neve-both British companies, and they are manufacturing here. One of the ramifications of that is if songwriters are not having success, they are then not buying gear and the guy that is sitting there soldering circuits, who technically is not necessarily in the music business, does not have a job. There are some companies that are still manufacturing, despite China, in the UK and those are a real by-product of the success of songwriting. Songwriting is absolutely the core, but so is the innovation that helps us in the production and creation, and we are a world leader in that. So I think that investment has ramifications through it.

Just briefly with the tax thing, if an artist is lucky enough to sign to a record company, they get an advance and they get taxed on that advance because it sits in a bank account-except that that is two years worth of money. In my own case, Culture Club were very, very successful and I had a massive cheque one year. Oddly enough, when I was the most successful-as Stephen probably knows with some of his clients-everyone thinks you are really busy and really expensive, so you then don’t have any work for the next six to nine months in which you earn no money. Having just paid a load of tax on a big cheque, I then don’t have anything. That is obviously an extreme case but that happens a lot where an artist may get some initial funding from a label or an investor and has to pay regular tax and then, if they are lucky enough to have a successful hit, the cycle of payments means that they will have a huge blip and then nothing for a period of time. The tax review for the personal tax could be better if it is at a longer period.

We also have a horrible thing coming up, which is the National Insurance issue, but this is probably not the forum here, where everyone is now suddenly considered to be on National Insurance. If I was to employ a musician, for example, I would effectively have to pay National Insurance and he would have to declare it. It is an unworkable situation. I think there is a case going through in another day or so. That is for another event, but those kinds of things make it really difficult to trade, really difficult.

Fran Healy: Can I add something to what Stephen said about the funding and the investment side of stuff? We bumped into each other yesterday from Heathrow to London and we had a blather about it, and you were saying about the investors only want to invest in royalty format things. That is because I think the way our industry is viewed is that people go, "It is the record business," because they are the most vociferous and very loud, but they only make up a quarter of our industry and that is the reason why it is a royalty thing, so you can’t really-could you just-

Stephen Budd: Yes. The CDIS rules that have been brought in are great and I am really appreciative that finally there is a tax break allowing people to benefit from investing in music, but it is invested in the recorded music side and therefore it is just related to royalties. I think what needs to happen is a greater seeding of those businesses that are in the live music side-and that could be everything from live music venues to small promoters-to create that vibrancy keeping going.

Also the record companies these days are operating in extremely difficult circumstances. I am not a record company basher and there is an absolute place for working with record companies in a collaborative way. The way that we do business with them these days is completely different from the way it was 20 or 30 years ago. It is a much more level playing field in terms of the relationship between the artist and the record company. However, there are very few artists getting that investment from record companies and the record companies need an immediate return. If they sign an artist, they want a return within 18 months. They are not looking to develop artists over three or four albums, so that an artist can really develop their craft and get to a point, rather like Coldplay did or Radiohead did or any of those great British bands who have been built up over 10 or 15 years. That doesn’t happen any more. Those days have gone. You are in and out on your first record. If you don’t have a hit with your first record, you’re toast.

You cannot rely on the record company route any more, therefore how do you develop artists? How are we going to have those long-term international artists in 10 or 15 years’ time that will allow the prominence of the British music industry to continue? So we have to look at the funding coming from other places. The small initial development funds that people need to access are so important for younger artists; how they make their first video, how they make their first recording, how they can scrape £500 together to go and find a producer to help them make a record properly that they can then start putting out to their fans and all the rest of it. Friends and family are very important and that is the way it is being done at the moment, but a lot of artists don’t have access to that.

So I think if you want to help British music develop for the future and really make a difference, finding mechanisms to put in small seed funding directly to artists so that they can start their own businesses, artist-centric businesses, is the way forward and how we can make a real, meaningful difference for the artistic community.

Steve Levine: We are very fortunate in this country that we have the BBC, but at the moment when I tune into various programmes on the BBC, I see it being a gigantic advert for American repertoire and American artists. I think that has to stop, because we are in a position where we are promoting home-grown British talent and at the moment, with the way the visas are, it is very easy for Americans to come over here and appear doing a little promotional tour, separate from a proper tour. I absolutely and fully endorse successful American artists but what I am saying is that we need to help the grassroots UK talent. Often the slots on television and radio are so few and far between that those Americans are getting biased. As Andy said earlier, Canadians are getting their travel paid so it is easy for them. We just have to have a more holistic view of what we are doing. If we are making this talent they need to then have their stuff heard. We do have the BBC and they need to be more flexible.

Stephen Budd: A lot of European countries and Canada and France have quotas, as you are probably aware, for what radio plays. We have not discussed this but I am personally in favour of wanting to support as much new British music as possible.

Steve Levine: They had BBC Introducing and the cutbacks there with local radio. That pulls the carpet from underneath the local areas where you have local hosts that are able to promote local talent. I think it is important that if we are making these recordings the artists themselves, the songwriters, need a voice because they are not necessarily going to sell any recordings at all. Whatever is out there is going to be pirated so the broadcast is equally as important or more so than ever before.

Chair: I think we have spent about 20 minutes on the first question so we are going to have to move on but you have covered an awful lot of ground, a lot of which we were going to come to anyway.

Q276 Steve Rotheram: I think you have already possibly touched on the next question. I watched the process of making a piece of music with Guy Chambers for this tribute single and it was absolutely fascinating, but I didn’t realise quite how complex and lengthy the whole process was and therefore how expensive it would have been if people had charged for their time, which obviously nobody did-it was all done for absolutely nothing. Guy Chambers is a fellow of LIPA as well, just to let you know. The earlier panel gave an overview of the industry and you have mentioned a few bits in this about investment and about other things that you would like to see. How can individual artists be better supported by the industry and by Government?

Steve Levine: I think we have touched on that. If an artist wants to develop their own career and they go to their bank manager, they should not be laughed out of the room. The perception, that is just an overall perception, that it is higher risk as maybe some other industries-I think there are other industries that manufacture widgets that are probably just as high risk.

Q277 Steve Rotheram: It is great to say that banks should do this. How specifically should-

Steve Levine: I thought there was going to be a lot of funds that were going to be available but I don’t know anybody who has had access to any of that. I saw in the paper that X pounds were going to be put into a fund it and it was going to be at special rates if they gave it to small businesses, which we are. I haven’t got one and none of my friends or none of my board members have got any, so where is it?

Q278 Angie Bray: Have you tried?

Steve Levine: Yes, I get laughed at. I can privately give you everything. I could give you a four-hour demonstration of how ludicrous it all is. I have tried. Banks just do not look at the industry seriously.

Stephen Budd: Which is why there is the concept of creating a fund, whether money would come from the lottery or from a much higher tax rate on secondary ticketing, which is creating a substantial damage to the industry because it is sucking money out. Fans are being charged five or six times what they would-they have to be there, they are going to spend that money but it is stopping them going to another five or six gigs so it is effectively ruining it for everybody else.

Q279 Steve Rotheram: Are you talking about ring-fencing that for the industry?

Stephen Budd: Yes, that is one of the things we would like to see.

Steve Levine: The record companies traditionally used to be like glorified high risk banks. They put the money upfront and they took a very high percentage of your royalties in return for that. It was a model that worked when the recorded market was substantial. It is not there any more so you have to go to other sources.

The role of the record producer has, in fact, changed. Most record producers that I know are acting, as Stephen said, as a kind of development hub, developing the act for maybe a couple of years then moving it up to taking it to a publisher or taking it to a record company. They then may get on board when you have already kind of set the wheels in motion. But we have made this early investment and in my personal case I have had to use my own money. Those are the areas that just need to take our industry more seriously.

Q280 Steve Rotheram: I was going to say in regard to being serious, do you think Governments do take you seriously? For instance, the music industry has an amazing power to change worldwide perceptions. We saw what Band Aid and Live Aid did and other things that music have supported. Do you think that that is identified by Governments and given enough support?

Stephen Budd: I think the fact that we are sitting here and talking about it is a very positive step. The fact that you are willing to listen to what we have to say, and we are trying to identify areas in which you can constructively move forward with ideas that would help the industry, is a positive move. I welcome that.

Steve Levine: Ben talked earlier about the DEA and Hargreaves. I think the benefit that has come out of those is more people in Government are talking about the music industry. That is a huge benefit because it has focused their minds on not only how much value, both financially and culturally, we can bring to the United Kingdom but also, as you said, the cost in making these. Yes, you can sit in the bedroom and make a track for virtually nothing, but the IP of the X years of experience in developing that into a hit record is a whole different thing. So there are many, many things that can be done, as we have said. Maybe something like when the charter review comes, there is definitely something in that charter that says a percentage of UK music has to be broadcast across all the networks otherwise that is a default of the terms. Little subtle tweaks here, there and everywhere can make a huge difference.

Q281 Jim Sheridan: Building on your own experience, Fran, is it essential for new performers in particular to sign up to a record company, or would you advise them to sign up to a record company or follow your route? You are probably somewhat unique in the route that you took.

Fran Healy: Say that again, sorry, Jim?

Jim Sheridan: Would a new performer coming into the industry need to sign up with a record company, or would you advise them not to, or follow your route?

Fran Healy: It is totally different now than it was back then. I think there are many doors into that house. You can go in through many entrances and I think it is important that all the entrances are open to everyone. You talked about it, Stephen. I think it was Geoff Taylor who was talking about the BRIT school. I know the BRIT school. They are great, it is a great idea, but Dizzee Rascal would never have got into the BRIT school. It is all middle class kids that have access to a wee bit more funding from their parents or whatever. They can get an electric guitar and an amp and a drum kit. Drum kits cost like £600. Where are you going to get that? So I think there are loads of roads in as long as they are not blocked off for certain people and missed.

Q282 Jim Sheridan: So you are saying it is dependent on your income or your background.?

Fran Healy: It should not be, is what I am saying, but what I will say is that it is. I am an exception. I am a working-class successful musician. All my contemporaries had two parents, they had disposable income, and their parents supported them really well. My mum supported me. She took a loan of £600 out so we could make our den we got as our publishing room.

Stephen Budd: Mumford & Sons’ parents paid for their album recording.

Fran Healy: As a musician you choose the path of least resistance and that is how you get into it and you don’t give up, and that is how it usually happens. Does that answer your question?

Jim Sheridan: Yes, that is fine.

Steve Levine: I think it is worth adding also that, as Fran said, it is probably also a genre-based thing as well, that certain genres are not suited to the major record companies. These may be as extreme as, say, folk or certain very niche markets, and they absolutely require small, independent record companies because the infrastructure of a major record company just is not geared up for them. So there is a financial element but there is also a genre-specific element that certain companies are not suited for dealing with those areas.

Q283 Angie Bray: Can I slightly take you back? I am going to have to take a little bit of exception to your suggestion that our radio stations should have to play a percentage of British music. I think that that is slightly authoritarian, if I may say. I am not aware that the film industry suggests that we should ask cinemas-

Steve Levine: Whether it is legislative or whether it is just a general empowerment, I think if a radio producer is presented with three emerging acts-one is American, one is Canadian and one is British-if they are all of equal merit I think they should be played. I think it is unfair because a British artist cannot turn up at JFK and expect the same from the American radio stations or the American television.

Q284 Angie Bray: But equally I think that our radio stations are duty bound to entertain their audiences so they may well-

Steve Levine: Absolutely. I am not talking about mainstream, I am talking about emerging talent and there is a big, big difference. Absolutely, entertaining the audience with major American artists, I don’t have a problem with that at all because they also would tour here and bring in money to the economy. I am talking about the under-the-radar, BBC Introducing-style artists where they desperately need UK help and I don’t think they are getting it currently.

Q285 Chair: But there are Radio 1 shows that are devoted to new artists, not those who are-

Steve Levine: At 3.00 a.m.

Chair: Yes, but it filters through and they do concentrate on British artists.

Steve Levine: A bit. I have done the analysis. Yes, the headline is that but when you drill beneath it and you look at the statistics it is not enough.

Fran Healy: I disagree. I think that music is an international language and saying, "This is American, this is British, they are not giving this to this and this to this," is kind of a weird musical racism. I don’t like it. I think it is not in the spirit of music. America and Britain have always had that lovely relationship between us and them and they came over here, we went over there and they thought, "Oh, that’s good, I’m going to nick that and make it American," and we thought, "We’ll nick that and make it British." The Beatles went, "Oooh-that Little Richard thing," they nicked that and you got your thing. I think we have a really brilliant music industry on the radio level. I think it is great, one of the best. When I go to France I pull my thinning hair out because they do this thing that you are talking about and it is just ludicrous. Sorry, I am not saying you are ludicrous.

Steve Levine: No. I am maybe using a bad example. I am just saying-and I re-emphasise it because I record many American artists, I am a huge fan of American music-the current climate is very different to what it was 15 or 20 years ago. In the current climate, available slots on terrestrial radio where everyone can hear it are very few and far between, and where there are specialist stations those specialist stations should nurture British talent. I don’t even care if they are Americans living and working here. It is British-based talent where that revenue source is coming back into the UK. That is what I want. That is what I am saying.

Q286 Mr Sanders: In terms of bringing new artists to the fore, how significant are artist advances in bringing music to consumers?

Stephen Budd: How significant are artist advances, the money that they are being paid by record companies?

Mr Sanders: Or by whoever is backing them, whether it is the agents or record companies.

Stephen Budd: Artists have to survive for a considerable amount of time before they get to profitability. I spent the last two years working with a young band called Dry the River who are signed to RCA Sony. They got an advance that allowed them to live while they were building their touring business around Europe. In two and a half years they have done 380, 390 shows-that is a show every other day-but it has taken to that point to get them to profitability, where they now don’t require any support from the record company to go out and play live; they are drawing enough of an audience.

So money is either coming from an advance from a record company or from a publisher or from another source because, as we were talking about earlier on this panel, those deals are becoming less and less available for artists. They are having to look elsewhere to create enough of a bed to allow them to get to profitability.

Q287 Mr Sanders: What can realistically be done to provide a better financial climate for new artists trying to break through, given how tight resources are and how the model seems to have changed a little bit between record companies putting the money in and now it is other sources?

Steve Levine: It goes back to the earlier panel. If somebody goes to LIPA, studies for three years, graduates from LIPA, starts their recording career, they have now had all of the learning that they know, both business and musical, because LIPA does the business side as well. They then produce their record and they can’t sell it because there is not anywhere where they can monetise what they have just spent six or seven years on. That is the problem and so the backward investment is not there because they can’t sell the thing that they make. They can’t sell the thing that they nurture-[Interruption.]

Chair: That, unfortunately, is the division bell, which means we have to vote. I think we will probably have to draw a halt at this stage. I am sorry we are not able to cover everything but our duties elsewhere call. Thank you very much.

Prepared 14th December 2012