The French government’s decision to impose a new tax on music streaming platforms will be highly damaging for the country’s music industry and sets a “dangerous precedent” for other markets, warn streaming executives opposing the levy.

France’s National Assembly officially approved the tax charges on Tuesday (Dec. 19) as part of the country’s 2024 finance bill.

It specifies that streaming services such as Spotify, Deezer and Apple Music earning above 20 million euros ($22 million) in annual turnover will have to pay a new tax charge of 1.2% on all streaming revenue generated in France in addition to their existing tax duties. Social media platforms like Facebook and TikTok which license and feature music will also be subject to the tax charges.

The money will be used to help fund a national body to support the French music sector, The Centre National de la Musique (CNM), which was created in 2020 and is already partly financed by the live music industry.

The new levy comes into effect from Jan. 1, although music streaming services are still waiting for confirmation of when the first payment will be due to the French authorities.

‘A REAL BLOW’

Deezer CEO Jeronimo Folgueira says the tax on streaming platforms’ earnings will have “negative consequences for the entire music industry in France.”

“It is the worst possible outcome of all the different scenarios that we could have ended up with,” Folgueira tells Billboard. “Adding taxes is the worst way of trying to support the industry. It sets a very dangerous precedent for other markets.”

In a statement, a spokesperson for Spotify France called the tax “a real blow to innovation, and to the growth prospects of recorded music in France.”

The company said it is “assessing the implications of such a tax” and “strongly remain opposed to this unfair, unjust and disproportionate measure.”

On Wednesday (Dec. 20), Spotify France announced that it was pulling financial support for two local music festivals, the Francofolies de la Rochelle and the Printemps de Bourges, to help offset the extra tax burden.

Plans to tax music streaming platforms’ earnings in France have long been mooted by authorities and were first proposed in April by then-senator Julien Bargeton, who initially suggested a tax rate of 1.75% for services like Spotify, Deezer, Apple Music, Amazon Music and YouTube Music to support the French music industry.

In response, streaming executives and stakeholders from across the country’s music industry put forward a number of alternative funding solutions, including making a voluntary annual contribution of 14 million euros ($15 million) towards The Centre National de la Musique.

Executives closely involved in those talks tell Billboard that the voluntary contribution proposal — which involved the participation of collecting societies and music producers and was tiered depending on a company’s business and turnover — received “near unanimous” backing from across the sector, apart from Amazon, which refused to commit. (Amazon Music, Apple Music and YouTube Music all declined or didn’t respond to requests to comment when contacted by Billboard).

With the music industry unable to agree on an alternative offer, the French Senate voted in November to approve the new tax measures, which were formally ratified earlier this week.

TAX BURDEN

President Emmanuel Macron’s decision to tax music streaming companies to fund cultural programs follows the same principles the country already applies to the film industry. For many decades, the French government has imposed a tax levy on cinema ticket sales (currently amounting to 10.7% of the ticket price) to fund public body The French National Centre of Cinema (CNC).

Since 2010, publishers and distributors of television services, including streaming platforms like Netflix and ad-funded videos platforms such as YouTube, as well as DVD and Blu-Ray retailers, have paid a similar mandatory contribution set at 5.15% of turnover.

Like its cinema counterpart, funding for The Centre National de la Musique will come from across the French music industry, but executives at Spotify and Deezer believe it places an unfair burden on streaming companies who already pay out around 70% of their revenues to rights holders alongside their existing tax commitments in France. They include sales tax (VAT) at 20% and a 3% tax on digital services.

At present, the French live music industry pays a higher rate of tax contribution (3.5% on concert tickets) towards the CNM, but ticketing companies pay a lower rate of VAT sales tax (around 5%) compared to digital music platforms.

Physical music retailers, recording studios, radio services and labels are exempt from paying the new 1.2% levy.

“We’re not questioning the need to finance The Centre National de la Musique or be taxed. What we’re questioning is the decision to only target one distribution format – DSPs,” says one France-based music executive, speaking to Billboard anonymously.

Folgueira says the tax unfairly impacts on European streaming platforms like Deezer and Spotify, which have heavily invested in developing the local market, and disproportionately advantages American tech giants like Google, Apple and Amazon who have a smaller on-the-ground presence and “can easily absorb the costs.”

Paris-based Deezer is the market leading subscription streaming service in France and generates around 60% of its 451 million euros ($478 million) yearly revenue in the country. A tax rate of 1.2% on domestic turnover works out at around 3.2 million euros ($3.5 million), according to Billboard’s calculations.

CUTS COMING?

Folgueira says the new tax burden could possibly mean that Deezer is forced to pass on the extra costs “along the value chain,” which could include reviewing agreements with labels and rights holders.

The CEO says that it’s likely to mean Deezer cutting spend on domestic music projects and marketing, while price rises for subscribers is another possible outcome. “None of which is a good outcome for boosting the French market,” cautions Folgueira.

France is the world’s sixth largest recorded music market with €920 million in revenue in 2022, up 6.4% on the previous year, according to IFPI’s Global Music Report.

Folgueira’s concerns are shared by executives at Spotify. Speaking last week to local news network France Info, Antoine Monin, director general of Spotify France said that the company will reduce its investment in the market as a result of the taxes and said “France will no longer be a priority for Spotify.”

Billboard understands that Spotify France will be making further cost saving announcements in the coming weeks with subscription price rises among the options on the table.

Confirmation of a new tax charge for streaming companies in France comes at a pivotal time for Spotify, which posted an operating profit of 32 million euros ($35 million) in the third quarter of 2023 but has also undergone three rounds of job cuts this year.

Earlier this month, Spotify co-founder and chief executive Daniel Ek announced that the company was to close more than 1,500 posts internationally, representing around 17% of its global workforce.

“For many months now, we have been denouncing the risks underlying the creation of such a tax, particularly in terms of the loss of attractiveness for platform investments in France,” says Alexandre Lasch, managing director of French labels body SNEP. “It is precisely the artists produced in France who will be the victims.”

Despite streaming companies’ opposition to the levy, other sectors of France’s music business have welcomed the increased funding towards domestic culture.

Guilhem Cottet, managing director of the French association of independent music companies UPFI, says the establishment of a mandatory contribution to the CNM from streaming companies will help drive diversity and innovation in the sector.

“The current remuneration model is unjust towards a lot of musical genres which are not heavily listened to by young people — mostly rap and electronica — in France. And if there’s no decent remuneration, labels will cease producing these genres,” says Cottet.

“The tax is a regulation tool to ensure the CNM is able to finance them and make sure diversity prevails.”