China is an increasingly developing market for European music. As the representative body of composers, songwriters, music publishers and their collecting societies in the UK, British Music Rights (see note 1) recommends possible aspects to be raised with the Chinese Government during trade talks to protect the intellectual property of European music creators and music publishers.

We welcome the G8 Statement on Reducing IPR Piracy and Counterfeiting through more effective enforcement at the Gleneagles Summit 2005 (see note 2).

Broadcasting

• In 2001 amendments to Chinese copyright law have been introduced to ensure that music creators and publishers are rewarded for the use of music in broadcasts in compliance with international agreements. Whilst we acknowledge the enormous accomplishments achieved by the Chinese Government in recent years towards improving their intellectual property law framework, we are still concerned about the losses for European music creators and publishers caused by the lack of payments of royalties to Chinese as well as European right holders in practice.
• We urge the Commission to encourage the two Government led parties (for broadcasters and collecting societies respectively) to the discussions/ negotiations to agree on royalties to ensure that music creators and publishers receive the appropriate monies they are due since October 2001.

Piracy

• Although we acknowledge that there have been some efforts to improve the high levels of piracy and counterfeit goods by the Chinese Government following its accession to the WTO, this still falls well short of internationally accepted standards. The issue of enforcement remains crucial and a number of steps can be taken with regards to deterrent sanctions, comprehensive police powers, better education and training, as well as resourcing in practice.
• The Commission should continue to provide constructive assistance and co-operation to their Chinese counterparts; this may take many forms, from strategic advice to knowledge and information sharing, to offering solutions based on European best practice.

Market access

• Rules prohibiting foreign company investment in China (market access problems) inhibit the development of appropriate business networks. Consequently the potential for market entry is significantly reduced.
• We recommend further co-operation regarding the establishment of an effective European Music Office in China to provide services to composers, music publishers trying to establish a presence in China.

China - key developing market for music

The music industry is a main contributor to the European economy. A recent study by the Turku School of Economics, Finland showed that the copyright industries contributed more than €1,200 billion to the EU-15 economy, produced value added of €450 billion and employed 5.2 million people (2000 figures).

As a specific example the UK music industry contributes £4.6 billion per year to the UK GDP, with exports valued at over £1.3 billion a year (see note 3). Copyright royalties make up the vast proportion of composers’ and publishers’ income. They receive royalties for the broadcast and performance of their music overseas through the international network of collecting societies or sub-publishing networks. Revenue from international territories directly depends on copyright law in those countries and its enforcement in practice.

One of our member organisations, the Performing Right Society (PRS), signed a reciprocal representation contract with the MCSC (Music Copyright Society of China) in 1995, by which PRS represents Chinese repertoire here in the UK and MCSC represents the repertoire of PRS’ members in China. This contract is an investment in the long term, which will provide for a flow of income when the market in China develops and when rights become recognised and valued.

With its population of more than 1.3 billion, China is a key market for British music when the legal framework allows a valuable market to develop. Adequate and effective protection of intellectual property rights is not only in the interest of international right holders such as the ones represented by British Music Rights; it is also of China’s direct interest in its endeavour to attract foreign investment.

Broadcasting: Practical impact of amendments to Chinese legislation

The Chinese Government adopted amendments to its Copyright Law of 1990 on 27th October 2001 to bring its copyright regime into compliance with the TRIPS Agreement, and we understand it is also considering further amendments to facilitate ratification of the 1996 WIPO “Internet” treaties.

Royalties for broadcasting

There was one change to the law with particular significance to writers and publishers of music. Broadcasting is huge business in China, with 38 provincial television broadcasters, 752 local stations and more than 2,100 cable operators throughout the country. However, until the amendments in October 2001, a wide exception permitted broadcasters to use musical works without either authorisation or remuneration. The exception also made it impossible for MCSC to collect royalties from bars or restaurants for public reception of broadcasts. We hope that the changes in the law make a real economic difference to copyright owners, though their application in practice must be reviewed on a regular basis. It is almost 5 years since the changes were passed with no clear timetable in place pertaining to the commencement of royalty payments by Chinese broadcasters for use of copyright music.

Income for collecting societies

In 2005, PRS received only £8,100 in payments from MCSC, the Chinese collecting society for composers, authors and publishers. Whilst this is an improvement from literally nothing in previous years, this still falls very short of what should have been paid to UK music creators and publishers.

This income does not reflect the reality of music consumption in China if compared with the PRS income from other smaller Asian territories with more mature markets such as Hong Kong (£335k in 2005).

Whilst Chinese broadcasters acknowledge the need to pay for music, the proposed tariff is disputed. According to our understanding of the Chinese Copyright law (Article 43 and potentially Article 42), the tariff has to be passed by the Chinese State Council. At present negotiations are on-going between the NCAC (National Copyright Administration of China) and SARFT, the Government controlled agency in charge of the film and broadcasting industries. As long as there is no agreement between these parties it is unlikely that the State Council can set a tariff, meaning that composers and publishers all over the world, including China, are not being remunerated. It seems that MCSC has proposed a tariff based on 2% of the broadcasters’ revenues whilst the broadcasters only want to pay a lump sum, albeit a very low amount. Agreement of a reasonable tariff is essential in order to adequately remunerate copyright owners. A 2% rate represents the average rate paid by broadcasters in the EU.

Loss to EU interests 2002 to 2005: Over €38 million

CISAC published updated figures on the EU losses since 2002 based on a notional tariff on TV advertising revenues of 2% (the estimation does not include radio advertising revenues since reliable figures are difficult to establish in this area). Losses to European interests for 2002 to 2005 are estimated to be more than €38 million.

Rampant Piracy

We recognise some positive developments, but piracy remains at an unacceptable high level in China – there is a piracy rate for sound recordings of 85% representing a loss to the music industry of US$ 204 million in 2005 (see note 5). Inadequate legal protection combined with ineffective tools for enforcement of intellectual property rights were partly addressed during the negotiations for China’s entry into the WTO, and it is vital that as a full WTO member, China improves its actual record on law enforcement in order to comply with its obligations under TRIPS. This requires amongst others:

• Deterrent sanctions
  Availability of deterrent criminal sanctions and appropriate civil damages (which also need to be imposed in practice)
• Comprehensive police power
  Comprehensive police powers (e.g. to conduct raids and searches on premises)
• Education/ training
  Intensification of education and training of members of the judiciary and the police (in particular customs officials to counter exports)
• Mandate
  Clear mandate for foreign professional organisations representing rights holders to be able to enforce the rights of their members in their own name. It is very burdensome for such organisations to join their members into any legal action and for each member to have to adduce title before they can commence proceedings.
• Resources in practice
  Devotion of sufficient resources

Market access restrictions

As regards music publishers, market access restrictions present an impediment to receipt of payable income. Typically publishers promote musical works in their catalogues internationally through appointment of sub-publishers or through the establishment of subsidiary companies in different territories. Rules prohibiting foreign company investment in China (market access problems) inhibit the development of appropriate business networks. Consequently the potential for market entry is significantly reduced.

European Music Office

The European Union, and the European Commission (DG Trade in particular) should work closely with European music creators and publishers and their collecting societies to establish an operative presence in China offering local expertise and knowledge as well as providing business contacts.

Notes

1. British Music Rights is the consensus voice of Britain’s composers and songwriters, music publishers and the UK collecting societies. The members of British Music Rights are the British Academy of Composers and Songwriters, the Music Publishers Association, the Mechanical-Copyright Protection Society (MCPS) and the Performing Right Society (PRS), which together represent some 50.000 composers and music publishers.
2. PostG8_Gleneagles_CounterfeitingandPiracy
3. Music Education Council report - Counting the Notes (November 2002)
4. The exact calculation had been submitted to the Commission by CISAC
5. Source: IIPA 2006 Special 301 report (www.iipa.com)