British Music Rights (see note 1) represents over 50,000 composers, songwriters, music publishers and their UK collecting societies (MCPS and PRS). As an organisation representing both collecting societies and their members we have the following comments with regard to the European Parliament’s Working Document on the Commission Recommendation on online music management for legitimate online services (2005/737/CE).

• We welcome the Commission Recommendation on online music management for legitimate online services. The Recommendation provides the best possible framework for incentivising rights holders and collecting societies to streamline cross border licensing in a manner which would maintain the value of music. We support the relevant suggestion in the Working Document.
• Rights owners and collecting societies are already developing new and innovative licensing arrangements in response to the Recommendation and should be given more time to test these further before either the EU Commission or Parliament contemplates any tougher regulation of online music management.
• We fully support the Commission’s calls for greater transparency and better governance of collecting societies. Should legislation on collective management be considered now or in the near future it should focus on laying down clear standards of transparency and good governance to be applied across all EU collection societies. This would serve to “oil the wheels” of market development without unduly intervening in the commercial licensing of rights.

1. INTRODUCTION

1.1 The role of collective management

Collecting societies play a crucial role in the music licensing process off- and on-line:

i) For members (i.e. in our case composers, songwriters and music publishers) – collecting societies aggregate the rights of their members, collect revenue from licensing, audit and monitor actual use of music, and ensure that it is transparently and equitably distributed back to the members. Societies also bring enforcement actions against unlicensed users on behalf of their members.

ii) For users, such as record companies, broadcasters or online music service providers such as iTunes – collecting societies provide a convenient one stop shop for commercial users wanting to obtain a licence to use the global music repertoire of composers and music publishers within a particular territory.

In the physical world, licensing has been (and may continue to be) conducted on a territory by territory basis. However, territorial restrictions are no longer relevant when licensing online music services with global reach. Indeed the growth of digital music services operating cross border has given rise to a demand by users for streamlined pan European music licensing.

1.2 Commission Recommendation on online music management for legitimate online services (2005/737/CE) 

The recent European Commission Recommendation has two objectives:

1. to maximise efficiencies for members of societies by laying down conditions on governance and transparency and by facilitating choice for rights holders to withdraw their rights from societies and either self-administer them or transfer them to whichever society they believe will administer their rights for online use most effectively.

2. to boost the competitiveness of European music service providers by streamlining the process by which they can obtain music licences to cover the whole European territory whilst ensuring that value is returned to songwriters, composers and publishers;

The desired result (following a certain transitional period) is the streamlining of collective management via the creation of online rights hubs which deliver maximum value and efficiency of licensing, usage monitoring and distribution to rights owners and from which users can obtain multi-territorial and multi repertoire licences. This will promote the important goal of European competitiveness as recognised in the main suggestions in the Working Document.

2. BRITISH MUSIC RIGHTS’ COMMENTS

British Music Rights and its membership wholeheartedly support the European Commission’s Recommendation for the reasons given below.

2.1  Recommendation is the right Community instrument at this stage
The Recommendation provides the framework for how the rights management market should develop, and rights owners and collecting societies are now acting to achieve the objectives set out. The MCPS-PRS Alliance has been among the first to act upon the Recommendation by:

• Co-operating with the German collecting society GEMA on the development of a pan-European online licensing structure – covering works in the catalogue of EMI Music Publishing;

• Developing a new technology platform,  eLos, for licensing in co-operation with the Spanish society, SGAE;

• Providing pan-European licensing arrangements to streamline licensing procedures for cross-border services such as the ringtones offers provided by Voice Over Internet Protocol telephony service, Skype.

Rights owners are keen to act on the Recommendation. This involves restructuring sub-publishing arrangements, negotiating the early withdrawal of online rights from society membership agreements and negotiations with chosen societies for the creation of on-line rights hubs.  These discussions are already underway but a realistic timeframe needs to be allowed for the completion of such complex negotiations involving so many parties.  The Commission originally allowed for a period to the end of 2006, which would seem to acknowledge the amount of work to be undertaken by rights owners.  
Discussions on a possible directive on management of online music at this stage would be premature and would merely create further uncertainty for collecting societies.  It would almost certainly thus delay the further development of pan European licensing whilst implementation of a directive is pending. Furthermore, while a directive laying down clear requirements for transparency and good governance in all European societies could be considered, we caution strongly against governmental or regulatory intervention in commercial negotiations between collecting societies and commercial users.

We therefore urge European policy makers to allow the market more time to reform before considering a more binding legislative instrument such as a directive on online music management for legitimate online services.  We broadly welcome the call for an impact assessment on the implementation of the Recommendation as proposed in the main suggestions in the Working Document; as consultation with all stakeholders is of particular importance.

2.2 The Recommendation recognises that collecting societies are trustees of their members’ rights and that therefore any competition between societies must be for members not users

We welcome the main suggestions in the Working Document, in particular insofar as they support the actual substance of the Recommendation and the “option 3” approach.  The Recommendation recognises that the primary purpose of any collecting society is to deliver value to the creative individuals (composers, songwriters and consequentially their publisher) whose rights they hold as trustee/ guardian. Members’ interests should therefore be central to discussions, and any competition introduced into collective rights management in order to promote greater efficiencies should be geared towards competition for members rather than users.

Conversely, any new regime promoting competition for users (“option 2”) would force societies to compete with each other on price, leading to a downward spiral in the value of the rights that they hold on trust for their members. In effect, under such a system, rights owners with catalogue administered by different societies would be competing against themselves. In this scenario, there is every probability that rights owners would withdraw their rights from societies and seek to license them directly, creating more rather than fewer complexities for users. 

2.3 The Recommendation will promote rather than undermine cultural diversity

Cultural diversity is a fundamental concern in a global and ever-converging digital world. As said in 2.1 above, by promoting competition for members, rather than users, the Commission has acted to uphold the value of creative content thereby maintaining an environment which stimulates creative production and diversity. A streamlined cross border licence as envisaged by the Commission will also provide a platform for the pan European dissemination of music; this will promote European cultural diversity enabling local and niche music to be listened to all across Europe.

2.4 There will still be an important role for national collecting societies

As implementation by rights owners and societies develops, possibly by the creation of online rights hubs through which multi-territorial, online licenses are provided, we predict that there will still be an important role for national collecting societies because:

• Royalty income from online music currently represents only a small percentage of collecting societies’ income. Since the Recommendation only applies to online music licensing, licensing for other uses such as physical recordings, public performance and radio and television broadcasting will continue to be managed by local societies.

• Even for the online income, rights hubs will need to engage with national societies in the administration of the online rights in their territory and as local contact or agent.

• Many right holders – particularly smaller ones - will opt to remain members of their national collecting societies meaning that national societies will still retain important catalogues of local repertoire.

• Local repertoire is vital to even the largest global brands such as iTunes which tailors its music offering to the local market. National societies retaining important local catalogue will be able to negotiate licensing deals either directly with the user or through the new online rights hubs.

2.5 Greater efforts should be made by some societies to improve governance structure and promote transparency in royalty distribution

Good governance should be a cornerstone of every collecting society, and we would welcome increased compliance with high standards of good governance, transparency, accountability and efficiency. During the 1990s the UK competition authorities carried out an investigation into PRS policies and procedures, the outcome of which is that PRS has achieved standards of transparency, accountability and efficiency that we believe may be lacking in parts of the EU. Further legislation harmonising such standards on good governance and transparency would be welcome provided that this is achieved in a manner that would enhance and not undermine the core services provided by collecting societies; moreover it would be compatible with, and complement, the Recommendation which addresses the management of online music.

Good governance standards should include fair representation of the membership on the Boards of collecting societies; non-discrimination regarding admission to, withdrawal from, and switching between collecting societies; efficient distribution mechanisms; good general services to members and transparency for members in respect of provision of access to internal documents and financial records in relation to distribution, licensing revenue and general information regarding the works of the respective member. The concept of transparency should obviously be applicable to all parties involved, i.e. commercial users as well as collecting societies.

In our view this will be achieved by the Recommendation as right holders will chose the best governed collecting societies to administer their online rights.

Good governance is particularly important where members’ royalty income is used for social and cultural purposes. The promotion of cultural diversity is not a natural responsibility of collecting societies but, as acknowledged in the Working Document, the relevant right holders can direct funds to cultural purposes if they decide to do so. Rules of accountability and transparency should also cover the practice of making social and cultural deductions from royalty distributions, a practice that is followed in several EU territories. British Music Rights is a firm supporter of cultural diversity but believes that deductions from royalty income – whether for social or cultural purposes - should be made only with the consent of a fully representative Board, and should also only be taken only from the royalty income attributable to the repertoire of that society’s direct membership.

Social deductions (eg for pensions) which are taken from all royalty income (including royalties on foreign repertoire) but only paid to national rights owners are not acceptable.

In our view the Recommendation will bring about substantial changes to collecting societies given time to mature; should further legislative action be contemplated this should focus on aspects of good governance, accountability and transparency.

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 (MPA), the Mechanical-Copyright Protection Society (MCPS) and the Performing Right Society (PRS).