Collective Licensing
Changes to collective licensing could seriously damage your income
Over the last year or so there have been major changes to the way in which copyright is managed online. Here we discuss what those changes mean for composers and songwriters.
With the exception of commissioning fees, pretty much any income a composer or songwriter makes from writing music comes in as royalties from exploiting copyright. This makes copyright administration the most important topic on the Academy’s agenda.
The move of music to online has begun to change rights management. The changes that have already happened could make things go badly wrong for writers and if we want to stop that happening, we will need to act together.
Many of you will say this is nothing new … and you’d be right. However, the process is about to get faster. So, what’s the problem?
Big changes in the administration of copyright have always come about as a response to technological change. The invention of printing, cinema, broadcasting, shellac, vinyl, cassettes and CDs all had a major impact and an influence on copyright. The impetus for change this time is, of course, the internet and the online use of music.
Over the last year or so, we have reached a new stage in the licensing of music online. The major publishers want to secure a bigger share of the money from online licensing and they have begun to trade rights in a different way. One example of this is that they have chosen to take their mechanical rights out of the collecting society network.
The competition directorate of the European Commission has also intervened in the relationship between individual collecting societies and as a result, they have disrupted the traditional collecting society models so that those models aren’t available online.
This means:
In the long run, overall collections for performing and mechanical rights online will decrease - in other words, there will be a smaller cake.
We believe that the overall value of the cake would be better defended by collective licensing of authors’ rights and that any further expansion by publishers and record companies is not in the interests of writers.
Major publishers will take a bigger slice of the cake where they can. They will also make greater demands on rights management services.
Moves by major publishers to recoup royalties from performing right shares will further reduce writers’ control.
Major publishers will press for non-exclusive arrangements between writers and collecting societies for performing rights, thereby further increasing the major publishers’ control of the market.
Why will the cake get smaller?
Music users, both online and offline, want simplicity and clarity from their music licensing arrangements. They also wish to minimise costs and over the years, many have complained about collecting society ‘monopolies’. More recently, music users who operate across boundaries have tried to use competition law in an attempt to get societies to compete on cost. In short, the market wants simple, comprehensive licences for a keen price.
The initiatives of the major publishers have fragmented the market and as a result comprehensive licensing arrangements for pan-European services are difficult to get. Before the EC ruled against them, the collecting societies provided comprehensive licences based on a network of reciprocal agreements. Music users got a one-stop shop service. Now it has got a lot more complicated. Say a download service operator, let’s call it You-tunes, wants to supply downloads into the UK, France and Germany. You-tunes want access to a complete worldwide repertoire of music. They have been around the houses to get licences from record companies and now they need licences for musical works.
We worked out how many licences You-tunes would need and think it is at least 10 but it may well be as many as 40 just to cover three countries. The licensee could choose to have more. Under the old arrangements, which were put in place by the collecting societies in 2000, they could have had one. After Music Choice Europe complained to the European Commission the collecting societies had to dismantle those arrangements. (It is interesting to note that Music Choice Chief Exec Margot Daly is now complaining loudly about the difficulty of clearing rights).
Fragmented licensing does not increase revenue for music users. In fact, licensees will have to spend more on negotiating licences and on the administration required to comply with the licences.
Market fragmentation also means that users will have less confidence in the comprehensiveness of their licences and their perception of the value of those licences will fall as a result. Users who can manage with limited music repertoires will shop around for the best deal. This already happens on television in the United States and we have seen the effects of ‘buy-out libraries’ in the production music market.
Some of the Continental collecting societies who feel particularly threatened by the moves of the major publishers are pressing for a compulsory mandate to represent all repertoire.
For a time, some of the major publishers might get more money than they did through the old collecting society network. The new arrangements will also deliver the money back to the publishers more quickly, because some of the collecting society distribution cycles were far too slow. But eventually rightsholders, and major publishers in particular, will have to compete on price.
Why are writers better off with collective management than with the major publishers?
The new licensing arrangements made by the major publishers are less transparent for writers than those formerly made by collecting societies. The terms offered by collecting societies are entirely public, whereas the terms offered by the major publishers are treated as commercially confidential, with both the licensor and the licensee wishing to keep the details of their licences secret from competitors.
Negotiators are bound by confidentiality clauses and statistics about levels of music use are likely to be kept similarly secret.
Collecting societies’ distribution policies and schedules are readily available to members and they normally have staff dedicated to answering members’ queries. Indeed, many have charters specifying how they will deal with dissatisfied members.
The accounting obligations of publishers are set out in publishing contracts, but the methods employed to calculate payment rates are often clear only when there is a specific charge to users for a particular exploitation. As new licensing models are tried out there will be many new ways of charging.
Without access to usage statistics it will be much harder to work out whether a writer’s share is correct. The prospect of auditing a publisher is daunting and actually doing an audit can be prohibitively expensive.
Fragmentation of the market means there are direct clashes of interest between major publishers and collecting societies. Imperfect segmentation means that major publishers are involved in the governance of societies, while competing with the same societies for licensing business.
As technological changes proceed, more and more ways in which music is used will migrate to an online platform. This migration will further reduce writers’ control of their rights.
Other possible effects on writers
As the total value of the market falls, other factors could exaggerate the effect on writers.
The major publishers are already pressing to change the relationship writers have with their collecting societies. Except in the US, writers have normally given their collecting societies exclusive rights to license their works. This has meant that writers almost always get paid their share of performance royalties direct. They don’t have to wait while the publisher gets paid first, or until any advances are recouped.
Although it has not always been true, in recent years the distribution policies on which societies base their performing right distributions have become more transparent. At board level, the elected representatives of the writers have been able to oversee those policies.
The major publishers have often argued that assignments to collecting societies should be non-exclusive, arguing that this will oblige the collecting societies to compete for business, thereby making them more efficient. The major publishers are now making the same arguments specifically about online use.
So far, this analysis has not proved to be right. In the US, where the performing right societies already have non-exclusive arrangements, there is no evidence of greater efficiency. On the other hand, there is evidence that the American societies have to spend money to compete with each other for members. There is also evidence that their competition for licensees has reduced the value of the licence.
If you wanted some clear evidence that the non-exclusive model doesn’t work in the favour of rights owners, then consider this. The online music users want to adopt the US model across the world.
It is also worth noting that although writers make exclusive arrangements with performing right societies, they are not tied to those societies for life. You can leave one and join another. You can split your membership by territory and by the kind of exploitation. The societies themselves gain a great deal from exclusive appointments. They can pursue people who are using music without a licence more effectively and more cheaply (a benefit which can be passed on to the rightsowners) and they can present users with a clear and comprehensive repertoire. Societies with a comprehensive repertoire can invest in substantial systems and they can collaborate with other societies to further exploit economies of scale.
So there’s no particular evidence that encouraging competition between societies makes them more efficient. On the other hand, there is a lot of evidence to suggest that societies with comprehensive and exclusive mandates can achieve better licensing coverage, while there is some evidence that having several societies competing for business adds costs to the system.
What is also clear is that if writers gave non-exclusive mandates to collecting societies, while continuing to allow publishers to take ownership of copyright, those publishers would be able to recoup advances from performing right income, just as they do for mechanicals.
They would also be able to dictate terms for other forms of licensing, cherry picking direct licences where possible. They would begin to get more control of the collecting societies.
This could lead to some very odd licensing arrangements. We have already seen licences granted not in exchange for royalty payments, but instead for an equity stake in user companies.
If we move to non-exclusive assignments, we will be one step closer to a buy-out system and will also have damaged the collecting societies’ ability to use their economies of scale. In the short term, some writers might gain from direct licensing by major publishers, but in the longer term we will all be worse off.
Other effects on the collecting societies
The fact that the major publishers have withdrawn their mechanicals means that the collecting societies are not able do the comprehensive one-stop licensing deals that the online market wants.
The bigger collecting societies are still doing online mechanical licensing for the major publishers, while they’ve also had to align their performing right licences so that companies like iTunes can be properly licensed. The collecting societies have to cooperate with the major publishers, while competing with each other for their business.
As a result, management and corporate governance of collecting societies has become even more difficult, as conflicts of interest abound and the threat of regulation restricts their freedom to manoeuvre and negotiate.
In the meantime, the users continue to want a re-aggregated market, where they can go to a one-stop shop (or worse, a choice of one-stop shops) for the rights they need.
What’s it all worth anyway?
In 2007, MCPS-PRS collected £562million. Of that, only about £16million was for online and mobile. So on the face of it, it’s still not that important. However, this sector is now really taking off. Over the last five years, the Alliance’s collections from online and mobile grew from £106,000 in 2002 to £16million in 2007.
We’re all changing the way we buy music and the way in which we use broadcasting. The deals that are being done today are groundbreaking. However, it is still hard to see what business models best suit rightsholders in general and writers in particular.
We have to keep control of our rights and the Academy believes that a strong collective licensing regime is the only way for writers to stay in the game.
What action do we need to take?
We must resist any attempt by major publishers to withdraw performing rights and any attempt to change the basis on which writers join collecting societies.
We have to maintain full writer representation in the governance of collecting societies.
The entire Academy membership has to stand together on this and we need to find all the allies we can. We must also ensure that as many writers as possible join the organisation in order to strengthen its voice still further.
We need to show regulators that the big multi-nationals - be they major publishers, broadcasters, or ISPs - are the ones who have dominant positions in the market and that they don’t need to be protected from collecting societies.
Wherever we can, we’ve got to remind all areas of government that copyright, which after all is the legal instrument for the protection of individual creativity, is in the public interest.
Epilogue
There has been a great deal of talk about and analysis of the online market over the last 10 years. Much of that talk and analysis suggested that ‘content is king’, ‘creators can control their own stuff’ and ‘business models must change’.
Online music ought to make the market more accessible for composers and songwriters. It ought to mean that you can get your music to listeners more directly and without so many intermediaries.
It is imperative that as writers we stick together and make sure that the royalty model survives in the brave new digital world.
Over the last year or so there have been major changes to the way in which copyright is managed online. Here we discuss what those changes mean for composers and songwriters.
With the exception of commissioning fees, pretty much any income a composer or songwriter makes from writing music comes in as royalties from exploiting copyright. This makes copyright administration the most important topic on the Academy’s agenda.
The move of music to online has begun to change rights management. The changes that have already happened could make things go badly wrong for writers and if we want to stop that happening, we will need to act together.
Many of you will say this is nothing new … and you’d be right. However, the process is about to get faster. So, what’s the problem?
Big changes in the administration of copyright have always come about as a response to technological change. The invention of printing, cinema, broadcasting, shellac, vinyl, cassettes and CDs all had a major impact and an influence on copyright. The impetus for change this time is, of course, the internet and the online use of music.
Over the last year or so, we have reached a new stage in the licensing of music online. The major publishers want to secure a bigger share of the money from online licensing and they have begun to trade rights in a different way. One example of this is that they have chosen to take their mechanical rights out of the collecting society network.
The competition directorate of the European Commission has also intervened in the relationship between individual collecting societies and as a result, they have disrupted the traditional collecting society models so that those models aren’t available online.
This means:
In the long run, overall collections for performing and mechanical rights online will decrease - in other words, there will be a smaller cake.
We believe that the overall value of the cake would be better defended by collective licensing of authors’ rights and that any further expansion by publishers and record companies is not in the interests of writers.
Major publishers will take a bigger slice of the cake where they can. They will also make greater demands on rights management services.
Moves by major publishers to recoup royalties from performing right shares will further reduce writers’ control.
Major publishers will press for non-exclusive arrangements between writers and collecting societies for performing rights, thereby further increasing the major publishers’ control of the market.
Why will the cake get smaller?
Music users, both online and offline, want simplicity and clarity from their music licensing arrangements. They also wish to minimise costs and over the years, many have complained about collecting society ‘monopolies’. More recently, music users who operate across boundaries have tried to use competition law in an attempt to get societies to compete on cost. In short, the market wants simple, comprehensive licences for a keen price.
The initiatives of the major publishers have fragmented the market and as a result comprehensive licensing arrangements for pan-European services are difficult to get. Before the EC ruled against them, the collecting societies provided comprehensive licences based on a network of reciprocal agreements. Music users got a one-stop shop service. Now it has got a lot more complicated. Say a download service operator, let’s call it You-tunes, wants to supply downloads into the UK, France and Germany. You-tunes want access to a complete worldwide repertoire of music. They have been around the houses to get licences from record companies and now they need licences for musical works.
We worked out how many licences You-tunes would need and think it is at least 10 but it may well be as many as 40 just to cover three countries. The licensee could choose to have more. Under the old arrangements, which were put in place by the collecting societies in 2000, they could have had one. After Music Choice Europe complained to the European Commission the collecting societies had to dismantle those arrangements. (It is interesting to note that Music Choice Chief Exec Margot Daly is now complaining loudly about the difficulty of clearing rights).
Fragmented licensing does not increase revenue for music users. In fact, licensees will have to spend more on negotiating licences and on the administration required to comply with the licences.
Market fragmentation also means that users will have less confidence in the comprehensiveness of their licences and their perception of the value of those licences will fall as a result. Users who can manage with limited music repertoires will shop around for the best deal. This already happens on television in the United States and we have seen the effects of ‘buy-out libraries’ in the production music market.
Some of the Continental collecting societies who feel particularly threatened by the moves of the major publishers are pressing for a compulsory mandate to represent all repertoire.
For a time, some of the major publishers might get more money than they did through the old collecting society network. The new arrangements will also deliver the money back to the publishers more quickly, because some of the collecting society distribution cycles were far too slow. But eventually rightsholders, and major publishers in particular, will have to compete on price.
Why are writers better off with collective management than with the major publishers?
The new licensing arrangements made by the major publishers are less transparent for writers than those formerly made by collecting societies. The terms offered by collecting societies are entirely public, whereas the terms offered by the major publishers are treated as commercially confidential, with both the licensor and the licensee wishing to keep the details of their licences secret from competitors.
Negotiators are bound by confidentiality clauses and statistics about levels of music use are likely to be kept similarly secret.
Collecting societies’ distribution policies and schedules are readily available to members and they normally have staff dedicated to answering members’ queries. Indeed, many have charters specifying how they will deal with dissatisfied members.
The accounting obligations of publishers are set out in publishing contracts, but the methods employed to calculate payment rates are often clear only when there is a specific charge to users for a particular exploitation. As new licensing models are tried out there will be many new ways of charging.
Without access to usage statistics it will be much harder to work out whether a writer’s share is correct. The prospect of auditing a publisher is daunting and actually doing an audit can be prohibitively expensive.
Fragmentation of the market means there are direct clashes of interest between major publishers and collecting societies. Imperfect segmentation means that major publishers are involved in the governance of societies, while competing with the same societies for licensing business.
As technological changes proceed, more and more ways in which music is used will migrate to an online platform. This migration will further reduce writers’ control of their rights.
Other possible effects on writers
As the total value of the market falls, other factors could exaggerate the effect on writers.
The major publishers are already pressing to change the relationship writers have with their collecting societies. Except in the US, writers have normally given their collecting societies exclusive rights to license their works. This has meant that writers almost always get paid their share of performance royalties direct. They don’t have to wait while the publisher gets paid first, or until any advances are recouped.
Although it has not always been true, in recent years the distribution policies on which societies base their performing right distributions have become more transparent. At board level, the elected representatives of the writers have been able to oversee those policies.
The major publishers have often argued that assignments to collecting societies should be non-exclusive, arguing that this will oblige the collecting societies to compete for business, thereby making them more efficient. The major publishers are now making the same arguments specifically about online use.
So far, this analysis has not proved to be right. In the US, where the performing right societies already have non-exclusive arrangements, there is no evidence of greater efficiency. On the other hand, there is evidence that the American societies have to spend money to compete with each other for members. There is also evidence that their competition for licensees has reduced the value of the licence.
If you wanted some clear evidence that the non-exclusive model doesn’t work in the favour of rights owners, then consider this. The online music users want to adopt the US model across the world.
It is also worth noting that although writers make exclusive arrangements with performing right societies, they are not tied to those societies for life. You can leave one and join another. You can split your membership by territory and by the kind of exploitation. The societies themselves gain a great deal from exclusive appointments. They can pursue people who are using music without a licence more effectively and more cheaply (a benefit which can be passed on to the rightsowners) and they can present users with a clear and comprehensive repertoire. Societies with a comprehensive repertoire can invest in substantial systems and they can collaborate with other societies to further exploit economies of scale.
So there’s no particular evidence that encouraging competition between societies makes them more efficient. On the other hand, there is a lot of evidence to suggest that societies with comprehensive and exclusive mandates can achieve better licensing coverage, while there is some evidence that having several societies competing for business adds costs to the system.
What is also clear is that if writers gave non-exclusive mandates to collecting societies, while continuing to allow publishers to take ownership of copyright, those publishers would be able to recoup advances from performing right income, just as they do for mechanicals.
They would also be able to dictate terms for other forms of licensing, cherry picking direct licences where possible. They would begin to get more control of the collecting societies.
This could lead to some very odd licensing arrangements. We have already seen licences granted not in exchange for royalty payments, but instead for an equity stake in user companies.
If we move to non-exclusive assignments, we will be one step closer to a buy-out system and will also have damaged the collecting societies’ ability to use their economies of scale. In the short term, some writers might gain from direct licensing by major publishers, but in the longer term we will all be worse off.
Other effects on the collecting societies
The fact that the major publishers have withdrawn their mechanicals means that the collecting societies are not able do the comprehensive one-stop licensing deals that the online market wants.
The bigger collecting societies are still doing online mechanical licensing for the major publishers, while they’ve also had to align their performing right licences so that companies like iTunes can be properly licensed. The collecting societies have to cooperate with the major publishers, while competing with each other for their business.
As a result, management and corporate governance of collecting societies has become even more difficult, as conflicts of interest abound and the threat of regulation restricts their freedom to manoeuvre and negotiate.
In the meantime, the users continue to want a re-aggregated market, where they can go to a one-stop shop (or worse, a choice of one-stop shops) for the rights they need.
What’s it all worth anyway?
In 2007, MCPS-PRS collected £562million. Of that, only about £16million was for online and mobile. So on the face of it, it’s still not that important. However, this sector is now really taking off. Over the last five years, the Alliance’s collections from online and mobile grew from £106,000 in 2002 to £16million in 2007.
We’re all changing the way we buy music and the way in which we use broadcasting. The deals that are being done today are groundbreaking. However, it is still hard to see what business models best suit rightsholders in general and writers in particular.
We have to keep control of our rights and the Academy believes that a strong collective licensing regime is the only way for writers to stay in the game.
What action do we need to take?
We must resist any attempt by major publishers to withdraw performing rights and any attempt to change the basis on which writers join collecting societies.
We have to maintain full writer representation in the governance of collecting societies.
The entire Academy membership has to stand together on this and we need to find all the allies we can. We must also ensure that as many writers as possible join the organisation in order to strengthen its voice still further.
We need to show regulators that the big multi-nationals - be they major publishers, broadcasters, or ISPs - are the ones who have dominant positions in the market and that they don’t need to be protected from collecting societies.
Wherever we can, we’ve got to remind all areas of government that copyright, which after all is the legal instrument for the protection of individual creativity, is in the public interest.
Epilogue
There has been a great deal of talk about and analysis of the online market over the last 10 years. Much of that talk and analysis suggested that ‘content is king’, ‘creators can control their own stuff’ and ‘business models must change’.
Online music ought to make the market more accessible for composers and songwriters. It ought to mean that you can get your music to listeners more directly and without so many intermediaries.
It is imperative that as writers we stick together and make sure that the royalty model survives in the brave new digital world.
