European Union: Collecting Societies Overhaul

With harmonisation of collective rights management in the EU having been on the European Commission's agenda since as far back as 1995, 4 November 2013 saw the conclusion of negotiations concerning the Directive on collective management of copyright and related rights, and multi-territorial licensing of rights in musical works for online uses in the internal market (the "Directive"). The legal affairs committee of the European Parliament approved the text of the proposed Directive on 26 November 2013. With Parliament approving the Directive at first reading on 4 February 2014, Member States will be required to incorporate the Directive into domestic law by 2016.

What does it say?

The two complementary objectives of the new Directive are those of promoting "greater transparency and improved governance of collecting societies through strengthened reporting obligations and rightsholders' control over their activities", and encouraging and facilitating "multi-territorial and multi-repertoire licensing of authors' rights in musical works for online uses in the EU/EEA".

In what is being touted as a major overhaul of current practice, music service providers will now be able to obtain licences from a small number of authors' collective management organisations operating across EU borders, instead of having to deal with separate organisations in each EU member state. In the mind of the regulators, the Directive will change the licensing environment for digital music services, enabling them to address a smaller number of collective right management societies for a pan-European licence, instead of at least twenty-eight in order to use the worldwide musical repertoire. The overall aim of the Directive is to simplify the multi-territory system and the necessity for requiring numerous music licences to access the European market.

The Directive implements a further set of rules surrounding the financial management of collection societies and the powers of rights holders. Royalty payments must be paid to rights holders no later than nine months from the end of the financial year in which the royalty revenue is collected, whilst all applicable deductions by the collecting society must be specified clearly in its agreements with rights holders.

What is the likely impact of the Directive?

Make no mistake, the primary purpose of the legislation is to try and protect the songwriters, not enable the growth of digital services. In its press release, the Commission says "the functioning of some collecting societies has raised concerns as to their transparency, governance and the handling of revenues collected on behalf of right-holders. Cases of risky investment by certain collecting societies of royalties that should have gone to rightholders highlighted the lack of oversight and influence of rightholders on the activities of a number of collecting societies, contributing to irregularities in their financial management and investment decisions". In other words, regulators have finally accepted the idea that collection societies can be antiquated and badly managed, and have been forced to take action.

Can the Directive benefit music users?

The challenge for music users is more economic than legal. Broadly speaking, there are three types of digital music user: (1) multi-disciplinary international companies for which a music service forms only a small and complementary part of their overall business; (2) well-funded digital music companies that have grown through venture financing and marketing, but are yet to produce a return on investment; (3) innovative (and not so innovative) smaller services that serve more targeted markets and operate in fewer European countries.

The first group do not necessarily need their music services to be profitable on a standalone basis. If necessary, their music offering can be cross-subsidised by other parts of their business. The second group of digital music services are able to grow only, so far, by raising significant sums of money to feed the dragon while operating on a loss-making basis. The third group are a mixed bag; some are able to raise funds while growing their niche market and moving into the second band, while others fall by the wayside when their model fails.

One unifying feature among all the services, however, is that the process of obtaining licences in Europe can be daunting. Substantial progress has been made among the societies and rights holders in recent times. They return your calls. They respond to emails. They want to do business. These are great strides compared with licensing digital music ten years ago. However, the lack of an efficient and reasonable forum for price control, coupled with a 'feed the dragon' dynamic to funding the growth of digital music services, has enabled royalty pricing to spiral out of line with consumer ideals. Several rights holders announced significant price increases at the beginning of 2014. Meanwhile, the profit margins in digital music are tiny, and are diminishing.

The recitals of the Directive make a weak attempt to address pricing, by saying that the licence fees determined by collective management organisations be reasonable in relation to the economic value of the use of the rights in a particular context. They also say that societies should have the flexibility to provide individualised licences for innovative online services without setting a precedent. More interestingly, the Directive includes a provision which is intended to ensure that disputes between collective management organisations and users concerning proposed licensing conditions can be submitted to a court or other independent and impartial dispute-resolution body. If implemented properly by member states, this raises the useful prospect of national copyright courts to make decisions in the case of royalty rate disputes. This contrasts with the current position, where only a few European countries operate copyright courts or tribunals to deal with music licensing issues.

The UK Regulations

Whilst the Directive is yet to come into force, the consultation on the Copyright (Regulation of Relevant Licensing Bodies) Regulations 2014 (the "Regulations") came to a close in October 2013. Following the 2011 Hargreaves Review and the implementation of the "Minimum Standards for UK Collection Societies" (the "Minimum Standards"), a one-year grace period was provided to collection societies to implement individual codes of practice which would improve fairness towards rights holders, transparency and overall governance. With outstanding concerns surrounding overall governance, particularly in relation to the collection, handling and distribution of royalties, the Regulations will implement the following changes:

  • Collection societies must comply with a code of practice which adequately implements a "specified criteria." The Secretary of State is granted the power to impose a code of practice if a collection society fails to implement an adequate code (or not at all).
  • The "specified criteria" required is set out in the schedule to the Regulations. Obligations on collection societies include a duty to act with transparency, disclose material information to rights holders, and fully comply with monitoring and reporting requirements.
  • The Secretary of State may establish an ombudsman which can investigate and determine complaints regarding a collection society's failure to comply with an adequate code of practice. In addition, a code review can be appointed to research and report on general industry practice.
  • The Regulations permit the Secretary of State or ombudsman to make information requests during an investigation. Failure to comply or adequately self-regulate could lead to fines of up to £50,000.

A code of a practice is unlikely to be imposed on a regular basis as the majority of UK collection societies have already adopted and operate by their own code of conduct. Whilst these new statutory powers indicate a clear intent to combat poor collection society governance, the government has mentioned that sanctions shall be reserved for "serious and persistent breaches" upon the receipt of "robust evidence." If so, this may be a toothless attempt at introducing secondary legislation which ensures a minimum standard in self regulation. The establishment of an ombudsman is an essential tool, ensuring rightsholders can challenge a collection society's failure to comply with a code of practice.

Currently sitting before Parliament as a draft statutory instrument, the Regulations are expected to enter into force on 6 April 2014.

Concluding Thoughts

The Directive is generally a positive step towards assisting the multi-territorial licensing of rights in musical works across Europe. The UK Regulations complement the Directive in relation to governance rules. Question marks remain, however, as to whether the threat of the Secretary of State stepping in will be sufficient to encourage collection societies to adopt adequate codes of practice or, better yet, to act reasonably in their licensing practices.

While all of this is happening, the Commission is undertaking a broader review of copyright law in Europe. See here for details.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.