New Online Licensing Deals Signal Direction For Music Industry

By Monika Ermert for Intellectual Property Watch
Two large licensing deals were announced during the recent 42^nd edition of the world’s largest music fair, Midem, which may help pave the way to smoother operations for online platforms in the digital music business.

One deal establishes Pan-European Digital Licensing (PEDL) standards for the Warner Chapelle Music label in a partnership between German collecting society GEMA, their British colleagues MCPS-PRS, and the smaller Swedish society STIM. The second, a cooperation between Universal Music Publishing Group (UMPG) and French collecting society SACEM, will offer a pan-European licensing shop for the Universal repertoire.

A collecting society is an administrative body that helps manage copyright material in public spaces, and collects royalties on its use.

But while the more proactive licensing strategies of rights owners – both labels and collecting rights societies – were welcomed at Midem by many experts, the calls for more radical changes to the licensing regimes for the digital era are growing ever louder.

Peter Jenner, secretary general of the International Music Managers’ Forum, recommended a “new bargain” between musicians and Internet users. “The arcane and complex rights issues on which the whole industry has built itself make no sense to the new players,” Jenner said in a blog posting to official Midem website.

Jenner told Intellectual Property Watch he was expecting rapid steps forward with more innovative licensing deals. But he warned that the “historical antipathy” of the different players “combined with their desire to protect their existing businesses, has had the effect of completely frustrating anyone in the new digital distribution business trying to build a new 21st century business legally.”

He therefore recommended a “a solution based on actual consumer behaviour” and “a system where each customer with a broadband subscription, whether at home or via their mobile phone, would pay a small monthly fee to compensate creators and rights-holders for any unauthorised use of music that might occur via their subscription.” The “Access to Music Charge” to be negotiated between telecom companies and music industry according to Jenner could be low as, say, €2.67 euros per month.

Similar efforts for an Internet service provider-based fee that even could be distributed according to actual use of the respective titles supported by title tracking were discussed heavily in the United States, the owner of a US label told Intellectual Property Watch at Midem.

ADAMI, another collecting society in France, also still does not want not to give up on a “global licence” similar to the ISP fee model. A spokesperson for ADAMI said the organisation was “quite frustrated” that another attempt to establish a global licence to legalise P2P sharing on the Internet failed through strong opposition, for example, by French Culture Minister Christine Albanel.

ADAMI has published a study on “The destiny of a creation in the digital era” [study may be requested at http://www.adami.fr/] pointing out the shift to the growing variety of new forms of digital music distribution models: add-financed, subscription-based, or bundle-integrated. Easier licensing systems for the new digital distributors are of utmost importance, according to the study.

“Even if the rightsholders today are much more reactive, the complexity and number of negotiations necessary before being able to offer an acceptably large catalogue poses some questions,” the organisation said in the study. Because of these questions, many entrepreneurs were quite frank in defending their approach to launch their services first and then negotiate with the industry.

Different Models for Pan-European Licensing

It was such thoughts that also brought about the European Commission’s recent recommendations for reorganisation in the collective rights management system (IPW, European Policy, 14 March 2007). These recommendations led to the creation of PEDL, the Universal/SACEM cooperation, and, last year, CELAS, which manages the digital rights of EMI’s repertoire.

All three new licensing ventures claim to be “in line” with the Commission’s approach, yet they are quite different in nature. “Our deal offers a collaborative approach to pan-European licensing and administration,” Universal Music Group wrote in a paper on the details of the Universal/SACEM deal. The big difference from the CELAS model, according to Universal: “All collection societies still have national rights as before, so if you are a local online service in a position to look for a single territory licence, you will approach the relevant local society for a grant of those rights. If you are a multi-territory user you will now be able to get a multi-territory licence from one place for the first time by contacting SACEM.”

Even more open is PEDL, which will allow EU-wide licences for Warner Chappelle Music (WCM) to be granted not only by the partnering societies GEMA, MCPS/PRS and Swedish STIM, but also by other collecting societies given they adhere to standards set out by the initial partners.

CELAS, by contrast, was based on an exclusive management of record company EMI’s rights in Europe that resulted in removing EMI’s entire repertoire from national collecting societies. “This exclusivity would introduce a new model for collecting author’s rights, as it clearly breaks with the current system in which all collecting societies have the capacity of offering the world repertoire to users due to a network of reciprocal agreements between them,” the Dutch collecting rights society Buma/Stemra wrote in a blog on music copyright in Europe launched at the Midem, too.

Buma/Stemra has filed a complaint against the CELAS model, because “other collecting societies such as Buma/Stemra would no longer be able to offer EMI Music Publishing’s repertoire for online and mobile exploitation to music users” and this would “not be in line with the EU’s competition rules.”

While the UMPG/SACEM deal was very much motivated by the desire for a better administration between the EU collecting societies, CELAS was motivated by the fight against low prices, acknowledged Alexander Wolf, executive manager of CELAS. “In some countries, for example in Italy,” he said, “digital rights are licensed for pathetically little money.”

Placing all rights in CELAS allowed the rejection of offers considered too low, a big advantage for the collecting rights societies that normally are obliged to grant licences to everybody, no matter what price is offered, because of their status as monopolies.

Record labels have more freedom to refuse offers they consider too low. As long as users negotiate with agencies like GEMA, for example, they were able to use the works of GEMA authors – and pay after a deal was done. This sometimes resulted in years of negotiations and complaints in courts, Wolf said. The collecting societies had been “forced” to be monopolies, which was ended by the new Commission recommendations.

Music labels, which usually are on the production side, also can be licensees at collection agencies like GEMA, and can thus use their bargaining power against music composers and the authors of lyrics.

“I cannot understand why everybody says that the license fee of collecting rights societies comes on top of what the labels get. We were there first,” Wolf said. “Why should Tina Turner, who never wrote a song herself, get the lion’s share?” Labels, according to Wolf, get 30 to 60 percent of the final price for a CD while GEMA gets 6 percent. And while the labels can just put a stop to unauthorised use, for example at video download site YouTube, GEMA could not.

Yet a recent study [in German] by young German economist, Oliver Raschka, sees the collecting rights societies as not having been trumped. It notes that shares for label, artist, and GEMA for a CD are 35, 4, and 6 percent, respectively, and a much better share for GEMA with online music. With regards to a single online music title (about €1 euro), GEMA gets 20 percent and the label only 17 percent, according to the study. The average performing artists, according to the study’s statistics, are not big earners and again get only 4 percent, a mere €0.02 euro per downloaded song.

Wolf criticises complaints made at Midem by people like Joost video portal founder Janus Friis, YouTube founder Chad Hurley, or even the ADAMI, about there being too many places to go to negotiate deals.

In the end, everything may come down to the price to pay not only from the point of view of fairness to all parties (and the artists especially) but from the point of view of mere economics. One European start-up for digital music distribution told Intellectual Property Watch that he had talked to the major labels that asked him for 50 to 70 euro cent-share per song distributed. “I calculated the business model with only 10 to 30 cents,” the would-be start up CEO said. The partners still appear to be worlds apart.

Monika Ermert may be reached at info@ip-watch.ch.