The European Commission has proposed measures to modernise collecting societies and put in place incentives to promote their transparency and efficiency. New digital technologies are opening up great opportunities for creators, consumers and businesses alike.
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1. What is copyright and what are the related rights?
These are rights granted to authors (copyright) and to performers, producers and broadcasters (related rights) to ensure that those who have created or invested in the creation of music, or other content such as literature or films, can determine how their creation can be used and receive remuneration for it. Copyright is both an incentive to and a reward for creativity.
Copyright and related rights include so-called “economic rights” which enable rights holders to control (license) the use of their works and other protected material (such as performances, records, audiovisual productions and broadcasts), and be remunerated for their use. These rights normally take the form of exclusive rights and include the right to copy or otherwise reproduce any kind of work and other protected subject matter; the right to distribute copies to the public and the right to communicate to the public performances of such works and other protected subject matter. These rights are, to a large extent, harmonised at EU level.
Authors are also granted so-called “moral rights”. Moral rights may include the right to decide on when or whether to make the work public, the right to claim authorship of the work and the right to object to any derogatory action in relation to the work. Moral rights are not harmonised at EU level.
2. How important are copyright and related rights for the European economy?
Copyright is a spur for growth: it has significant economic and social importance. The European Competitiveness Report of 2010 showed that the creative industries (1) accounted for 3% of EU27 employment (around 6.7 million jobs). On the global stage, the contribution of these industries to GDP and national employment is much higher, reaching a contribution of 5.4% to GDP, and representing 5.9% of employment on average (2). There is therefore still more economic potential to be drawn from the creative industries in Europe, which legislative changes like the one proposed today would help to tap.
In Europe, the value of the EU recorded music market is around 6 billion euro.
Collecting societies
3. What is the collective management of copyright and related rights?
An author (for example an author of a book, a song composer, or lyricist), a performer, record or film producer or broadcaster (the holder of a copyright or a related right) can normally choose between individual management (management by the author of a book or by a publisher), or collective management of their rights.
Collective rights management is mostly carried out by collecting societies. Their key activities are:
to grant licences to commercial users (TV channels, radio stations, online music service providers) on behalf of the rights holders; and
to collect royalties and redistribute these to rights holders.
Collecting societies make it possible for commercial users to clear rights for a large number of music tracks or other works, where individual negotiations such as with individual composers and lyricists, in the case of musical works would be impractical. Collective management is mostly used by authors and performers (as opposed to producers or publishers), and it is particularly important in the licensing of rights for musical works.
4. What is a collecting society?
Collecting societies are organisations traditionally set up by authors, performers, and other kinds of rights holders, to collectively manage their rights. They aggregate the rights of one or several types of rights holders for licensing purposes to grant licences to commercial users (TV channels, radio stations, online music service providers) on their behalf. They also provide services such as monitoring the use of rights and collecting and distributing royalties. They provide services to rights holders, to users and to other collecting societies.
Collecting societies are historically established on a national basis and, in particular as regards off-line uses, they license rights for their own territory (although there are important exceptions to this principle).
5. How many collecting societies are there in the EU?
There are more than 250 collecting societies in the EU. In general, there is one collecting society representing all or some of the rights of a category of rights holders in a given Member State: a collecting society for authors, another one for record producers, another one for audiovisual producers, another one for performers, and so on. Examples of collecting societies are SACEM which handles rights for musical works in France; PRS for Music, the association of composers, songwriters and music publishers in the UK, and GEMA in Germany.
In some cases, it is possible that a collecting society manages the rights of more than one category of rights holders (for example, there are often joint collecting societies for performers and record producers, such as PPL in the UK). In a few cases, it is possible to find competing collecting societies which represent the same category of rights holders in the same country (for example, SGAE and DAMA in Spain both manage the rights of authors in audiovisual works).
6. What is the size of the market: how much money do collecting societies manage?
Collecting societies collect around 6 billion euro in the EU every year. The vast majority of this income is in the hands of approximately 70 EU collecting societies managing authors’ rights (for over one million authors). Most of this income is derived from musical creations (more than 80% in the case of authors’ societies).
7. What is a repertoire?
A collecting society normally represents and licenses the rights of a high number of rights holders (authors such as song-writers and composers, performers such as singers and musicians, and so on). The sum of the rights of all the rights holders a collecting society represents directly constitutes the society’s own repertoire. This is often limited to domestic works.
8. What is a reciprocal representation agreement?
Collecting societies from different countries traditionally grant each other the right to license their repertoires in each other’s territory through a network of reciprocal representation agreements. Through these bilateral agreements, a collecting society can license its own repertoire and the repertoire of other collecting societies in its own territory, thus facilitating access by domestic users to a broader repertoire. In the case of authors’ rights in musical works, the reciprocal agreements are normally limited to the territory in which the collecting society operates.
Legislative proposal key changes
9. Why is the Commission proposing legislation?
Firstly, 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 rights holders highlighted the lack of oversight and influence of rights holders on the activities of a number of collecting societies, contributing to irregularities in their financial management and investment decisions.
Secondly, the collective management of rights is also important for the licensing of online service providers (music download services, streaming services). This is particularly the case as regards authors’ rights (the rights of those that compose the music or write the lyrics). Online service providers often want to cover a multitude of territories and a large catalogue of music. They also often want to test new business models. All this makes online licensing very demanding. Many collecting societies today are not ready for this: they do not have the capacity to process data from service providers (like Spotify or Nokia Music) on music downloads and streaming, or to match this data with their repertoire of songs. This can lead to incorrect invoicing, dual invoicing, or sometimes no invoicing at all. To address this, collecting societies need to set up proper databases to be able to keep better track of their own repertoire one of the requirements in today’s legislative proposal.
The result is fewer music services available to consumers across the EU (in particular in certain Member States – Malta, Luxembourg, Cyprus, Slovenia, Hungary, Estonia, Latvia, Lithuania, Bulgaria, Greece and Romania), a slower uptake of innovative services and poor allocation of revenue to rights holders.
10. Why does the Commission propose to impose rules on collecting societies?
Collecting societies need to modernise their operations to meet the challenges of a fast-evolving digital economy. An underlying problem is the insufficient transparency and control of the way collecting societies are managed. It is necessary that they provide a more efficient service to rights holders and users (service providers) alike: better collection and redistribution of revenue, accurate invoicing and more granting of multi-territorial licences for aggregated repertoire.
11. What are the specific objectives of the proposal?
The specific objectives of the proposal are to:
improve the way all collecting societies are managed by establishing common governance, transparency and financial management standards;
set minimum standards for the multi-territorial licensing by authors’ collecting societies of rights in musical works for the provision of online services; and
to create conditions that can expand the legal offer of online music.
12. Who would benefit from the proposed Directive?
rights holders, service providers and consumers would be the main beneficiaries of the proposal.
It would be easier for service providers to clear rights (by lowering transaction costs) with better functioning collecting societies adapted to the challenges of the 21st century. This should facilitate the rolling out of new services, in particular in the online world across the single market. European consumers would thus benefit from access to a wider variety of creative content.
rights holders would exercise more control over collecting societies and would be able to exercise informed choices as to who manages their rights. While in principle rights holders can choose to have their rights managed by any collecting society, today’s proposed Directive would enshrine this in law. Thus, they would be able to reap the full benefits of the Single Market. Moreover, increased business opportunities and better managed collecting societies should result in increased revenue distributed to rights holders. This, in turn, should provide additional incentives for creativity.
13. What are the expected impacts on collecting societies?
Firstly, all collecting societies would have to improve their standards on governance and transparency:
They would have to ensure adequate participation of rights holders in the key decision-making process.
They would have to ensure adequate financial management of the revenues collected on behalf of the rights holders they represent.
They would have to increase their transparency vis-à-vis rights holders, other collecting societies, service providers and the public at large.
Secondly, collecting societies managing authors’ rights in musical works, for the licensing of those rights for online uses, would be subject to modern requirements adapted to the digital era, such as enhanced capability to process large amounts of data, accurate identification of the works used by the service providers, fast invoicing to service providers and timely payment to right-holders.
14. How is music licensed for use on the internet today? What would change?
Today, if an online music provider like iTunes wants to provide a music track for download, it needs to obtain a licence to do so from three separate entities: the track’s author (the composer and lyricist), the record producer, and the performer. Collecting societies manage one of these: the author’s rights. (The record producer and the performer’s licences are usually both managed by the record producer). It is the functioning of the licence of authors’ rights for on-line use which is set to be improved by the Directive proposed today.
15. Why not one entry point a single European licence?
A single entry point would require that collecting societies pool their repertoire for licensing online rights to a centralised organisation. This would create an organisation with a de facto monopoly power. There is a high risk that this could create restrictions to competition, such as customer allocation or price fixing. This behaviour would not be allowed by the competition rules of the Treaty on the Functioning of the EU.
Bear in mind that today’s collecting societies can issue licences for use of music tracks across the EU. The problem is that many still do not do so, or do not do it in an accurate or fast enough manner. Today’s proposal aims to improve this situation. For example, a French collecting society which seeks to make its repertoire available in other countries would have four choices:
It could either license all of its repertoire for the whole EU or in certain Member States of its choice, if it is able to comply with the new requirements in today’s proposal for efficiency and transparency.
If it finds it difficult to comply with these requirements, it could outsource the back-office function to a different company which would e.g. operate the electronic database for the French collecting society,
If it finds it difficult to comply with these requirements, it could ask, for example, an Italian collecting society (which does comply and which already aggregates repertoire i.e. licenses not only its own repertoire but also the repertoire of other societies) to license the repertoire of French songs on its behalf, across all the territories where the Italian society licenses its own Italian repertoire – whether this is three countries, or 27. This is aggregation of repertoire.
Or finally, the French collecting society could create a subsidiary e.g. with a Swedish, British, and Dutch collecting society. This new subsidiary would aggregate, and license across multiple territories, the French, Swedish, British and Dutch repertoire.
What is important to note is that if a Polish collecting society, say, were to ask for its Polish repertoire to be licensed across multiple countries by the Italian collecting society in the example above which aggregates its own and the French repertoire, or the French-Swedish-British-Dutch subsidiary which also aggregates repertoire and licenses it across multiple territories, they could not refuse to do so.
Furthermore, if a collecting society does not do any multi-territorial licensing, through any of the four methods just described, then the rights holders it represents would have the right to grant their online rights in musical works to another collecting society or another entity to do multi-territorial licensing on their behalf, or to do it themselves, without losing membership of their original collecting society. These measures would ensure that no national repertoire of music remains locked in to one territory.
16. What is the expected impact on access to cultural content and cultural diversity?
Safeguarding innovation and intellectual creation, notably through an effective protection of copyright and related rights, is particularly important from a cultural point of view. It is one of the main ways of ensuring that European cultural creativity and production receive the necessary resources, as well as a way of safeguarding the independence of artistic creators and performers.
More efficient collecting societies should be better able to promote their different repertoires and the new rules should foster the development of online services providing cross-border access to all kinds of musical works (see Question 15). Consumers would have easier access to national and niche repertoires, beyond the traditional national boundaries. This would make cross-border access to cultural content easier and cultural diversity would thus be enriched.
Article 167 of the Treaty on the Functioning of the European Union requires the Union to take cultural aspects into account in its action, in particular in order to respect and to promote the diversity of its cultures.
17. Which are the key measures to improve the governance of collecting societies?
First and foremost, rights holders should be free to choose a collecting society to manage their rights (or categories of rights or types of works) regardless of the country of establishment of the collecting society or of their own residence. They should also be free to terminate the authorisation they gave to a collecting society for the management of their rights or withdraw only some of their rights. Collecting societies should not discriminate between rights holders.
Secondly, the general meeting of the members of a collecting society should decide on the key matters within the collecting society. In particular, they should elect and dismiss the directors of the society, decide on the key policies such as the distribution and the investment of the collected revenue and the rules on deductions from the collected revenue.
Thirdly, as the general meeting is usually convened only once a year, collecting societies should establish a supervisory function to monitor the activities of the management in the interest of the right-holders. Supervision could be carried out within the board by non-executive board members or via a separate supervisory board.
Finally, the senior management of the collecting society should make sure that the society is managed in a sound and prudent manner, using sound administrative, accounting and internal control procedures.
18. How would the financial management of collecting societies improve?
Since collecting societies collect and handle revenue that ultimately belongs to rights holders, they need to establish sound financial management practices. In particular, they have to keep and manage these amounts separately from their own assets and cannot use them for their own account. They should also ensure sufficient transparency on any deduction they make. Finally, collecting societies should regularly and diligently pay royalties to rights holders – no later than one year from the end of the financial year in which the amounts were collected.
19. What would improved transparency mean for right-holders, users and for the public?
rights holders can only exercise their rights if they have sufficient information available from the management of the collecting society. Therefore collecting societies should provide rights holders and other collecting societies on whose behalf they manage rights under a representation agreement, with detailed information on the collected revenue and the deductions.
Transparency towards users would also have to improve; in particular they should be able to receive information on standard licensing contracts, the applicable tariffs and the repertoire a collecting society represents.
Finally, collecting societies would have to make public on their website information on their structure and their financial management. As regards their structure, they would have to publish their statute, the membership terms, the available dispute resolution mechanisms, etc. As regards financial management, they would have to draw up and publish an annual transparency report including detailed accounts, financial information and a special report on the use of the amounts deducted for purposes of social, cultural and educational services.
20. Why are different dispute settlement mechanisms foreseen for rights holders, members and users?
Disputes between the rights holders or members and the collecting society most often concern the authorisation by rights holders to have their rights managed by a collecting society, membership terms, deductions or the collection or distribution of royalties. These disputes can often be resolved within the collecting society through a complaint-handling mechanism or externally, via court, mediation or other forms of dispute resolution. The proposal does not limit Member States in their choice of a mechanism, as long as it is effective and ensures the timely resolution of the conflict.
The disputes between collecting societies and users mainly concern licensing conditions, tariffs or the refusal to grant a licence. In these cases, the resolution of a dispute can only be achieved through an independent and impartial dispute resolution body, i.e. via mediation, arbitration or a court. On the other hand, due to the specificities of multi-territorial licensing, the proposal foresees the submission of related disputes to alternative dispute resolution bodies (such as arbitration). This however does not prevent the parties from going to court.
Multi-territorial licensing
21. What is a multi-territorial licence of authors’ rights in musical works for online uses?
It is a licence granted by a collecting society which includes authors’ (for example composers or lyricists) rights in musical works for online uses (such as for a service provider offering streaming services) and which covers the territory of more than one Member State (and possibly the whole of the EU).
22. Who needs to get the multi-territorial licences of authors’ rights in musical works, and for what purposes?
The providers of online services which make use of musical works in more than one Member State, such as music services that allow consumers to download music or to listen to it in streaming mode, as well as other services providing access to films or games where music is an important element, must first obtain the right to use such works.
These rights are the exclusive right of reproduction and the exclusive right of communication to the public of musical works, which includes the right of making available. While record producers (who often have the rights of performers) and music publishers tend to manage their rights individually, music authors generally rely on collecting societies that provide collective management services to them.
Any service provider wishing to provide an online service on a multi-territorial basis across EU Member States including a wide choice of musical works to consumers, would need to aggregate rights in works from different rights holders and collecting societies.
23. Which collecting societies would be able to grant multi-territorial licences of authors’ rights in musical works for online uses?
In order to be able to grant multi-territory licences covering authors’ rights in musical works, a collecting society would need to comply with minimum quality standards: it should be able to accurately identify to the service providers the music repertoire it licenses on a per-work basis, to rapidly invoice online service providers on a per-work basis and to pay the amounts due to each right-holder on time. This requires the capacity to appropriately and accurately handle data electronically.
24. Why would only a limited number of collecting societies be able to grant multi-territorial licences of authors’ rights in musical works for online uses?
Any collecting society complying with the minimum quality standards would be able to grant multi-territorial licences of authors’ rights in musical works for online uses. However, it could be possible that given the need to invest in appropriate ICT equipment and data processing (such as databases) some collecting societies decide not to undertake such investment. All collecting societies would have in any event the possibility to aggregate their repertoire with the repertoire of a collecting society that complies with the minimum quality standards and is involved in the aggregation of repertoires (that is, licenses not only its own repertoire).
A society would also be allowed to outsource services related to the multi-territorial licences it grants, without prejudice to its liability towards rights holders, online service providers or other collecting societies.
25. How would Member States evaluate whether a collecting society has the capability to grant multi-territorial licences of authors’ rights in musical works for online uses?
The proposed Directive does not require Member States to set up a prior authorisation or licensing system for collecting societies. However, it requires them to appoint relevant competent authorities to continuously monitor compliance with the requirements laid down in the proposed Directive by collecting societies established in their territory when granting multi-territorial licences for online rights in musical works.
These national competent authorities must be empowered to administer complaints procedures, and effective, proportionate and dissuasive sanctions. However, the proposed Directive does not require Member States to set up supervisors specifically dedicated to the oversight of collecting societies (for example, a national ministry may undertake the monitoring function).
26. What happens if a collecting society is not equipped to provide multi-territorial licences of authors’ rights in musical works for online uses?
A collecting society may decide not to grant multi-territorial licences for authors’ rights in musical works for online uses, but it could continue to grant national licences for its own repertoire and/or national licences for the repertoire of other societies, provided it is authorised to do so through reciprocal agreements.
However, in order to ensure that repertoires can be easily aggregated for the benefit of music service providers who want to offer a service as complete as possible across Europe and for the benefit of cultural diversity and consumers at large, specific safeguards would apply to ensure that the repertoires of all collecting societies have access to multi-territorial licensing:
a collecting society may request another society granting multi-territorial multi-repertoire licences to have its repertoire represented for the purpose of multi-territorial licensing. The society receiving the request may not refuse if it is already representing (or if it offers to represent) the repertoire of one or more collecting societies for the same purpose;
following a transitional period, rights holders may grant licences (either directly or through another intermediary, such as another collecting society) for their own online rights if their collecting society does not grant multi-territorial licences and does not enter into one of the agreements mentioned above.
27. Who would benefit from multi-territorial licences of authors’ rights in musical works for online uses?
The aggregation of rights and territories by the collecting societies granting this type of licence would allow service providers (“users” or “licensees”) to use a large amount of musical works in several territories with a single licence. The licensing process would thus be simplified, make it more cost efficient (fewer licences, faster procedures, more territories covered). This would make it easier for service-providers to launch new services, for the benefit of consumers, who would have a wider choice, and also for the benefit of rights holders, who would see their content used more often and would be remunerated for this.
Notes
1. Creative industries include information services such as publishing activities (books, periodicals and software), motion pictures, video and television programme production, sound recording and music publishing activities, programming and broadcasting activities, computer programming, architectural and engineering services, advertising, design activities, photographic activities, translation and interpretation activities, creative, arts and entertainment activities.
Source: European Commission
