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Trends: Maximising music rights – an overview (A Free Read)

By | Published on Friday 16 May 2014

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Music Rights

As part of the Maximising Music Rights strand at this year’s Great Escape, CMU Business Editor Chris Cooke provided a comprehensive but concise overview of the music rights sector in 2014 – the achievements, the challenges, the issues. And here is that review in full: ten questions, ten sets of insights.

Before we get underway with this speedy review of the music rights sector as of May 2014, it’s probably worth clarifying what we mean by ‘music rights’. The music rights sector is that slice of the wider music business that works with artists to exploit their intellectual property, which usually means the separate copyrights that exist in lyrics, musical compositions and sound recordings, and in corporate terms we are mainly talking about the music publishers (lyrical and musical rights) and record labels (recording rights), and related rights administrators and content distributors.

Though, of course, artists and their business partners may also create and control other forms of IP too – the film copyright in music videos; literary copyrights in biographies, liner notes and blog posts; artistic copyrights in artwork and photography; and the trademarks stemming from artist names and logos. Publishers and especially labels may own these IP rights too, or work with artists to exploit them, though usually when we talk about ‘music rights’ we are referring to the core publishing and recording rights, and in the main we will be here too.

1. How much money do we make from music rights?
When it comes to top-level figures and stats, the record industry – that part of the music rights sector that primarily deals in the sound recording copyright – is pretty generous.

The International Federation Of The Phonographic Industry estimates that in 2013 recorded music generated $15 billion worldwide. Income was 3.9% down in 2013 compared to 2012, though that was in no small part the result of specific digital music challenges in Japan, the world’s second biggest market for recorded music.

Take Japan out of the equation and 2013 was just 0.1% down, 2012 having been 0.2% up on 2011. Which means that, after over a decade of decline as the record industry grappled with the challenges posed by mainstream internet use, it does feel like the business has turned a corner.

The IFPI’s breakdown of the different recorded music revenue streams also makes for interesting reading, given that a cursory glance at media coverage of the sector might give you impression it was all about streaming services and sync deals in 2013. But, while both those revenue streams are indeed in growth, the former especially, it’s worth remembering that worldwide the single biggest revenue stream for the record industry remains the sale of CDs. It’s a business definitely in decline, but it still brought in 51% of the money overall last year.

Digital accounts for 39% of the money, though two thirds of that still comes from download sales via iTunes-style stores. And while sync does now bring in 2% of the money overall, performance right revenue – paid by traditional and online broadcasters, venues and public spaces that play recorded music – now accounts for 7% of the industry’s income, and is a rapidly growing revenue stream.

Of course sector-wide figures on a global scale don’t communicate the variations you’ll find between markets and genres, and majors and indies, the latter generally seeing a faster shift from physical to digital, and from download to streaming.

And, of course, all these figures only tell us about the sound recording copyright, which is just one half of the music rights sector. Getting global figures for the music publishing industry is harder, though a good guide to how the two halves of the music rights sector compare is a UK Music report last year that estimated the annual value of each strand of the music business.

Working with the Music Publishers’ Association, UK Music reckoned the British publishing sector had a value of £402 million, compared to the £634 million valuation for the record industry. An indication that when we are talking about ‘music rights’ at large, there’s a really significant batch of song right revenues sitting beyond the IFPI figures.

2. How are we licensing digital services?
One of the biggest challenges that the music rights sector has had to face in the last fifteen years is how to license the various kinds of digital music services that have emerged.

And while the labels and publishers – especially the majors – were slow to capitalise on the potential of the web (obsessing a little too much in the early days on the threats), the industry has found ways to do business with a plethora of different digital platforms in the last decade, and especially the last five years. And that is a definite achievement, because for all sorts of legal and legacy reasons some of those licensing deals have been a lot more complicated to put together than anyone would have liked.

Perhaps the biggest question for the music rights sector in this domain, certainly at the start, and to an extent still today, was whether to licence digital services directly or collectively. That is to say, should each label and publisher do licensing deals directly with any digital firm which wishes to utilise their catalogues, or should they put all their repertoire into one pot and allow a third party – ie a collecting society – to do a deal on their behalf and collect and distribute monies equally across the industry based on usage?

So called ‘collective licensing’ is used by the music rights industry in various scenarios, of course. Usually where a group of licensees all want to use a lot of music in the same way, but can only afford to pay a relatively small per-play royalty – ie if usage is high and per-play royalties low, licence as one. Copyright law allows for collective licensing, though usually applies extra rules and regulations to overcome the monopoly concerns raised by such joined-up dealing.

Now, most digital services are making very high use indeed of the wider music catalogue, but are paying in – relatively speaking – pretty nominal per-usage fees, which might suggest that digital, like radio and live performance, should also be licensed collectively, especially once we shift from download to streaming.

However, from the start, the record industry made it pretty clear that, with a few exceptions, it wouldn’t go the collective licensing route with any digital services. The exceptions, by the way, were online versions of traditional radio services and Pandora-style ‘interactive radio’ platforms. In the US collective licensing of the latter was forced by copyright law, and in many cases that principle has been applied beyond the American jurisdiction.

The publishers, however, initially seemed prone to license digital set-ups through their collecting societies, perhaps no surprise given that the collective licensing system has always been a much bigger deal in the music publishing sector, and the publishers’ collecting societies tend to be more prolific and better resourced.

And so, for a while, anyone wishing to set up a streaming service needed deals directly from the labels (or, in the indie space, multiple-label-deal-maker Merlin and a handful of distributors), but could handle publishing rights via the collecting societies. And in many cases that is still true, though a change is underway, with various big player music publishers talking about – and in some case already – licensing directly. This proposed shift has caused a little controversy of late in the US, where the flexibility, or not, of the collective licensing system is being tested.

But why – given the high usage, low per-play royalty rule – has the wider music rights industry not just embraced collective licensing of digital across the board?

Well, the cynical answer is that you can make more money by direct dealing. Or, perhaps more importantly, you can include more of the equity and mega-advance arrangements that have become the norm when negotiating licensing deals with digital start-ups. As noted, more regulations apply to collective licensing arrangements, and many rights owners prefer to do their digital deals without those limitations.

Especially as, for the majors at least, the labels and publishers of 2014 have sufficiently sized catalogues that they can enjoy the ‘scale benefits’ traditional collective licensing provides (“just try launching your service without our catalogue”), but without the collective dealing limitations copyright law contains to try and limit the exploitation of rights owner scale.

Though the labels and publishers would likely argue there is another important reason why direct licensing makes sense in the digital domain, which brings us to…

3. How are we licensing global services?
This has been a particular challenge in the digital domain, because every country has its own copyright system, and while most are joined up through global treaties, the licensing process – and especially collective licensing – was usually based on the principle that licensees would be primarily operating in just one country.

But as we know, most digital services aspire to be global, and in many cases pursue rapid global expansion, Deezer being the most prolific in this domain, now operating in 182 markets.

Where they have chosen to licence digital services directly, the major music rights companies – Sony, Universal and Warner – would likely argue that it is also in the interests of the digital platforms to do direct deals because big rights owners can offer worldwide licences in a way no collecting society could (although, because copyright systems and contract laws vary from territory-to-territory, even global licences still usually require some market-to-market legwork).

In the publishing space, where collecting societies have been more involved in digital deals, some of those societies, mainly in Europe, have been working on multi-territory licences for some time. And indeed some now offer such licences, though usually with catalogue limitations and plenty of other complications.

So if and when the big publishers do move to direct dealing, the potential of multi-territory and even global licensing will likely be spun to licensees as a reason why that is a positive step.

4. How do licensees know who owns what music rights?
As more people make more use of more music than ever before, and as every web-user becomes a potential licensee via YouTube et al, and with an increasing number of tiny per-play payments being made (rather than the bigger one-off purchase payments of the past), tracking who owns what music rights is becoming an ever greater challenge.

In most countries copyrights, unlike other forms intellectual property, are automatic and not registered, meaning that there is no central database of copyright ownership. And while physical record releases usually had copyright ownership listed in the small print, not all that information is so easy to find in the digital domain (publishing info especially).

Plus, even if Amazon does list the label that originally released a record, which you might assume is therefore the owner of the sound recording copyright at least, that doesn’t allow for the fact copyrights can be co-owned, or have different owners in different territories, or that ownership can be transferred multiple times.

And when it comes to public performance revenue from sound recordings (what the record industry often refers to as ‘neighbouring rights’), in many countries the recording artists as well as the copyright owners are due a cut of the loot oblivious of contract – but who is keeping track of who played what on what recording?

Although the collecting societies in theory have pretty good records of who owns the copyrights in the catalogues they directly represent, that information isn’t easy for the world at large to access, and even if it was, there are countless societies around the world. And the information the societies hold is only as good as what the original rights owners who registered the works provided.

With all this in mind, on the rights holder and artist side we have seen considerable growth in the rights administration domain in recent years; companies that help labels, publishers, recording artists and songwriters log their works or neighbouring rights with all the societies, services and digital platforms who are paying into the music industry to make sure they get every penny they are due.

Though this whole system is still far from perfect, and things remain very confusing for licensees desperately trying to work out who owns what rights to what works. For their part the publishing sector is working on a Global Repertoire Database, while various groups are trying to tackle the problem in the record industry too. Meanwhile in the UK, the government backed Copyright Hub has ambitions to try and join up different copyright logging efforts, though to date there does seem to have been a lot more talking than action.

And certainly getting good copyright ownership information remains a challenge. Some in the tech space have turned their attention in this direction – you can’t help thinking there’s a little black box that could solve a lot of the problems. Though some in the legal community are of the opinion all these endeavours are skirting around the real issue: do we need some sort of copyright registration worldwide? We possibly do, though few music rights owners would currently agree with you.

5. Are we doing anything to simplify music licensing?
Governments in most countries have – in the main – been receptive to the music industry’s lobbyists when asked for help to battle the rise of piracy online, even if the statutory measures that have been introduced have had limited success and have taken an age to kick in.

But when the political community moves to help the copyright industries they usually wheel out the same demands in return: more licensing of digital start ups, industry-led copyright education campaigns and a simplification of the licensing process. Everyone in the music industry agrees that its licensing systems should be made simpler, though many licensees would argue little simplification has occurred.

Of course, the aforementioned moves to better document copyright ownership are part of this simplification process, as are start-up endeavours like the Peter Gabriel-backed CueSongs venture, which aims to make it easier for more grass-roots licensees to access music for their video productions.

One area where government most often calls for simplification is collective licensing. The blanket repertoire-wide licences collecting societies usually offer should, in principle, already be simpler for licensees to understand, though often confusion remains.

Not least because the record industry and the music publishing sectors have separate collecting societies, and many grass roots licensees of recorded music don’t understand why they need to deal with two organisations to make use of what to them is one piece of content (and not the three separate copyrights it is under law).

In the UK, the publishing sector’s PRS For Music and the record industry’s PPL have collaborated on a small number of joint licences, and are expected to do so more moving forward.

Though perhaps most interesting in this domain is the OneMusic initiative that was launched last year by collecting societies APRA and PPNZ in New Zealand. Anthony Healey of APRA spoke about this initiative at The Great Escape, and you can read our interview with him about OneMusic later in this report.

6. How is music rights income shared between artists and labels?
Now this is a contentious issue isn’t it? And one discussed in more detail in issue two of the CMU Digest Report.

When recording artists or songwriters assign ownership of the copyrights in their works to labels or publishers (or where, under contract, ownership begins with the business partner), it is customary for the corporate entity to pay a cut of any profits generated by the copyright in question to the creator.

Though in the main copyright law has no real opinion on what these cuts should be and how they should work, that’s for each creator’s contract to define. Usually songwriters get a much bigger cut of publishing income than recording artists see of record sales money (mainly because labels spend a lot more upfront when signing new artists), though every deal is different.

The label/artist split has been big news of late, though, because of the shift from physical to digital, and more recently from download to streaming. The real controversy has been amongst artists with pre-iTunes record contracts that make no reference to digital but which will likely allow for different royalty splits to be paid depending on the kind of income (as was the norm in such contracts).

So the big question has been: should digital come under the category that pays a low royalty split, or the category that pays a higher split? Needless to say, labels have mainly gone with the former, while artists argue the latter. Though in the one big case that got to court on this issue, in the US, the judges ultimately sided with the artist.

It is yet to be tested if that sets a wider precedent, and if courts beyond the States would concur. But there are a plethora of lawsuits going through the motions in the US, and some rumoured to be in the pipeline in Europe, that will test whether there are any industry-wide rules to be applied.

Meanwhile, whatever happens in court, look out for another debate that is emerging in the artist community, as to whether streaming services like Spotify shouldn’t be classified as an online version of ‘radio’, even if they are licensed directly rather than via collecting societies like PPL.

This is an important distinction, because if Spotify was considered a kind of radio service, then the main licence it would need from the labels would be for ‘public performance’, which is the one area where the law covering sound recording rights – in many countries – does have an opinion on what cut of the loot should go to the artists (and to all musicians, not just featured artists). So if the artist community could win this argument on classification, interpreting legacy contracts would become less of an issue.

Whatever, expect this to be a debate still in full swing by TGE 2015.

7. How is music rights income shared between labels and publishers?
Meanwhile expect this to be a debate we’re having at TGE 2018. When a streaming service streams a recording of a song, how should the money the streaming service pays be divvied up between the respective rights owners?

As with the label/artist split, in the main the record industry has replicated the record sale system across the digital domain, a system which means the labels get a much bigger slice of the royalty pie than the publisher.

But some would argue that the reason why the publishers traditionally got only a small cut of record sale income was because of all the costs and risks taken by the label in releasing a CD. And said people might add that in the digital space, and especially the streaming domain, that’s not so much the case.

Whether or not the publishers should see a bigger cut of digital than physical money was debated in the early days of iTunes, and nearly ended up in the copyright tribunal courts in the UK.

Though that debate centred on downloads not streams, and although an agreement was eventually reached, I suspect this question will be asked again in the future, especially as labels increasingly start to share in their artists’ other revenue streams (eg merch, brand partnerships, live), while publishers continue to rely solely on IP income.

Of course most of the big music rights companies operate both labels and publishers, so any dispute in this domain would see these big players arguing with themselves, and that’s not likely to happen, is it? Well, it wouldn’t be the first time, though if this debate is going to kick off again I’d expect it to start with the songwriters the publishers represent.

8. How long does copyright last?
Well it varies of course – depending on both the kind of copyright, and the country you’re in. Though the big story here is that the sound recording copyright term in Europe has increased from the fifty years that was to seventy years after release.

And just in time to keep The Beatles catalogue in copyright (with the exception of ‘Love Me Do’ and its b-side, because the extension isn’t being applied retrospectively). That’s no coincidence of course, for the British record industry in particular 2013 was a key deadline for extension, and heavy lobbying by the BPI, Musicians’ Union and PPL, in the UK and then at a European level, won through just in time.

Though as an interesting aside, the extension only applies to released works. Unreleased recordings will still only get fifty years of copyright protection. So expect the majors to be releasing all kinds of rarities from The Beatles, The Stones, Bob Dylan et al every December, to ensure outtakes and reworks that never saw the light of day get the extended copyright term (and actually a full further seventy years, because the release reboots the copyright).

9. When can people legally use our music without a licence?
Of course while the political community in the UK has been supportive to the copyright industries in the main in recent years (even if anti-piracy measures in the 2010 Digital Economy Act are yet to come to much), sometimes legislators make moves in favour of the users rather than the owners of copyright works.

And the big development in copyright law this year is the extension of copyright exemptions, scenarios where people can legitimately make use of copyright works without licence. Such exemptions in the UK are generally not as extensive as elsewhere in Europe, or the US for that matter, and on the back of the 2011 Hargreaves Review the government is addressing that fact.

The new exemption that has caused most noise in the music space is the introduction of a private copy right, meaning that for the first time consumers won’t be infringing copyright by making personal back-up copies of sound recordings by ripping them to their PC or phone.

The basic principle isn’t actually controversial in that the labels and publishers have no problem with that exemption being introduced, partly because everyone already makes those copies anyway, and because the exemption already exists in most other countries. However, elsewhere in Europe the music community receives money from a levy, traditionally charged on blank cassettes and more recently on MP3 players, to compensate for the private copies being made.

The UK proposals do not include a levy, and on that point the labels and publishers are not happy. Personally, whatever the rights and wrongs, I’ve never been convinced this is a battle worth fighting. Given private copy levies have been controversial in Europe as blank cassettes and now standalone MP3 players become a thing of the past – what else do we put the levy on? – and in the wider scheme of things it’s not that much money we’re talking about. Why not let the exemption through and earn some much needed positive PR? “Hey people, we fixed a dumb bit of copyright law for your benefit, and we’re asking for nothing in return”.

But the labels and publishers will dispute the move, though whether they’ll take the matter to court – citing European Union harmonisation rules – remains to be seen. Interestingly as we discussed this very issue with David Cameron’s IP Advisor Mike Weatherley at The Great Escape, news emerged that the statutory instrument that will make this exemption law had stalled on its way through parliament. Though it may only be a temporary delay.

10. Can copyright adapt to the digital world?
The copyright industries – and especially the music rights sector – have come in for a lot of stick in the last decade as they have dealt with the challenges thrown up by the web.

And we’ve given the big labels and publishers plenty of stick ourselves at CMU, because the majors took five years too long to embrace the opportunities of the web and to drop pointless DRM technologies from their downloads, and were far to quick to wield the piracy stick before the digital carrot had grown, and even now I fear the upfront demands the majors make of start-ups have resulted in a digital market with far too few big players, and far too much riding on one business model that I’m not convinced has the mass market potential it needs.

And then there’s the education thing. We all say we need more copyright education, because after all, beyond a certain point you can only enforce copyright by persuading the masses that it’s something they should want to respect. But most industry initiatives to promote copyright have been woeful; and even when some good stuff has been done, IP really needs to be added to the school curriculum. So why hasn’t the industry centred all its lobbying efforts on the Department Of Education? And for that matter, why isn’t it training its own staff so they at least understand how copyright works?

But none of this proves the line that sometimes pops up in the tech community: that copyright has no role to play in the digital age, that it’s not fit for purpose and should be abolished. Without a shadow of a doubt copyright is a good concept, and not only because I’m a copyright owner myself!

Copyright rewards those who invest time, money and/or creative energy into creating creative works that are good enough that others want to copy, perform or adapt them; and that, surely, is a magnificent thing. Copyright enables creators and their partners to monetise their content commercially, giving all creative talent the chance to build a business around their work, so prolific creativity isn’t restricted to those with independent wealth.

And while there may be plenty of problems with the copyright system, especially in the digital domain, that system is evolving. And it always has. PRS For Music, who with PPL sponsored the Maximising Music Rights strand at TGE, is celebrating its hundredth anniversary. It’s fascinating to think about how composers and publishers monetised their copyrights in 1914 – sheet music, music hall, the pianola – and how much has changed in the hundred years since.

Copyright must, will and can evolve – and it is evolving, possibly faster than ever before. Music rights owners have a key role to play in this, and I look forward to seeing what advances have been made at future TGE conventions.



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