Musical backroom battles move to a bigger stage

The music industry has always been rife with bitter backroom battles over rights and profits, even back in the relatively innocent days of scratchy analogue airplay.

Fast-forward to 2007 and little has changed, except that the battles are now being played out on a bigger stage for bigger stakes. The age of digital music may be crackle-free, but listening closely, there is still a distracting level of hiss.

As the industry struggles to cope with the upheavals of the digital age, collecting societies jockey for their share of compressed revenues under the watchful eyes of the big four record companies: Sony BMG, EMI, Warner and Universal. The collecting societies’ raison-d’être is to collect performance and broadcast fees on behalf of artists and composers. Up until recent tectonic shifts in the structure of the industry, this activity was always organised along national lines, with cross-border licensing organised through an arcane network of reciprocal deals.

Such arrangements, apart from being extremely complex, were also out of tune with internet-based sales models. Flatter, harmonised structures would be needed to foster growth of the online industry at a time when the trend of private consumers downloading material for free from their peers was threatening its very existence.

In 2005, Internal Market Commissioner Charlie McCreevy issued non-binding ground-rules aimed at helping the music industry move towards a pan-EU licensing system. It was not right, said McCreevy, that the internet-based music business should be held back by rules more suited to the 19th century, when music was primarily performed in cafés, bars or music halls and was managed by local societies. Streamlining the royalties system would, he said, improve matters for artists, service providers and the collecting societies themselves: artists would be able to choose where to license their music across borders, broadcasters would enjoy easier access to catalogues with simplified EU-wide licensing models and collecting societies would be able to maximise profits by making their repertoires available across Europe.

Such adjustments would, McCreevy said, allow the industry to keep pace with runaway growth in the digital technology sector. Shortly after the rules were issued in January 2006, the major UK and German collecting societies (MCPS-PRS and GEMA) sewed up a deal with EMI, the world’s biggest record company, for exclusive pan-European licensing of the latter’s US and British songs. Around this time, the French, Italian and Spanish collecting societies began to organise themselves into a coalition jokingly known in the industry as ‘Club Med’, pooling repertoires and placing themselves in pole position to tie up exclusive royalties collection deals with the other three majors.

In the interests of practicality and in anticipation of market shifts, Sony BMG, Warner and Universal had already informed the EU’s 26 collecting societies, all members of trade organisation Cisac (the International Confederation of Authors and Composers Societies) that they would be withdrawing their catalogues from the existing distribution network. Smaller collecting societies concluded that they would be automatically excluded from 90% of the online market and broke with the Cisac party-line, launching a counter campaign.

In a statement sent to McCreevy last month, they lamented the crumbling of the so-called reciprocal arrangements whereby the licensing of repertoires had previously been shared through a series of internal deals. They pointed to the EMI deal with the German and UK collecting societies as part of a growing trend that would "undermine cultural diversity" and hinder competition. The entire world repertoire, they said, should be made available for all collecting societies in order to create a level playing-field. Such conditions, they argued, would be the best way of creating the one-stop-shop sought by McCreevy. Their views were largely shared by Hungarian MEP Katalin Lévai in an own-initiative report passed by the European Parliament in March.

This autumn, McCreevy will survey the results of his recommendations and decide whether to introduce hard laws on EU-licensing. In parallel to developments in the digital music market set in motion by McCreevy’s recommendations, Neelie Kroes, the European commissioner for competition, raised antitrust concerns early in 2006 about the behaviour of collecting societies as a whole after complaints were made by digital, satellite and cable media groups about the complexity of licensing systems. Kroes found that Cisac had been operating a de facto monopoly on licensing through its opaque network of national societies. Media groups wanted to push Cisac into providing multi-territory licences.

A set of commitments sent by Cisac to Kroes in March, however, has inflamed matters further.

Top media conglomerates, such as the Luxembourg-based RTL Group, which operates 38 TV channels and 29 radio stations in ten countries, complained to Commission President José Manuel Barroso last month that Cisac’s commitments would fragment the market further. The commitments, they claimed, would force them to seek different licences from different agencies for different forms of exploitation (for example, satellite and digital terrestrial).

Although Kroes’s statement of objections was directed at all collecting societies, the smaller members of Cisac that complained to McCreevy last month about the behaviour of their mightier siblings have also struck out on their own over the anti-trust complaint. Nineteen of the EU’s 26 collecting societies signed up to Cisac’s antitrust commitments, but one industry insider claims that many signed under duress, to avoid fines from Kroes when commitments are road-tested. Smaller collecting societies had not been consulted by Cisac on the commitments, he said, claiming that the big four industry giants - Sony BMG, EMI, Warner and Universal - had played a significant role in the way they had been drafted.

Intriguingly, the media groups voice support for the smaller collecting societies in their letter to Barroso. "The proposed remedies would...lead to the disappearance of many smaller authors’ rights societies and would therefore eliminate important competitors in the market for rights licensing. This is hardly an objective of competition proceedings."

The media conglomerates claim that Cisac’s commitments would threaten cultural diversity, leading to a race to the bottom where national and regional linguistic repertoires are forgotten. The commitments, they said, would "undermine the current system of licensing the global repertoire as a single package and lead to costly, inefficient and fragmented licensing systems for music rights".

Eric Baptiste, director-general of Cisac, says that media groups were confusing the terms of McCreevy’s recommendations and Kroes’s antitrust case. A Cisac statement issued last month underlines the differences, pointing out that "the recommendation champions the right of individual creators and publishers to choose their preferred society in respect of on-line forms of exploitation. By contrast, the commitments are not primarily concerned with the rights of individual creators and publishers, but rather with the obligations of a society to its sister societies in other countries (operation of the system of reciprocal representation agreements)."

Baptiste dismissed the complaints of the smaller collecting societies about the commitments and laughed off the complaints of media groups. He suggested that the latters’ concern for diversity was disingenuous. The Cisac statement had dismissed arguments of the media groups as "the fox asking to guard the hen-coop".

Internecine fighting within Cisac and media outrage over future licensing models look set to continue over the coming year. Major collecting societies, which are frankly best placed to reap fat profits in the increasingly globalised music industry through deals with the majors, will defend their corner. But at a time when industry revenue models are looking increasingly shaky, dwindling revenues will be shared out among fewer hands.

The industry insider sums up the current state of affairs: "This issue is about control of music in Europe. It is about whether the European music business will be dominated by an LA-New York-London triangle of big commercial interests, driven by profit motive and shareholder value, with no regard for cultural diversity, music uniquely as business, not as culture."

The music industry has always been rife with bitter backroom battles over rights and profits, even back in the relatively innocent days of scratchy analogue airplay.