Live music sector put CMO 'kickbacks' into the spotlight

John Webster with Anthony Addis and Paul Crockford

They may not want to be in the spotlight, and the until recently practices of 'discounts' or 'rebates' offered by European Collective Management Organisations such as Buma-Stemra in Holland and GEMA in Germany to large and established live music promoters and venues were relatively unknown. But 2016 saw the topic rear up as one of the main talking points at this year's International Live Music Conference (ILMC). The Conference held a packed main conference session dedicted to the topic and with managers for Mark Knopfler and Muse on the Stage along with representatives from two Collection Societies, and many artiste and songwriter representatives expressed their anger at the practice,

Back in July 2015 Music Law Updates reported that Dutch collection society Buma’s practice of rewarding the country’s biggest promoters with a kickback for ‘helping’ to collect the levy on live music concerts (which is meant to remunerate songwriters and music publishers for the use of their works) had come under fire after a number of tour accountants for performers who pen their own material could not reconcile deductions made by promoters against revenues received by their songwriter clients from their own collection societies – even after taking into account usually collection society commissions which are generally accepted. Buma apparently set up the practice around 1999 after forcing through a rate rise for the use of music to 7% of Box Office net of VAT  – but was offering a 25% kickback of that levy to some promoters and venues in the Netherlands.

Two managers, Paul Crockford who manages Mark Knopfler and Brian Message of ATC who manages Nick Cave & the Bad Seed,  both made arrangements with their artistes’ publishers and UK music collection society PRS for Music (the so called 7G arrangement) to make direct collections from promoters. Message also manages P J Harvey and Radiohead and Crockford also manages Level 42.

Whilst many artiste managers are now asking for ‘transparency’, the UK’s Music Managers Forum says that the people who lose out in this situation are the performer artists (who are suffering the deduction), and the writers and publishers (who are not receiving the full amount being deducted on their behalf). The MMF says discussions between Byma, PRS for Music and the MMF have failed to resolve matters

Ruben Brouwer, head of legal affairs at Live Nation owned Mojo Concerts, has suggested a flat rate of 5.25% should apply to all promoters and venues in Holland. The rate in the UK is 3% of Box Office, although the PRS are now running a consultation with the presumed hope they can raise this. Some promoters and venues have refused to accept a new version of the rebate scheme offered by BUMA, and are taking BUMA to the Supervisory Board for collection societies in The Netherlands.

The ILMC proved to be a timely update on the topic - with the revelation that not only was the practice widespread across mainland Europe - but had been going on for many many years. The main panel  Performance Royalties: Shows, Songs & Settlements pulled no punches in regard to one of the most contentious issues facing payments from international collecting societies and the controversy around discounts that are applied.

The ILMC panel

Jon Webster - President of the MMF opened by asking if performance royalties should be seen as a tax. “It’s equitable remuneration,” he said. “It is part of the show.” Paul Crockford then explained how he first became aware of the issue in 2010 when Mark Knopfler  was touring in the Netherlands and their tour accountant spotted some issues going through the receipts. “In his follow up work he noticed there was a massive discrepancy between the amount that Buma had received and passed onto PRS versus what was in the settlement that Mojo Concerts had deducted on the settlement itself,” he said. Despite raising this with PRS in the UK, he felt that nothing was actually achieved when it contacted Buma.

“There was a discount, rebate, kickback or however you want to define it that Buma had agreed with Mojo Concerts,” he says. “When we fronted it up with Buma, the argument presented was that in an effort to increase the live rate, which Mojo had refused to go along with, they gave Mojo a discount based on the fact that they do a vast number of shows in Holland. It was on the basis that, hopefully, they would generate more income across the board from other promoters who work in that same semi-monopolistic position.”

Crockford claimed that very few people knew that any of this was happening. “Also Mojo wasn’t declaring that discount as part of the show income. Their argument was that it was money they got back from Buma and it doesn’t matter to them where it comes from, as it’s not part of the show’s settlement. My argument, of course, was that it was exactly the opposite. Buma should not be discounting my artist’s income. If they are, that money should go into the show instead of making its way into Mojo’s already stuffed pockets.”

Anthony Addis (of Brontone Management) said he asked for a “bible” in 2009 explaining which markets did discounts and at what rates. “Discounts or rebates – they are both the same to me as an artist manager,” he said. “Every collecting society only has to pay out to the PRS exactly what it receives. When you are talking about discounts or whatever, if the collection society receives the full amount, then that money should fall through the PRS, less its administration charge for that collection society in that country.”

Then it was the turn of the Collection societies. John Sweeney (of US society SESAC, but formerly of the PRS) revealed this topic has a much longer history. “20 years ago, U2 tried to do a cradle-to-grave royalty account for a European tour and found that the figures didn’t quite add up,” he explained. “We looked to see what we could do to make the sums add up but we never managed to achieve it or even get close. This discount or rebate was probably always going on but not known about. To make it a bit more complicated, the collecting society agreements are blanket licenses. Even though you can see what came from the box office and what you should be paid, there are always adjustments from past performances paid.”

Martin Vierrath of GEMA had bravely agreed to be on the panel - BUMA had declined to speak publicly on the issue at the ILMC. Vierrath explained how the system in Germany worked, something that appeared far more complex than anyone presumed. He says there are different rates deducted from gross tickets sales to remunerate songwriters - depending on the size of the venue. For mega acts (playing to 15k+), it’s a 7.65% deduction on the box office; for venues between 2k and 15k, it’s 7.2%; and for venues under 2k, it’s 5%. He then said there were moves to standardise that, which initially met with approval. When he revealed that the rate GEMA was now looking at would be 10%, there were loud gasps from the audience. However from this GEMA take their own administration fee (said to be 15%). On TOP of this is a discount for the larger promoters of 14.5% and then an additional 20% discount or rebate available to members of the German concert promoters association BDV (Bundesverband der Veranstaltungswirtschaftand) one other trade body. BDV president Jens Michow was in the audience and explained these rebates as way of regarding the promoters for probiding accurate set lists - although as Paul Crockford remarked from the stage - it was an expensive service and he couldn't understand why BDV member's rebates didn't come from the GEMA deduction - which of course was meant to cover the costs of adminsitration of collection. Michow, a lawyer, and Vierrath both said the rebates were specifically provided for in German law.

In the UK the PRS tariff is 3%, but as said above, the PRS are currently undertaking a consultation to revise the rate, looking at the possibility of widening the sources of revenues that the rate can be applied to (such as secondary ticketing, sponsorship and car parking) and of rising the 'headline' rate. Festival promoters are looking for a reduction in the rate to reflect their own business models. 

Crockford revealed that for Knopfler’s most recent tour in Germany he invoked clause 7G to withdraw the relevant live performance right from the PRS and collect direct from promoters (a situation made simple by the fact that Knopfler only plays his own songs and there is no support act). “I collected direct this time,” he said. “I didn’t use GEMA. I took my artist out and we collected direct. We got it on the night  and we got it all.”

Maria Forte (Maria Forte Music Services) explained how complex it can be for acts of a certain size, saying she was brought in by Iron Maiden’s management as they felt they weren’t getting what they were due - again with the amounts deducted in settlements not reflecting the amounts received back to remunerate the band's songwriters. In order to make sense of it all, she got access to their accounts and she logged six years (covering three tours) of accounts (by tour, territory, show, setlist and writer). She then logged that all through the PRS statements that came in. “I discovered that there had been discounts that had been applied but that hadn’t come through. I could see there were big variances with certain territories.” She added, “There were big territorial variances. We found there were discounts that were applied but not at the settlement point. We also found the box office amounts were under-declared and that would naturally reduce the percentage.”

Webster ended by saying “This is going to run and run but we are moving in the right direction,” he said. “Everyone –managers, agents – is learning what is possible and where we are all going with this. I’d like to see us end up with a simpler system and a much more transparent system. Because of what has happened over the past three or four years, people are beginning to shine a light on this area and it will end up in everyone’s better interest".

This writer remains concerned: The German rebates may well be provided for in German law -  but it doesn't mean that law is fair to songwriters, correct of even valid within the European Union. In another series of cases in the live music sector, German tax withholding laws were struck down (notably FKP Scorpio Konzertproduction Gmbh v Finanzamt Hamburg-Eimsbüttel ECJ C290-04) and it would be interesting to see what European Commission competition regulators and the Court of Justice of the European Union make of a system set up by a CMO (itself a monopoly) that then rewards dominant players and national trade association members - within an open common market, where competition laws trump all. The revelations have also come at an interesting time for European collection societies - already being looked at as they are almost always defacto monopolies.

The topic also came up at a second panel which included CAA co-head Mike Greek (One Direction, Sigur Rós, Sam Smith), Red Light Management’s UK MD James Sandom (Bastille, Kaiser Chiefs, The Vaccines), and ITB's Lucy Dickins (Adele, Mumford & Sons, Jamie T): pecifically, the practice of collecting societies granting promoters discounts that don’t end up with the artists. The panel agreed that this was an unacceptable practice although noted that in the USA - where songwriters get just 1% of Box Office, “the whole topic is not a real issue in America”. The same is true for Australia, with promoter Michael Gudinski explaining “There’s never been a rebate in Australia. You get a penalty if you don’t pay on time.” That does sound like a cheaper and somewhat more transparent solution!

http://28.ilmc.com/report/meetings#forum part 2

http://www.musiclawupdates.com/?p=6378

http://www.musiclawupdates.com/?p=2745

Collective Management Organisations, Creativity and Cultural Diversity
http://www.create.ac.uk/publications/collective-management-organisations-creativity-and-cultural-diversity/