Tuesday 5 February 2013

Is Universal Publishing’s exit from collective licensing a step backwards for music industry ‘one stop’ aspirations?

The one question I always get asked by young entrepreneurs setting out to create legitimate digital offerings in the digital music space is where do they go to get licences to use music, and make payments ? Well, there is no easy answer. In 2012 Daniel Ek, the creator of Spotify, pointed out that the European Union alone had 27 different  music collection societies for songs – and a similar number for sound recordings as well as the the four major labels dealing directly  for digital rights: Ek said the service’s U.S. debut was then still a few months off as Spotify worked through a maze of licensing issues with publishers, labels and collection societies, saying that to create a new above-board music platform in America under current copyright law required big reserves of money, lawyers and perseverance. And that’s just America! At the time Johanna Shelton, senior policy counsel for Google Inc said “The Internet is a simple distribution platform … [but] we’ve made things unnecessarily complex,” noting that calls for a music rights organisation, a one-stop shop to deal with all licensing issues, had gone unheeded. But we all now know that in default of legitimate services ……. piracy fills the void -  and then no-one gets paid.

Martin Mills, the much respected boss of independent Beggars group whose labels include XL, 4AD and Rough Trade and home to Adele, The National, The Prodigy, Sigur Ros, Jack White and Vampire Weekend amongst others, recently admitted that rights owners - especially the bigger ones - had made various mistakes in the way they licence online content services in the last fifteen years, and that the music rights industry still needed to work harder on developing better cross-territory licences. That said, Mills told an audience at the MIDEM convention "I don't believe that the present day music industry is a reluctant licensor" adding "we do not need to have control of our rights taken away from us, to be forced to licence that in which we have invested at uneconomic prices, to simply allow huge tech firms to make even huger profits. Yes, music companies needed tech companies just like tech companies need content, but "as someone who invests in music - and when I looked at the numbers a few years ago we had written off £25 million in unrecouped advances to artists over the years - it makes me fume when politicians cosy up to the big techs at our cost and spout philosophically about the needs of the modern world, about us being dinosaurs, and about music's irresistible urge to be liberated and free".

European digital commissioner Neelie Kroes has been a staunch advocate on opening up digital licensing and said last year “Too many barriers still block the free flow of online services and entertainment across national borders [in Europe]. The Digital Agenda will update EU Single Market rules for the digital era” saying her aims were to boost the music download business, establish a single area for online payments, and further protect EU consumers in cyberspace. Kroes called on content owners of Europe to construct a "simple, consumer-friendly legal framework" for making digital content available across the Union saying the traditional content industries had not developed their licensing models fast enough to cope with the new demands of internet services saying "Digitisation has fundamentally changed content industries, but licensing models simply have not kept up with this. National licensing can create a series of Berlin cultural walls. The price, both in pounds and frustration, is all too real, as creators are stifled and consumers are left empty-handed. It is time for this dysfunction to end. We need a simple, consumer-friendly legal framework for making digital content available across borders in the EU".

Mills took issue with some of Kroes' comments, saying "All in life needs balance and vision, and the likes of Neelie Kroes miss that point. When businesses make money out of music, music rights owners must have the right to a fair share of that income". Noting also that the music industry pumps a lot more into the tax system than many of the tech giants putting pressure on rights owners, Mills concluded: "I'm incensed about the discrimination and the lack of understanding with which those like us who spend their lives creating art that brings people joy, can get treated by those in power. I very much hope that we can all be a part of changing that, because unless we do, the ladder we climbed will not be there for those who follow us".

I have recently blogged on the ongoing progress to establish a Global Repertoire Database for music (Global Repertoire Database Tunes Up): In Europe SACEM (France), SGAE (Spain) and SIAE (Italy) have joined forces to create ‘Armonia’, the first pan-European hub for licensing of online services, gathering together more than 5.5m works (the rights of which are managed by the three collecting societies), and addresses online exploitation and/or mobile uses over a territory of 35 countries. Other commercial developments include the collaboration between the PRS (UK) and STIM (Sweden) with a jointly-owned commercial service centre for back room operations; Publisher  EMI has joined up with GEMA (Germany) and PRS and formed a ‘one-stop shop’ for the licensing of online rights  and the UK is in the process of working out how a Copyright Hub – the Digital Copyright Exchange – might work - the place where any copyright owner can choose to register works, the associated rights to those works, permitted uses and licences granted and the place for potential licensees to go for easy to use, transparent, low transaction cost copyright licensing – streamlining copyright licensing and facilitating the licensing of copyrights on a 'one stop shop' basis with a registry of copyright data and copyright owners, and potentially with licensing mechanisms.

But conversely comes the news that Universal Music Publishing has confirmed its intention to withdraw it's digital rights from US performance rights organisations ASCAP and BMI. CEO Zach Horowitz confirmed the planned move in a statement to Billboard, citing an inability from both societies to achieve market rates with digital services; the move will follow Sony/ATV/EMI's lead, and will allow UMPG do direct deals with streaming services, with Horowitz saying "In order to ensure that our songwriters are fairly compensated, we believe the best approach is for us to negotiate directly with these services”. Recently Sony/ATV (now controlling the EMI catalogue) struck a direct deal with Pandora which seems to  secure the Sony publisher a bigger cut of the royalties available for song rights from the streaming company. Billboard sources also report that BMG Chrysalis has also negotiated the option to do the same but is yet to decide if it will use a direct strategy, a a move away from blanket licence deals negotiated by the collecting societies.

So, if the bigger rights owners, who generally have more to gain from direct deals, move away from collective licensing, where does that leave the concept of a ‘one stop shop’?  If a new digital music business has to go to all of the major publishers in the USA or elsewhere – and all of the major record labels - that means even more ‘stops’ than when Ek was trying to set up Spotify. And surely this must be a huge deterrent  to legitimate business models? That said,  one can see the attraction to the big rights owners to go it alone - higher royalty payments and upfront advances,  or even shareholdings, and also labels, publishers, songwriters and artists can retain vetoes over certain tracks - and have a more hands on approach to licensing.  And indeed, whilst it may be only ‘one’ company out of many that need to be cleared – that label or publisher may be able to offer a global licence – a near must in most digital business plans.

The whole issue is complicated further by the fact that no-one seems quite sure how advances from (or shareholdings in) digital operators are treated.  For example how do Universal and Sony account for their shareholding in Spotify to their recording artistes? An important question if you are a recording artiste or songwriter!

But we clearly have two way tension (at least): Universal’s move reveals the wish of content owners to manage their own digital rights – possibly on a global scale – but this should be balanced against the clear advantage of collective licensing and the fact without global one stop licensing the music industry runs the risk of promoting piracy through over complicating the legitimate market. Do we really want to exclude innovative  but cash-strapped start-ups who could be blocked from the market? Do we want to marginalise smaller rights owners – who are further down the food chain from the major music publishers and recorded music groups? But as Martin Mills rightly says, it seems equally wrong to force rights owners to “licence that in which we have invested at uneconomic prices, to simply allow huge tech firms to make even huger profits”. A conundrum? As ever, maybe some of our 1709 community may have a view!

And see the Max Planck Institute's comments on the draft EU Directive on collective rights management here  http://ipkitten.blogspot.co.uk/2013/02/max-planck-comments-on-draft-directive.html


Anonymous said...

This is a timely piece. The sad thing is that it was a timely piece a decade or two ago as well. Conventional wisdom is that "you are covered" with a blanket license from each of the three PRO's in the US (not true, but close enough to feel the blanket's warmth). Those PROs find it in their interest to make direct licensing difficult. Just like health insurance companies love for the cost of health care to be so high that you don't want to risk living without their product (even though none of them are needed for health care), the PROs have succeeded in making it too risky to do business without them (even though none of them are legally necessary to do business). But when a company the size of Universal pulls out, there it merely means 4 blankets instead of 3, unless Universal also makes it real easy to cherry pick and license one-offs. Until we facilitate the direct low-friction licensing between major service providers/retailers and the smallest self-published garage band, we will be syphoning off dollars for lawyers, negotiators, and blanket managers that could be better spent in making it ridiculously more efficient to license music.

john walker said...

Collective licensing involved a lot of cross subsidy by the 'top 100' of the collective licensing entities costs , technological change means that this cross subsidy is no longer effectively unavoidable. Hence the desperate advocacy by the collectives for mandated compulsory management status , it is the collectives who are most threatened by the sea change .

Anonymous said...

Also, a particularly timely piece in view of the EU's new licensing initiative "Licences for Europe"


Unknown said...

Don't forget that the writers are direct members of the Performance Societies as well and are paid 50% directly. Universal are only talking about their share; they can't control the writer's share. So how does it work? The writer is paid by PRO at "PRO Rate" while Universal is paid at the "Universal Rate" which then has to credit their writer's account. It sounds like an administrative dog's breakfast with greatly increased costs that the PRO's will inevitably pass onto the writer.

If it couldn't get any worse think about international income. The PRS would collect for say a CSI broadcast locally in the UK then pay… who at what rate? Repeat for all countries and... actually I think I'll get back to envisaging non Euclidian geometry, it's easier.

Julia said...

May I ask a question? I understood collection societies had reciprocal deals in place so licensees only require licences from their local societies to be able to use international repertoire... but do these reciprocal agreements exclude digital rights? What about on the recording side? Interesting read.

Ben said...

Perhaps the third 'tension' I referred to needs some explanation: In 2009 TechCrunch reported that the major record labels (UMG, EMI, SonyBMG, Warners) and Merlin representing the independent labels had taken a shareholding in Spotify, and now jointly hold 18% of the company's stock, which they brought for 100,000 SEK - or $14,000. The company is now valued at anything between $1 billion and $4 billion. In addition, Sony and Universal are the major shareholders in premium music video platform Vevo along with the Abu Dhabi Media Company. But nowhere have I seen how either songwriters or recording artistes would be accounted for 'their' share of the value of these companies which must be built on the value of the record label and music publisher's catalogues - errrm - the copyrights created by those very recording artistes and songwriters.

Ben said...

And to answer Julia: Well usually yes, if say you wanted a licence for a UK only radio or digital service then you could go to PRS for Music in the UK. In France you would go to SACEM for a French service. In the UK, PRS would licence you SACEM's member's songs, and in France SACEM would licence you PRS member's songs (etc!). Neelie Kros wants there to be (in effect) the possibility of pan-European licensing from a single collection society - and certain steps have been taken to achieve this as set out in the Blog. But now with UMG pulling away from collective licensing in the USA it's another pattern ... as I see it UMG can licence a user their catalogue - potentially globally - but ONLY their catalogue.

Ben said...

One more update: BMI chief Del Bryant, has issued a letter responding to the news Univeral had joined Sony/ATV/EMI and will licence the rights that exist in their songs directly, rather than securing those rights via deals with the country's three societies, BMI, ASCAP and SESAC and Bryant reveals that BMI has entered into an agreement with Sony/ATV/EMI to still administrate the collection and distribution of royalties from those digital platforms the major licences direct - but subject to the royalty rates agreed directly - a first for the society and whilst accepting that "recent developments may have added complexity to an already complex rights landscape" he added "we see these recent developments as a clear marketplace signal of the enhanced value music brings to the digital world and beyond. We are working diligently to make that value a reality not just for large multinational music companies, but for ALL songwriters, ALL composers and ALL music publishers".