Online Music Licensing – A Way Out of the Maze

At the conclusion of the 2008 annual report of Hungarian authors’ society Artisjus, director general András Szinger characterized the current European digital market as representing “a chaotic period of licensing”. He was not alone in this view. While authors’ societies are currently grappling with the issue of licensing, music publishers, broadcasters and digital music suppliers also have a stake in finding a viable solution. Each is seeking to speed up the creation of a pan-European digital music market, and each is seeking to do this on their own terms. Consequently, the European music licensing landscape is presenting significant challenges. In this article, Phil Hardy, Editor of theviewfromtheboundary explores how this came about and a possible way forward.

The European digital music licensing landscape is in turmoil. Legal rulings, European Union initiatives in support of consumer interests, the development of the digital marketplace, emerging online business models, and collecting societies for musical works all have had a part in creating what has become a complex maze.

(Photo: iStockphoto/Cesair)

Trying to navigate the licensing labyrinth can be a real headache. Businesses and consumers alike have much to gain from a coordinated and seamless licensing environment in Europe. Viviane Reding1, as European Commissioner for Information Society and Media, put it simply: “In the EU, consumer rights online should not depend on where a company or website is based. National borders should no longer complicate European consumers' lives when they go online to buy a book or download a song.”

Historically, music publishers and collecting societies administered their rights on a territory-by-territory basis and as users themselves operated within a single territory, this was unproblematic. With greater market integration and the emergence of digital networks, however, a growing number of observers are recognizing that territorial approaches to licensing are becoming unworkable.

The desire for a one-stop shop for the online licensing of music rights across Europe was the root of a complaint by broadcaster RTL to the EC in 2000. The complaint was triggered by the refusal of the German authors’ society GEMA to grant a pan-European license “for all its music broadcasting activities, both national and international via traditional and new forms of exploitation”. A similar complaint was filed in 2003, by European digital and interactive broadcaster Music Choice against CISAC2. The two complaints were subsequently consolidated and in July 2009 the Commission ruled in favor of RTL and Music Choice.

The EC reasoned that the societies were anti-competitive because they had created a closed network in which each individual society has the exclusive right to grant licenses to commercial users within its national territory. The Commission considered that this constrained authors and composers as well as broadcasters: the former being required to join the collecting society of the country of their domicile and the latter being required to conclude licensing agreements with the collecting societies of each country in which they operated.

The Commission’s ruling prompted the European societies to end the practice of automatically extending one set of rights to all sectors, notably to the satellite broadcasting and digital sectors. The societies also changed their membership rules allowing individuals greater freedom in their choice of collecting society, while at the same time, in conjunction with CISAC, they appealed the EC’s ruling.

As the RTL case played out, the EC published recommendations3 for online licensing which, according to Charles McCreevy, Internal Market and Services Commissioner (2004-2010), sought to make it easier “for new European-based online music services to take-off.” Rather than retaining or modifying the system of reciprocal agreements between national societies, the EC favored the introduction of a new scheme allowing rights owners to authorize a single society to manage online use of works across the EU. This was expected to lead to the emergence of a few powerful societies for both online and offline licensing of musical works.

Larger authors’ societies, such as the UK Music Alliance (now PRS for Music) welcomed the move claiming it was “the starting shot for an online land rush across Europe,” and an “opportunity to create better services and better rates” for its members.

Commissioner Herbert Ungerer, Deputy Director-General for state aid policy in the Directorate-General for Competition (DG COMP), welcomed this response noting “as the Europe-wide and global music markets change fundamentally, the business models of collective rights management will have to change inevitably as well.”

Music publishers, as right holders, also favored the introduction of the proposed new scheme as it offered them greater control over the management of their rights, particularly given the increasing use of central licensing deals for mechanical royalties4 by societies in the 1990s. Under such deals, music publishers were losing out as a society reduced the fees it charged record companies and collected on behalf of music publishers and composers when all such payments were channelled through them.

New approaches

Major music publishers and collecting societies have made various attempts to simplify the online music licensing landscape, proposing new ways of administering rights in the digital arena. The first to act was EMI Music Publishing (EMI MP), which together with the UK’s PRS for Music and GEMA established CELAS as the sole administrator of digital rights for EMI MP’s Anglo-American repertoire. Other databases followed, including Harmonia, a body jointly operated by French society SACEM, Spanish society SGAE and Italian society SIAE to administer the digital rights of the Universal Music Publishing Group; a deal concluded by Sony/ATV with GEMA to exclusively represent its Anglo-American repertoire; and agreements between music publisher Warner Chappell and other European societies.

Collectively these moves have resulted in the “chaotic licensing situation”, described by András Szinger. Moreover, users have lost access to a significant proportion of the global music repertoire as leading music publishers favor exclusive deals with specific societies over bilateral agreements with national collecting societies. The supposed advantages of introducing the proposed new scheme have been lost because of the fragmentation of the global repertoire.

A possible solution

A growing number of stakeholders - broadcasters, Internet service providers (ISPs), online music services, record companies, authors’ societies, technology experts, and lawyers - are calling for the administration of copyrights to be reformed in Europe. In 2009, the EC took action to resolve the still pressing music licensing problem. Neelie Kroes who was, at that time, European Commissioner for Competition5 noted "There is a clear willingness expressed by major players in the online distribution of music in Europe to tackle the many barriers which prevent consumers from fully benefiting from the opportunities that the Internet provides".

In 2010, with a view to improving online music opportunities for European consumers, the EC launched two initiatives. The first promised better access to the world music repertoire with the partial reintegration of the global repertoire through a range of non-exclusive deals with various authors’ societies. The second involved a proposal to establish a global repertoire database (GRD) database for musical works and sound recordings. A GRD would bring together the information held by different societies to provide a single, complete and authoritative account of the global ownership and control of musical works. Its aim is to lower the barriers to businesses seeking to distribute content online, to ensure that creators of musical works are compensated in a fully transparent way and to improve access to the global musical repertoire.

Given the complexity of Europe’s licensing landscape, the business case for a GRD is compelling. As noted by the EU, “It can no longer be assumed that if a music publisher or musical work CRM [copyright manager] is located in a specific territory it is in a position to issue a license for the exploitation of the musical works in that territory or on a multi-territory basis.” This is further complicated by the fact that for the online exploitation of musical works, “the authority to license musical works may be held differently from the way the territorial off-line ownerships and authorities are held.” This essentially means that a society may be appointed to license certain rights for specific works in one territory but may not be automatically granted the right to license the same rights outside that territory. While attempts have been made in the past to establish databases to facilitate the online licensing of music, these have met with limited success6.

The EU envisions the GRD as the central repository of information to identify all known musical works including:

• writer(s) of each musical work
• ownership of the rights shares attributed to each party for each musical work on a territory-by-territory basis
• the entity authorized to grant licenses whether on an exclusive or non-exclusive basis and whether for an off-line or on-line exploitation, by rights share, by right type (e.g. public performance, reproduction etc.), by use type (e.g. online of offline) and by territory
• all known sound recording and music video data including the name of the main artist
• the links between each musical work and all sound recordings or music videos on which it appears
• public domain works.

These elements are widely considered to hold the key to the success of a GDR. The technical challenges of establishing a GDR are clearly solvable; far more problematic are the political questions:

• Who is to own, administer and maintain the GDR?
• How are works to be registered?
• How is access to the GRD to be determined?

Initial proposals by various interested parties suggest that the ownership and running of a GRD must be by a fully independent body, such as the World Intellectual Property Organization (WIPO). WIPO has extensive experience in developing, deploying and managing international filing and registration systems, such as the Patent Cooperation Treaty (PCT) which facilitates the process of obtaining patent protection in over 140 countries and the Madrid System for the International Registration of Marks which offers a cost-effective means of registering and subsequently managing trademark rights internationally. Something similar could serve as a GRD, with the cost of registering works charged to rights owners who will benefit most from making their works more easily accessible to users.

WIPO Director General, Francis Gurry, fielded the idea of a GRD at the WIPO Conference on Facilitating Access to Culture in the Digital Age in early November 2010 as “an idea whose time has come.” The challenge is to generate a broad commitment among policymakers and other stakeholders to turn the idea into a workable reality. A GRD that brings together the fragmented information hosted by collecting societies relating to musical works, their ownership, control or administration, would go a long way to bringing order to the current licensing confusion and WIPO seems well placed to take up the challenge.

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1  In 2010 Viviane Reding became European Commissioner for Justice, Fundamental Rights and Citizenship
2  The International Confederation of Societies of Authors and Composers
3  Recommendations Concerning Collective Cross-Border Management Of Copyright And Related Rights For Legitimate Online Music Services (in 2005)
4   The royalty due from the sale of each piece of recorded music
5  Neelie Kroes became European Commissioner for Digital Agenda in 2010.
6  The recording industry’s International Standard Code (ISRC) to track digital use and CISAC’s proprietary Common Information System (CIS) have enjoyed limited success. Various tracker systems have also been developed, (e.g. BMI’s Blue Arrow, ASCAP’s Mediaguide) but these are client and job specific and unable to perform the broader range of tasks envisaged for a GRD.