Regulating collecting societies

Collecting societies need to become more transparent and efficient in the way they operate, particularly in the management of online use of musical works and the handling of revenues collected on behalf of right-holders, the European Commission has recently noted. To this end, a directive has been proposed which will specifically target these issues.

Collecting societies are companies which act as intermediaries between copyright owners in the music, book or film industries, and service providers wishing to use their works. They are responsible for distributing and licensing musical, literary, academic and journalistic material and for collecting royalties from those who wish to make use of such works. The revenue which they collect is then redistributed to the right-holders. These collecting societies make it possible for commercial users to obtain a licence for a large number of music tracks or other works, where individual negotiations with individual composers or lyricists would be highly impractical.

The European Commission has raised its eyebrows at the way some collecting societies function, particularly insofar as transparency, governance and the handling of revenues collected on behalf of right-holders are concerned. Furthermore, the Commission has observed that some collecting societies are not meeting the demands of online service providers which want to obtain licences which cover a number of territories and a large catalogue of music.

The proposed directive provides for common governance, transparency and financial management standards. It obliges collecting societies to publicise on their website, information on their structure and financial management. It also obliges them to draw up and publish an annual transparency report including detailed accounts, financial information and a special report on the use of any amounts deducted for any purpose. Any revenue collected must be kept separately from the collecting society’s own assets and cannot be used for its own account.

The proposed directive makes it obligatory for collecting societies to pay royalties to right-holders within a 12-month period after the financial year in which a track was played. They will also be obliged to provide right-holders with detailed information on the collected revenue and any deductions made. On the other hand, users will be entitled to accurate information on standard licensing contracts offered by a collecting society, the applicable tariffs and the repertoire a collecting society represents.

The proposed directive sets in place minimum quality standards which collecting societies must abide by if they want to offer multi-territorial licensing of rights in musical works. Such a collecting society must be able to accurately identify to the service provider the music repertoire it licenses on a per-work basis, to rapidly invoice online service providers on a per-work basis and to pay the amounts due to each right-holder on time. Obviously, this entails the capacity to appropriately and accurately handle data electronically.

Alternatives are available for any collecting society which would not like to undertake such a technological investment. In such cases, a collecting society would have the possibility to aggregate its repertoire with the repertoire of a collecting society that complies with such minimum quality standards. The society receiving the request may not refuse if it is already representing the repertoire of one or more collecting societies for the same purpose.

A society would also be allowed to outsource services related to the multi-territorial licences it grants. Furthermore, the proposed directive provides that following a transitional period, right-holders would be able to grant licences for their own online rights, either directly or through another collecting society, if the collecting society which represents them does not qualify to grant multi-territorial licences and does not opt for any of the above alternatives.

The proposed directive does not require member states to set up a prior authorisation or licensing system for collecting societies. However, it requires them to appoint relevant competent authorities to monitor compliance by collecting societies established in their territory with the requirements laid down in the proposed directive. These national competent authorities must also be empowered to administer complaints procedures and impose sanctions.

The proposed directive has not been met with much enthusiasm by the music industry, with musicians stating that it does not do much to resolve the issues that they encounter when seeking to collect royalties made from gigging, clubs and private copying. On the other hand, small collecting societies have expressed concerns on the impact of the new rules and that the directive does not address the problems which arise from direct licensing in the digital environment, namely, the lengthy waiting periods which commercial users must endure to obtain a licence coupled with high transaction costs.

The effective protection of copyright and related rights is indispensable to ensure that Europe does not remain bereft of people who are willing to dedicate their time and effort to enhance Europe’s cultural scene. Such people must be adequately compensated for their efforts.

The right of Europe’s artists to effective compensation must, however, be balanced with the right of commercial users and the public alike to be able to have access to such creations.

The important role played by collecting societies in this regard cannot be underestimated.

It is therefore of utmost importance that the 250-plus European collecting societies operate efficiently and transparently to ensure that everyone’s rights are safeguarded for the ultimate benefit of cultural diversity in Europe.

mariosa@vellacardona.com

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is the deputy chairman of the Malta Competition and Consumer Affairs Authority as well as a member of the National Commission for the Promotion of Equality.