Music licensing online – is a sea change approaching?

In the music industry, it is common for collecting societies to undertake the management of the multiple copyrights in music on a collective basis on behalf of their members, who are the owners of the copyright and related rights. They are typically organised on national lines, and grant licences for mass use of copyright protected material within their territories, acting as an intermediary between songwriters, musicians and performers (and their recording companies) and those who want to use their work, and redistributing to members the royalties collected. By centralising this function, the collecting societies provide valuable services to both rights holders and users and are deemed necessary for the protection of IP rights and to facilitate trade and exploit innovation. However, the downside of collective rights management is that, by their very nature, collecting societies tend towards monopolies and may abuse their dominance which can hinder competition.

In the online world, which is rapidly becoming consumers’ source of choice for music recordings, publishing music no longer requires the substantial capital that distribution of physical copies of recordings once did. The collecting societies’ dominance may no longer be a given, in light of very developments such as the launch of Jay Z’s new streaming service, Tidal, the first major artist-owned streaming service. If successful, this could lead to a new type of copyright management across Europe. If musicians begin to take responsibility for exploiting their works rather than outsourcing it to collecting societies, the competition issues will have to be considered in respect of a more fragmented market and reduced market power per licensor.

At present, though, Tidal’s impact is too small to affect the overall market in music licensing, and the competition authorities have for some time been concerned that the dividing up of Europe into purely national markets for music licences may not be in the best interest of consumers. In January this year, the European Commission opened an in-depth investigation to assess whether the planned joint venture between three collective rights management organisations in the online licensing of musical works is in line with the EU Merger Regulation. The three collecting societies, GEMA of Germany, PRS for Music (PRSfM) of the UK and STIM of Sweden announced the plan in June 2013, promising to simplify the licensing and processing of music rights in Europe, allowing them to create a single copyright database by combining their back office operations and creating a one-stop shop for online platforms such as Spotify and Deezer.

The joint venture would negotiate and grant multi-national licenses of mechanical and performing rights in musical works for digital service providers active in several member states. The venture was reportedly proposed in response to the EU Directive on collective management of copyright adopted in 2014, which acknowledges that the pooling of music repertoires for the purpose of offering multi-territorial licenses can make it easier for online music platforms to operate.

However, the Commission’s preliminary investigation into the proposed hub indicated that the proposed transaction could lead to higher prices and less choice for European consumers of digital music.

To lawfully operate in the market for online music services, digital service providers need to secure a licence from each of the collecting societies managing the relevant copyrights. After the transaction, STIM, PRSfM, and GEMA would not offer multi-national licences for their repertoire individually and these would only be obtainable from the joint venture. The combined repertoire will be among the largest of its kind in Europe, providing access to millions of musical works; this could lead to increased bargaining power for the joint venture, allowing it to charge higher prices and impose harsher commercial terms on digital service providers. In turn, this could lead to higher prices, less choice and less innovation for digital music end users in the EU.

In addition, there are also concerns that there will be reduced competition for copyright administration services which certain publishers rely on. The number of meaningful market players will reduce from four to two, which could have a negative impact on the quality and commercial terms of those services.
The venture partners lodged a package of proposed concessions with the Commission in March. The Commission is currently market testing these commitments and gathering information to determine whether online music platforms could meaningfully operate without the repertoire of the joint venture.

The venture partners lodged a package of proposed concessions with the Commission in March. The Commission is currently market testing these commitments and gathering information to determine whether online music platforms could meaningfully operate without the repertoire of the joint venture.