Transparency and the Collective Management Organisations

838288_36299521Dr Simone Schroff, CREATe/University of East Anglia explores how Collective Management Organisations are responding to pressures to offer more clarity about how they operate. 

Collective Management Organisations (CMOs) perform a key role in the commercial exploitation of music. They license its use, collect the revenues and then distribute these to the copyright owners. As a result, the CMOs link both the copyright owners and users at one of the key stages that copyright is designed to facilitate: the commercial exploitation of the work, generating the revenue that is seen as essential for future creation and innovation. In a digital era, the CMO has become an increasingly important player. And because they are typically monopolies (only in a few territories – the US, South Korea – do CMOs compete with each other), there has been a growing demand for transparency in the way they operate, including the administrative structures, licensing schemes and distribution policies.

Stakeholders

Transparency in CMOs has also been driven by efforts to make the licensing process easier to understand for users. The idea is that if the user (licensee) clearly understands why s/he has to pay and how the actual charge is calculated, their willingness to pay, and therefore the collected revenues, will increase. Transparency here means knowing what they need to pay for and how much. In theory, CMOs should therefore provide basic information on what copyright is, its rationale and its practical legal requirements for the users. And all of the CMOs that we have examined in our CREATe project do this. Indeed, they make a special effort to target person who may know almost nothing about copyright and their entitlements.

One aspect of our research into the Regulation of the Collecting Societies/CMOs has been to compare how they operate (in Europe and the US). Here we focus on what they tell people – via their websites – about how they operate.

What we have found is that their main emphasis is on licensing itself. All of the CMOs we examined do offer information on their different licenses, although the actual extent of clarity varied significantly. Approach 1 is to provide full information, as PRS (UK), GEMA (Germany) and SACEM (France) do. All of the available tariffs are sorted by the specific situation (for example playing music on the radio); and then for each: the information required to calculate your own licensing fee. Approach 2 can best be described as limited information. This is the approach is taken most notably by SACEM and STIM (Sweden). Here, there is still information available on the different licensing types, but the cost calculation is explained by using examples rather than by complete pay schedules. Instead, the licensee is asked to contact the CMO directly to access further information. Finally, Approach 3 relies nearly entirely on having the licensee contact the CMO. ASCAP (US) in particular provides only minimal detail on its different tariffs, their applicability and terms. Instead, they intervene early on in the information process by asking (or requiring) the licensee to get in touch.

These different approaches have practical implications for the licensee. First, information represents power for the licensee. In Approach 1 the licensee has a very clear idea of how much they will have to pay once they contact the CMO. It therefore doesn’t just give them much in the way of planning security (ie knowing the cost when planning the event), but they can also scrutinise the CMO’s charges. They can double- check if the calculations are correct. Once information is less readily available, as with Approach 2, users still have some idea of how much they will pay but significantly less ability to assess the accuracy of bills. This tilts the balance of power away from the user, towards the CMO. The approach used by ASCAP provides too little information to the licensee to allow them any kind of effective scrutiny. For a layperson, the tariff information available provides little more information than that which a license requires. In turn, this means that clients have to trust ASCAP to act correctly.

Although information is key for users, its availability comes at a price: that of information overload. The licensee has to select the tariff they actually need from the huge pool that is available online. PRS alone has over 18 business licenses to choose from, with distinctions along include specific use and income levels etc.

One possible solution could be the guidance system partially employed by ASCAP. Rather than letting the user find their own way through the tariff jungle, a simple flow chart, using questions and answers, could provide fast and effective guidance. By having simple step by step questions, the pressure on the licensee would be alleviated, while still providing all the necessary information so essential to transparency and effective licensing. In addition, it should be clearer when another license is required. The CMOs examined here only represent composers, lyricists and publishers, but not record companies. As a result, a second license is required for uses which involve music that isn’t played live. In our case studies, this situation is mentioned but not directly linked to the tariffs. A specific reminder and a link would go very far in providing clarity, helping the licensees to fully comply with the law.

Researchers

Within the EU and the US, copyright owners are free to choose the CMO they deem most efficient or most in line with their personal convictions or needs. For this freedom to work effectively though, CMOs have to openly share information on their activities to such an extent as to allow for a meaningful comparison. The key here is that this information needs to be available to non-members. Otherwise, potential members cannot compare the benefits of different CMOs, hindering effective competition. For example, a composer might be interested in membership thresholds, the detailed distribution policy or the social benefits that the CMO offers. The same information is also relevant for researchers because it provides the detail required to make comparisons between CMOs.

There are significant differences in how much information is provided to outsiders. The main indicator advocated by the EU for CMOs’ efficiency is the administration rate. All of the CMOs publish them, more or less openly. SACEM for example in effect dropped the explicit rate from its annual reports in 2008 when it experienced a spike in it (mainly due to legal fees, online enforcement and investment in technology). Secondly, the rate says comparatively little on its own. The more social provision offered by an organisation the higher its rate tends to be. However, this may not necessarily be to the detriment of the copyright owner, especially creative ones. Rather, copyright owners have to base their decision on their particular interest rather than a business based assumed drive for profit. While a publisher may deem hardship funds as an unnecessary cost, a composer may well see it in their interest, especially if they are not commercially successful (yet).

However, it is this further information that is difficult to access for some CMOs. The first problem is often language. To allow for effective competition, information needs to be available. In practice, this means translating it into English because most EU languages are not spoken widely outside of the country of origin. However, none of the non-English speaking CMOs that we studied provide the full information in English. Furthermore, even the information provided in some cases is not enough to allow for a meaningful comparison. STIM and ASCAP in particular do not publish information on their governance and social policies in sufficient detail. For example, it is unclear what income thresholds have to be met to become a full members and how this reflects on the available social benefits for the individual.

Dr Schroff is Senior Research Associate, working with Professor John Street at the University of East Anglia, on the ‘Regulating the Collecting Societies’ CREATe work package.

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