Commission staff working document - Impact assessment reforming cross-border collective management of copyright and related rights for legitimate online music services
Date: 2005-10-11
Institutions: European Commission
Subjects: Internet, copyright, distributive trades, information society, music, patents licence

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 11.10.2005 
SEC(2005) 1254 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT REFORMING CROSS-BORDER COLLECTIVE 
MANAGEMENT OF COPYRIGHT AND RELATED RIGHTS FOR LEGITIMATE 
ONLINE MUSIC SERVICES 

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TABLE OF CONTENTS 

Executive Summary ................................................................................................................... 4 

1. 

Problem Definition....................................................................................................... 5 

1.1.  What are the issues that may require action? ............................................................... 5 

1.2.  What are the underlying drivers of the problem?......................................................... 6 

1.2.1.  Classical management of copyright and related rights is not in line with the ubiquity 

of online music services ............................................................................................... 6 

1.2.2.  Legitimate online services need to manage a series of harmonised Internet rights ..... 7 

1.2.3.  A variety of bodies manages the harmonised Internet rights....................................... 7 

1.2.4.  Different management models have developed for management of the rights that 

legitimate online music service providers need to clear .............................................. 8 

1.2.5.  Right-holders demand better representation in the bodies that administer their rights

.................................................................................................................................... 10 

1.2.6.  Right-holders want more control over the management of their rights ..................... 10 

1.2.7.  Right-holders demand better distribution of royalties between CRMs...................... 11 

1.3.  Who is affected, in what ways, and to what extent? .................................................. 12 

1.3.1.  Right-holders.............................................................................................................. 12 

1.3.2.  Rights managers ......................................................................................................... 12 

1.3.3.  Commercial online music service providers .............................................................. 12 

1.4. 

1.5. 

How would the problem evolve, all things being equal? ........................................... 13 

Does the EU have the right to act?............................................................................. 13 

1.5.1.  Treaty base ................................................................................................................. 13 

1.5.2.  Subsidiarity test.......................................................................................................... 14 

1.5.3.  Necessity test.............................................................................................................. 15 

2. 

3. 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

Objectives................................................................................................................... 15 

Policy Options............................................................................................................ 17 

Analysis of Impacts.................................................................................................... 18 

Legal Certainty........................................................................................................... 18 

Transparency/Governance.......................................................................................... 20 

Culture/Creativity....................................................................................................... 21 

Innovation and growth ............................................................................................... 24 

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4.5. 

4.6. 

4.7. 

4.8. 

4.9. 

Competition................................................................................................................ 26 

Employment ............................................................................................................... 27 

Consumers/prices ....................................................................................................... 28 

Impacts outside the EU .............................................................................................. 29 

Consequences for large CRMs................................................................................... 29 

4.10.  Consequences for medium size CRMs ...................................................................... 30 

4.11.  Consequences for right-holders.................................................................................. 30 

4.12.  Consequences for online music service providers ..................................................... 31 

5. 

ASSESSMENT and Evaluation ................................................................................. 32 

5.1. 

Improved accessibility of creative output especially to online content providers ..... 32 

5.1.1.  A licensing policy of CRMs societies that is in line with the demand of online 

content providers........................................................................................................ 32 

5.1.2.  Enhancement of transparency of CRM societies ....................................................... 33 

5.1.3. 

Improved clearance of copyright protected works across the EU.............................. 33 

5.1.4.  A significant increase in the availability of multi-territorial licences for online 

content providers........................................................................................................ 33 

5.2. 

Full participation of right-holders in the revenue stream generated by more efficient 
cross-border exploitation of copyright ....................................................................... 34 

5.2.1.  Freedom for right-holders to choose the best placed CRM and to switch between 

CRMs ......................................................................................................................... 34 

5.2.2.  Enhancement of transparency and accountability of CRM societies, equitable royalty 
distribution and enforcement of rights ....................................................................... 34 

5.2.3.  Distribution of royalties collected on behalf of right-holders in territories other than 

their home territory to right-holders directly and without discrimination on the 
grounds of residence, nationality, or category of membership .................................. 34 

6. 

7. 

Results of Stakeholder Consultation .......................................................................... 35 

Commission Proposal and Justification ..................................................................... 36 

7.1.  What is the final policy choice and why was it chosen?............................................ 36 

7.2. 

7.3. 

7.4. 

How will this policy choice be implemented? ........................................................... 39 

Compatibility with international obligations ............................................................. 39 

Have any accompanying measures to maximise positive impacts and minimise 
negative impacts been taken?..................................................................................... 40 

Annex 1: Major European performance and mechanical rights societies ................................ 41 

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EXECUTIVE SUMMARY 

This  Impact  Assessment  (“IA”)  examines  the  present  structures  for  cross-border  collective 
management  of  copyright  and  related  rights  for  the  provision  of  legitimate  online  music 
services. Although digitisation has had an impact in the other sectors, it is in relation to the 
cross-border  provision  of  online  music  services  that  the  absence  of  a  Community-wide 
collective licensing for copyright and related rights has been most felt. 

This  IA  considers  three  options:  (1)  Do  nothing;  (2)  eliminate  territorial  restrictions  and 
customer allocation provisions in existing reciprocal representation agreements; or (3) give 
right-holders the additional choice to appoint a collective rights manager for the online use of 
their musical works across the entire EU (“EU-wide direct licensing”). 

Stakeholders were consulted on the three options in July 2005. 85 stakeholders, from right-
holders, rights management societies and commercial users, submitted their opinions on the 
three  options.  There  was  broad  consensus  that  Option  1  is  not  an  option.  Stakeholders  are 
divided between Options 2 and 3, with commercial users favouring Option 2, the majority of 
collective rights managers favouring modified versions of Option 2 and the music publisher’s 
community,  the  independent  record  labels  and  certain  collective  rights  managers  favouring 
Option 3. 

In the light of stakeholder comments received, the IA proposes that a reform package for EU-
wide  licensing  of  musical  works  for  legitimate  online  music  services  requires  the  parallel 
deployment of all business models that are available to foster more efficient multi-territorial 
licensing.  The  IA  therefore  proposes  to  eliminate  territorial  restrictions  and  customer 
allocation  provisions  in  existing  reciprocal  representation  agreements  while  leaving  right-
holders who do not wish to make use of reciprocal agreements to manage their repertoire the 
additional option to tender their repertoire for EU-wide direct licensing. 

In  addition,  the  proposed  reform  includes  rules  on  governance,  transparency,  dispute 
settlement  and  accountability  of  collective  rights  managers,  whether  they  manage  rights 
according  to  Option  2  or  Option  3.  Governance  rules  setting  out  the  duties  that  collective 
rights  managers  owe  to  both  right-holders  and  users  would  introduce  a  culture  of 
transparency  and  good  governance  enabling  all  relevant  stakeholders  to  make  an  informed 
decision as to the licensing model best suited to their needs. This should stimulate EU-wide 
licensing and promote the growth of legitimate online music services. 

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1. 

PROBLEM DEFINITION 

1.1.  What are the issues that may require action? 

The development of new broadcasting platforms such as web-based and other online delivery 
solutions  should  lead  to  more  cross-border  online  music  services.  These  new  technologies 
have  also  led  to  the  emergence  of  a  new  generation  of  internationally  active  online  music 
service providers, be it online on-demand content providers or webcasters1. 

As  any  service  provided  online  can  be  seen  and  accessed  across  Europe,  online  content 
providers  require  a  licence  for  more  than  one  territory  which  gives  legal  certainty  and 
insurance  against  infringement  suits  for  all  territories  (multi-territorial  licence).  Online 
exploitation  music  service  providers  therefore  need  a  system  for  managing  copyright  and 
related rights and in particular the licensing of these rights that is in line with the ubiquity of 
their online music services. This is particularly important because music is playing a crucial 
role  in  the  development  of  online  services,  while  online  services  play  a  particular  role  in 
promoting music. Music is at the forefront of online development by virtue of the fact that it 
is so easily distributable online and that there is such a high demand for music, as evidenced 
by  the  popularity  of  networks  and  services  mainly  used  to  license  sharing  of  music  files. 
Furthermore, it is well documented that, for example, music is a major factor in the take up of 
broadband entertainment services throughout the EU and music is therefore of utmost value to 
the business of broadband suppliers2. 

Online  music  content  providers  see  the  current  requirement  of  territory-by-territory 
management for most forms of copyright and related rights as an impediment to the roll-out of 
new legitimate cross-border online music services and consider it an inefficient way to secure 
multi-repertoire  licences.  Therefore,  online  exploitation  of  music  across  national  borders 
creates demand for a new generation of cross-border management services: 

•  Commercial  online  users  require  a  licence  for  more  than  one  territory  which  gives  legal 

certainty for all territories (multi-territorial licence); 

•  Commercial online users want more choice as to which collective rights manager can grant 

a multi-territorial licence; 

•  Holders of copyright and related rights  want multi-territorial licenses which maintain the 

value of their copyright and related rights.  

This demand for a multi-territorial licence, that at the same time does not undermine the value 
of  copyright  and  neighbouring  rights  cannot  be  satisfied  within  the  current  structure  of 
traditional  reciprocal  arrangements,  so  alternative  solutions  should  be  sought.  In  particular, 
the  territorial  scope  of  the  licence  that  a  collective  rights  manager  may  grant  should  be 
determined  by  the  right-holder,  the  collective  rights  manager  and  the  user  (licensee)3  in  the 

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See press release IFPI on webcasting agreement: http://www.ifpi.org/site-content/press/20041018.html. 
Webcasting  is  already  well-established  in  the  US,  where  there  are  currently  1250  privately  licensed 
services. 
Submission by the Music Publishers Association (MPA) of 28 August 2005. 
In  relation  to  the  those  rights  which  are  not  administered  by  a  collective  rights  manager,  and  which 
remain with the individual right-holder, a licence may be granted under the contract law of choice e.g. 
the  Member  States  where  a  rightholder  is  established  or  resident  for  the  EU  wide  exploitation  of  his 

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way  that  is  most  suitable  for  their  respective  online  business  models  whether  this  includes 
multi-territorial, multi-repertoire licences or niche repertoire licences. 

1.2.  What are the underlying drivers of the problem? 

1.2.1.  Classical management of copyright and related rights is not in line with the ubiquity 

of online music services 

Management of copyright and related rights is a system whereby a right-holder authorises a 
third  party  to  manage  commercial  use  of  his  protected  works  and  other  subject  matter. 
Management of rights entails the following services: (1) the grant of licences to commercial 
users;  (2)  the  auditing,  monitoring  of  rights  and  ensuring  payment  of  royalties  by  pursuing 
infringers (enforcement); (3) the collection of royalties; (4) and the distribution of royalties to 
rights-holders. For the purposes of this Impact Assessment, these services and the bodies that 
provide  them  to  right-holders  in  a  collective  manner  are  referred  to  respectively  as  the 
“collective management of copyright” and “collective rights managers” (“CRM”). 

In  the  traditional  system  of  managing  copyright  and  related  rights,  if  copyright  works  are 
accessible  in  another  territory,  the  society  active  in  that  territory  (the  “affiliated  society”) 
normally  enters  into  reciprocal  representation  agreement4  with  the  CRM  that  holds  the 
repertoire on behalf of the right-holder (the “management society”). This means along with its 
own national repertoire, an affiliate also obtains the right to the repertoire of the management 
society  with  which  it  has  a  bilateral  arrangement.  Via  a  network  of  bilateral  reciprocal 
agreements, each local collective rights manager represents the cross-licensed repertoire in its 
national  territory  and  no  other.  Most  –  but  not  all  –  CRMs  have  developed  networks  of 
bilateral agreements cross-licensing their respective repertoire between societies for territorial 
exploitation.  But  the  affiliate’s  authority  to  commercially  exploit  the  management  society’s 
repertoire is limited to its own territory only5. 

With  classical  management  of  copyright  and  related  rights  CRMs  licensing  authority  is 
contractually limited to its home territory. The limited territorial licensing authority of a CRM 
is due to the fact that he obtains the repertoire to be licensed (except his own) not through a 
direct  relationship  with 
through  so-called  reciprocal 
representation agreements with other CRMs. 

the  relevant  right-holder  but 

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rights. In so doing, the licence, although granted for contractual purposes under the law of a particular 
Member State is exploited by the licensee under the copyright law of each one of the 15 jurisdictions of 
the  Member  States.  There  might  be  limitations  in  the  law  of  any  of  the  Member  States  which  might 
prevent  certain  matters  granted  under  the  individual  contract  from  being  upheld  in  a  particular 
jurisdiction. 
The  term  “reciprocal”  in  the  context  of  these  private  agreements  means  “in  return  for  an  identical 
grant”.  It  does  not  connote  “reciprocity”  for  which  there  is  a  specific  meaning  in  international  law 
especially in the international copyright conventions i.e. where rights are granted by one country to its 
nationals,  the  nationals  of  another  country  can  only  have  the  benefit  of  those  rights  where  there  is 
commensurate recognition of these rights by the other country. 
The Court of Justice has considered whether certain provision in reciprocal representation agreements 
were  anti-competitive  in  the  context  of  licensing  of  physical  premises  e.g.  discothèques  Ministère 
Public v Tournier Case 395/87 1989 ECR 2521; Lucazeau v Sacem Joined Cases 110/88, 241/88 and 
242/88 1989 ECR 2811. There is no jurisprudence on whether such provisions would also be allowed 
for online licensing. 

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1.2.2.  Legitimate online services need to manage a series of harmonised Internet rights 

In 2001, the European Union adopted the EU Directive on the harmonisation of certain aspect 
of  copyright  and  related  rights  in  the  information  society  (the  “Copyright  Directive”)6.  The 
Copyright Directive harmonises a series of new exclusive rights that cover online distribution 
of musical works and  other subject  matter. The following exclusive rights are  implicated in 
the provision of legitimate online music services: 

–  The  exclusive  right  of  reproduction  as  defined  in  Article  2  of  the  Copyright  Directive 
covers  all  reproductions  made  in  the  process  of  online  distribution.  The  right  of 
reproduction  is  the  right  to  reproduce  the  work  by  making  intangible  copies.  Intangible 
copies  include  those  made  by  digital  means  e.g.  upload,  download,  transmission  in  a 
network  or  storage  on  hard  disk.  Certain  temporary  copies  are,  however,  exempted  from 
the reproduction right: by virtue of Article 5(1) of the Copyright Directive. 

–  The  exclusive  right  of  communication  to  the  public  set  out  in  Article  3  of  the  Copyright 
Directive  covers  all  communications  of  authors’  works  to  members  of  the  public  not 
present at the place where the communication originates.  

–  The right of equitable remuneration for certain other categories of right-holder as set out in 
Article 8 of Directive 92/100 on rental right and lending right and on certain rights related 
to copyright. 

The  exclusive  right  of  communication  to  the  public  and  the  right  of  equitable 
remuneration  cover  the  communication  to  the  public  of  musical  works  and  other 
subject  matter  by:  (1)  webcasting  (which  includes  Internet  radio,  simulcasting,  and 
“near-on-demand” services7) whether musical works are communicated via personal 
computers or to mobile telephones8. 

–  The  exclusive  right  of  making  available  that  covers  “on-demand”  services9  which  is 

accorded to authors, performers and record producers. 

1.2.3.  A variety of bodies manages the harmonised Internet rights 

Rights of authors are administered collectively  by authors’ societies on behalf of the author 
and music  publishers. Authors hold the rights in the composition of the lyrics/music. In the 
online environment authors’ rights comprise: 

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Directive 2001/29/EEC, OJ L 167, p. 10. 
A  webcast  is  similar  to  a  broadcast  television  program  but  designed  for  internet  transmission.  A 
simulcast is a “simultaneous broadcast”, and refers to programs or events broadcast across more than 
one medium at the same time. 
There  are  estimates  that  50%  of  mobile  content  revenues  will  be  from  music.  Source:  IFPI  Digital 
Music  Report  2005.  Music  services  provided  to  mobile  telephones  also  includes  the  market  for  ring-
tones and real-tones. 
The Copyright Directive grants neighbouring rights holders no exclusive right with respect to not fully 
interactive services such as webcasting or simulcasting. These rights are covered by national rules on 
neighbouring rights. This includes music included in video on demand online services whereby films, 
televisions programs are downloaded on demand against or without payment. 

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–  The right of reproduction i.e. the right to reproduce the work by making intangible copies. 
Intangible copies include those made by digital means e.g. upload, download, transmission 
in a network or storage on hard disk; 

–  The right to communicate the work to the public including making available to the public 
i.e.  transmission  of  the  work  by  playing  recorded  music  via  a  simulcast  or  a  webcast  or 
making the work available by allowing for its downloading. 

In most Member States, a single CRM administers the reproduction, public performance and 
making available rights (cf. list in Annex 1). 

Rights of performers, and record producers (record labels) are related rights and remunerate 
the  producers’  and  the  performing  artists  for  use  of  a  sound  recording.  Such  use  includes 
making physical and intangible copies, broadcasting, but now also includes the use related to 
Internet activity such as streaming and webcasting. The rights include the following: 

–  The  right  of  performers  to  reproduce  the  fixation  of  a  performance;  communicate  to  the 
public10 including the right to make the work available. These rights in their performances 
(not  related  to  the  composition)  are  administered  collectively  by  CRMs  representing 
performers; 

–  The right of record producers to reproduce; communicate to the public including the right 
to make available the sound recordings. These rights of record producers are administered 
by  separate  CRMs  representing  record  producers  that  hold  the  rights  in  the  sound 
recordings themselves. 

As the above demonstrates, there are many right-holders and rights that could be involved in a 
single  transaction  in  the  music  industry.  A  licence  granted  by  a  CRM  for  one  form  of 
exploitation does not mean that any other from of exploitation is authorised and so a separate 
licence  has  to  be  sought  from  a  different  collective  rights  manager  i.e.  an  authors’  society, 
record  producer’s  society  and  performing  rights  society  for  any  single  transaction. 
Management  of  online  exploitation  of  musical  works  is  complicated  by  the  fact  that  a 
multitude  of  rights  (e.g.,  communication  to  the  public,  reproduction  and  making  available) 
belonging  to  a  multitude  of  right-holders  (e.g.,  authors,  composers,  publishers,  record 
producers and performers) need to be cleared. 

1.2.4.  Different  management  models  have  developed  for  management  of  the  rights  that 

legitimate online music service providers need to clear 

Record  producers,  as  holders  of  related  rights,  manage  their  “making  available”  right  for 
online on-demand services on an individual basis11. 

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Record  producers  have  a  right  to  equitable  remuneration  only.  See  Article  8(2)  of  Council  Directive 
92/100/EEC  on  rental  and  lending  right  and  on  certain  rights  related  to  copyright  in  the  field  of 
intellectual property. 
Individual  management  of  copyright  and  related  rights  is  not  covered  by  the  scope  of  this  IA.  With 
regard to the making available right necessary to be cleared for the provision of on demand services by 
broadcasters of their radio or television productions incorporating music from commercial phonograms 
as  an  integral  part  thereof,  Recital  29  of  the  Copyright  Directive  states  that  collective  licensing 
arrangements are to be encouraged in order to facilitate the clearance of the rights concerned. On this 
basis, the European Broadcasting Union (EBU) advocates mandatory collective management of making 

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Record  producers  and  performers,  as  holders  of  related  rights,  manage  their  right  to 
communicate to the public12 collectively13. In this framework, record producers have set up a 
scheme  for  multi-territorial  licensing  for  communication  to  the  public  that  occurs  via 
“simulcasting”14 and “webcasting”15. 

Authors manage their exclusive right to communicate to the public collectively, but there is 
currently no effective multi-territorial licensing system in place for the authors’ right of online 
communication  to  the  public16.  The  relevant  agreement  (the  Santiago  agreement)  expired  at 
the  end  of  2004  and  has  not  been  renewed.  The  principal  reason  for  this  is  that  authors’ 
societies  are  reluctant  to  abolish  the  clause  that  a  content  provider  can  only  obtain  a  multi-
territorial license with the society of the country where the content provider has its actual or 
economic location. Authors’ societies argue that authors are best served by a collective rights 
manager with physical proximity to the user in the provision of each of the service elements 
involved in the collective management of copyright but especially the enforcement, collection 
aspects  which  they  argue  cannot  properly  be  provided  by  a  distance  even  with  the  use  of 
digital  technology17.  Record  labels  do  not  share  this  concern  –  the  Simulcasting  and 
Webcasting  agreements  have  no  economic  residence  clause  --  and  claim  that  digital 
technology is available to provide enforcement and collection services at a distance. But the 
failure to renew the Santiago agreement and strike the economic residence clause means that 
authors’ rights for online use currently need to be cleared on a territory-by-territory basis. 

With  respect  to  author’s  online  reproduction  rights,  which  covers  webcasting,  on  demand 
transmission  by  acts  of  streaming  and  downloading, 
the  relevant  agreement  (the 
BIEM/Barcelona  agreement)  expired  at  the  end  of  2004  and  has  not  been  renewed  for  the 
same reasons that the Santiago agreement has not been renewed. Again, this means that the 
authors’ reproduction rights have to be cleared on a territory-by-territory basis. 

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available rights of producers and performers in commercial phonograms, in so far as such commercial 
phonograms are an integral part of TV or radio productions. 
This right was not introduced by the Copyright Directive but is contained in Article 8(2) of the Rental 
Directive (Directive 92/100/EEC, OJ No L 346, p. 61). 
The  main  function  of  these  CRMs  active  on  behalf  of  record  producers  is  the  administration  of  the 
rights of their record producer members for the purposes of broadcasting and public performance. 
See Press Release IP/02/1436 of 08 October 2002, case COMP/C2/38.014 IFPI Simulcasting, decision 
of 8 October 2002, OJ L107 (30.04.2003) p. 58. 
It should be noted that the notified IFPI Simulcasting Agreement does not cover performers' rights in 
phonograms. 
The  relevant  Santiago  agreement  was  notified  to  the  Commission  in  April  2001  by  the  collecting 
societies of the UK (PRS), France (SACEM), Germany (GEMA) and the Netherlands (BUMA), which 
were  subsequently  joined  by  all  societies  in  the  European  Economic  Area  (except  for  the  Portuguese 
society SPA) as well as by the Swiss society (SUISA). But the Agreement expired on 31 December and 
was not renewed. 
See  GESAC  submission  of  28  August  2005.  According  to  GESAC  the  signatory  societies  to  the 
Santiago and Barcelona Agreements chose not to extend them further in 2005, because although never 
having been the subject of an official Commission decision, they were aware that the Commission was 
highly critical of the so-called “economic residence” clause in them, which was in GESAC’s opinion, 
necessary  to  prevent  the  risk  of  “forum  shopping”  by  commercial  users.  As  a  result,  GESAC 
acknowledges, authors’ societies are only able to give copyright exploiters clearance for the use of their 
own repertoire worldwide, and the world repertoire within the territory in which they carry on their own 
activity. 

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1.2.5.  Right-holders demand better representation in the bodies that administer their rights 

Certain  categories  of  rights-holders,  e.g.  music  publishers  complain  that  they  are  denied 
membership  in  certain  CRMs,  although  between  70-80%  of  works  they  represent  are  non-
domestic18.  Such  denial  of  membership  precludes  publishers  that  represent  works  of  right-
holders from other Member States from having any say in how the works they represent are 
licensed  (e.g.,  on  a  territorial  or  EU-wide  basis)  and  how  royalties  collected  on  their  behalf 
are distributed. 

1.2.6.  Right-holders want more control over the management of their rights 

Digital  transmission  of  musical  work  and  the  introduction  of  digital  technologies  in  the 
management of copyright and related rights empower individual right-holders in two relevant 
respects: 

–  First,  it  allows  right-holders  to  contractually  define  the  territorial  scope  of  the  licensing 

authority they grant to a rights manager19; 

–  Second, digital remote monitoring of use in the online environment will also enable right 
holders to exercise a choice as to which collecting society to join and to give mandate to 
for the multi-territorial online management of their rights. 

The fundamental review of rights management that the introduction of digital technologies in 
rights management has brought about is not merely the result of demand side drivers but also 
the  development  of  new  digital  rights  management  technologies  (DRMs”).  By  facilitating 
identification  and  tracking  of  the  use  of  works,  in  principle,  DRMs  have  empowered  right-
holders  to  control  the  licensing  and  transformed  the  collection  and  distribution  of  royalties 
into  a  process  of  individual  electronic  payment.  DRMs  also  allow  remote  monitoring  of  a 
myriad of online uses made of copyright protected works. 

While  collective  management  of  copyright  and  related  rights  provided  a  solution  that  was 
effective for the offline environment as right-holders could not control the myriad of offline 
uses made of their music, DRM technology has the potential to empower right-holders or their 
designated rights managers to monitor all commercially relevant instances in which use was 
made of their works online. 

The development of digital technologies (whether or not via the use of DRMs) will empower 
all right-holders, big or small, to increasingly scrutinise the cost and efficiency of collective 
rights  management  services.  As  right-holders’  works  are  increasingly  exploited  in  online 
music  services  across  the  EU,  right-holders  will  become  aware  of  the  multiple  deductions 
they  suffer  to  cover  the  costs  of  the  affiliate  CRMs  and  the  management  CRM.  EU-wide 
licensing  through  one  rights  manager  would  reduce  the  deductions  inherent  in  reciprocal 

18 

19 

Certain  CRMs  dealing  with  musical  works,  such  as  AEPI  (not  contested  in  AEPI’s  response  to  the 
follow up consultation 25 July 2005) in Greece, ZAIKS in Poland, SPA in Portugal and SACD (as far 
as  music  is  concerned)  in  France  do  not  admit  music  publishers  as  members  (cf.  submission  by 
ICMP/CIEM, p. 5, footnote 23. 
There is no legal requirement that rights should be licensed on a national territorial basis only: Right-
holders may choose how many territories in which to license their rights. The principle of territoriality 
merely  determines which  law  applies  to  the  act of  use or  exploitation:  this  is  typically  the  law of the 
place of exploitation. There is no requirement that copyright licensing should be limited to a particular 
national territory: it is a choice for right-holders. 

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arrangements  and  in  so  doing  increase  the  authors’  revenues20.  Digital  technologies  thus 
provide  an  opportunity  to  streamline  the  rights  management  process  by  allowing  for 
significant reductions in management costs and an improved accuracy in royalty distribution. 

Naturally,  the  scope  of  the  benefits  that  CRMs  derive  from  digital  technologies  for  the 
collective management of online music rights depend on which path the music industry takes 
and to what extent consumers embrace online services. But it is fair to assume that collective 
management of online music rights on a national basis is economically difficult to justify: if 
collective rights management for online rights continues to be provided at a national level the 
historic  transaction  cost  advantages  of  collective  management  of  copyright  will  decline  as 
digital  technology  continues.  In  order  to  preserve  these  advantages,  collective  management 
needs to take on a European-wide scope. 

In addition, digital technologies allow CRMs to outsource some of their management services 
when this is more efficient than providing these services themselves. This could lead to cost 
savings  as  outsourcing  specialists  achieve  economies  of  scope  by  combining  certain 
operational  “backroom”  management  functions  (such  as  the  maintenance  of  databases 
comprising the different right-holders that contributed to a musical work) on behalf of several 
CRMs. 

Moreover, in time, DRMs will also empower right-holders to manage their rights individually 
should  they  wish  to  do  so.  Progress  continues  to  be  made  in  the  development  of  DRM 
technologies, standards, interoperability, metadata, catalogue databases and other appropriate 
tools  required  for  secure  and  comprehensive  individual  rights  management  in  the  online 
environment.  This  will  present  an  alternative  to  collective  rights  management  especially  for 
those  right-holders  that  may  not  be  satisfied  with  the  cost  or  efficiency  of  collective  rights 
management services. 

1.2.7.  Right-holders demand better distribution of royalties between CRMs 

Performers and record producers state that they have difficulties in being paid for use of their 
works across borders as the distribution rules do not properly account for actual exploitation 
of works21. 

Moreover,  with  respect  to  cross-border  distribution  of  royalties,  existing  arrangements 
between  CRMs  for  related  rights  such  as  performance  rights  do  not  always,  if  works  are 
transmitted  across  the  EU,  include  the  transfer  of  royalties  back  to  the  CRM  in  which  the 
right-holder  is  domiciled.  Under  these  so-called  Type  B  agreements,  there  is  no  direct 
payment made across borders between the CRMs or to individual right owners whose works 
are  exploited  abroad.  The  CRMs  agree  that  the  revenue  arising  in  a  territory  due  to  artists 
resident in the territory of the other party should remain in the country of collection and be 
used in accordance with the rules of the CRM in the country of collection. 

20 

21 

CRMs  are  but  one  means  to  an  end  -  the  granting  of  licences  from  right-holders  to  users.  They  can 
perform a useful service if they are able to offer a wider repertoire of works to the user, but this is at the 
cost of introducing the CRM as an intermediary, whose operating costs have to be borne by the right-
holder. But it is clear that the right-holder always retains the right to exploit his works on an individual 
basis. 
In the case of one record producer CRM (the PPL), it has set up an overseas collection service for both 
performers  and  record  companies  which  relies  on  bilateral  agreements  with  other  EU  collecting 
societies. 

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1.3.  Who is affected, in what ways, and to what extent? 

A royalty is payable on almost every occasion that a piece of music is played by new media 
and  the  new  forms  of  exploitation  such  as  digital  transmissions  including  downloading, 
webcasting  or  streaming.  In  the  online  music  sector,  there  are  two  main  players:  (1)  right-
holders  that  make  up  the  membership  of  the  CRMs;  (2)  rights  managers  (CRMs)  and  (3) 
commercial online music service providers. 

1.3.1.  Right-holders 

In  the  music  industry  there  are  two  groups  of  right-holders:  authors,  composers  and 
editors/publishers22 who hold “copyright” and performers, producers of phonograms (record 
labels)  and  broadcasting  organizations  that  hold  “related  rights”  with  respect  to  their 
performances, phonograms and broadcasts respectively. 

1.3.2.  Rights managers 

When a right-holder joins a CRM, his relationship is governed by the contract that he enters 
into  with  that  CRM  and  the  CRMs  statutory  provision  on  membership.  The  right-holders 
works  form  part  of  the  repertoire  of  that  CRM.  Right-holders  and  others  who  own  the 
copyright  (although  they  may  not  have  been  involved  in  the  creation  or  production  of  a 
copyright  work23)  make  up  the  membership  of  collecting  societies.  CRMs  manage  the 
commercial exploitation of copyright and related rights and deduct a fee for the provision of 
these management services. But most CRMs in Europe also provide other services that are not 
linked to the management of copyright, such as social and cultural, promotional and funding 
activities24. 

1.3.3.  Commercial online music service providers 

The digital music market was worth US$330 million in 2004 - up on 2003 and set to double in 
2005  (Jupiter  research).  This  represents  about  1.5%  of  record  company  revenues.  Analysts 
and  record  companies  predict  digital  sales  could  reach  25%  of  revenues  in  five  years.  It  is 
estimated that 50 million portable players were sold in 2004 (IDC), of which 10 million were 
iPods (Apple). 

The introduction of new broadcasting platforms such as web-based and other online delivery 
solutions  will  lead  to  different  business  models  involved  in  the  cross-border  provision  of 
online  music  services.  Among  the  major  brand  names,  two  distinct  business  models  have 
emerged in digital music: pay-per-download and subscription services: 

22 

23 

24 

Music  publishers  generally  pay  “writers”  advances  against  royalties  following  the  signature  of  a 
publishing agreement in return for the rights being assigned or licensed (in whole or in part) to them. 
Music publishers are principally concerned with licensing reproductions of musical works for example 
for  securing  releases,  for  the  performance  of  music  (both  live  and  recorded),  for  online  use,  in 
synchronization  with  visual  images  in  films,  television  programmes  and  commercials  and  for  use  as 
telephone ring tones. 
This  last  category  includes  those  persons,  corporate  or  individuals  who  under  the  law  of  certain 
Member States own the work either because it was created in the course of employment or they have 
taken an assignment of the relevant rights. 
The  copyright  system  ensures  that  right-holders  may  benefit  from  property  rights  entitling  them  to  a 
share in the revenue for the use of their work. It is central to their success and rests on a simple premise 
that creative effort which results in a work of value to those who experience or consume it, should be 
paid for or remunerated. 

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–  Pay-per-download services meet consumer demand to for greater accessibility of music, 
but with greater flexibility than CDs as tracks can be selected and downloaded on the spot. 
Services  such  as  iTunes,  MSN  Music,  Wal-Mart  (US)  and  Tesco  (UK)  sell  downloads 
from US$ 0.80 per track. 

–  Subscription services offer a very wide choice of music for a monthly fee, allowing users 
to access all the music they want with the option to purchase selected tracks. Services like 
Napster, Rhapsody and Virgin Digital offer streaming and radio-play access for a monthly 
fee  –  typically  from  US$  9.99.  Downloads  and  burns are available for an extra per-track 
fee  from  US$  0.79.  Some  subscription  services  such  as  Napster  now  allows  ‘tethered 
downloads’ which are transferable to portable players for as long as the consumer remains 
a subscriber. 

1.4. 

How would the problem evolve, all things being equal? 

In 2004 record companies digitised and made available their repertoire in bulk. For 2005, they 
envisage to market, promote and sell music, for online applications  such  as download, hire, 
subscription,  across  Europe.  These  services  can  be  accessed  across  Europe  and,  in 
consequence,  legal  certainty  for  users  (irrespective  of  the  territorial  scope  of  the  service) 
requires copyright to be cleared throughout the EU. 

Online  content  providers  require  copyright  cross-border  or  trans-national  clearance  in  line 
with  their  international  reach  and  clearance  services.  These  services  cannot  be  provided 
effectively  or  efficiently  when  copyright  and 
rights,  especially  authors’ 
communication to the public, making available and reproduction rights, have to be cleared on 
a territory-by-territory basis across the EU. 

related 

If left entirely to the market, cross-border collective management of legitimate online music 
services  would  have  to  emerge  in  circumstances  of  considerable  legal  uncertainty.  As  the 
evidence  presented  above  demonstrates,  multi-territorial  licensing  for  new  online  music 
services would develop differently according to the different rights and right-holders involved 
with  multi-territorial  licenses  being  available  for  some  rights  and  right-holders  and  not  for 
others. 

Moreover,  with  respect  to  cross-border  distribution  of  royalties,  if  left  to  the  market, 
arrangements between CRMs for related rights such as performance rights would continue to 
exclude the transfer of royalties to the CRM in which the right-holder is domiciled. 

1.5. 

Does the EU have the right to act? 

1.5.1.  Treaty base 

The  proposed  EU  action  is  based  on  Article  211  EC.  According  to  this  provision  the 
Commission  may  formulate  recommendations  on  matters  dealt  with  in  the  Treaty  if  the 
Commission considers it necessary. 

The Commission considers it necessary to issue recommendations on the proper functioning 
of  cross-border  management  of  copyright  and  related  rights  for  the  provision  of  legitimate 
online  music  services.  The  proper  functioning  of  cross-border  management  of  these  online 
rights  requires  that  Member  States  should  screen  their  applicable  national  rules  and 
regulations in order to avoid any provisions that would hinder EU-wide licences being granted 

EN 

13 

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by any rights management entity for copyright and related rights for legitimate online music 
services, irrespective of the domicile of both the selected rights manager and the right-holder. 

In particular, national rules and regulations should not contain restrictions on who can provide 
multi-repertoire  and  multi-territorial  licenses,  such  as  the  requirement  that  the  CRMs 
licensing  authority  with  respect  to  legitimate  online  music  services  is  limited  to  customers 
having their “economic residence” in the same territory as the CRM. 

Moreover,  applicable  national  rules  and  regulations  should  be  screened  as  to  whether  right-
holders  are  free,  even  after  the  exercise  of  their  initial  choice,  to  withdraw  their  rights  and 
choose  another  collective  rights  manager  in  another  Member  State  best  suited  for  the 
exploitation  of  their  works.  Applicable  national  rules  and  regulations  should  not  preclude 
CRMs  from  accepting  right-holder  from  other  Member  States  and  other  CRMs  as  their 
members  and  have  the  authority  to  grant  EU-wide  licenses  on  their  behalf.  Applicable 
national rules and regulations should also not preclude right-holders from withdrawing part of 
their rights (“unbundling”) and transfer these rights to a suitable manager in another Member 
State.  In  addition,  national  rules  and  regulations  should  not  preclude  the  distribution  of 
royalties to rights-holders in other Member States. 

Table  1:  Overview  of  the  cross-border  services  involved  in  collective  management  of 
copyright and related rights for legitimate online music services 

Territory 1 

Territory 2 

Rightholders 
in territory of 
management society

Rightholders 
in territory of 
affiliate society

Online music 
content providers 
in territory of 
management society 

membership
agreements 

membership
agreements 

Online music 
content providers 
in territory of 
affiliate society 

CRM1 
management
society

reciprocal
representation 
agreements 

CRM2 
affiliate 
society 

EU-wide 
licensing 
agreements 

EU-wide 
licensing 
agreements 

Reciprocal representation agreements

Cross-border services covered by EU Treaty 

1.5.2. 

Subsidiarity test 

The  provision  of  cross-border  services  falls  under  the  exclusive  competence  of  the 
Community. The subsidiarity principle therefore does not apply.  

EN 

14 

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1.5.3.  Necessity test 

Issuing a Commission Recommendation based on Article 211 EC would be in line with the 
necessity  test  and  better  regulation  principles.  A  recommendation  would  comply  with  the 
necessity test because the form and intensity of EU policy would be tailored to the severity 
and urgency of the problems to be addressed. 

In  particular,  recommending  that  all  Member  States  should  screen  their  applicable  national 
rules  in  order  to  avoid  any  provisions  that  would  hinder  EU-wide  licences  for  legitimate 
online  music  services  being  granted  by  any  rights  management  entity,  irrespective  of  the 
domicile of both the selected rights manager and the right-holder, would limit EU policy to 
the  strict  minimum  necessary  to  ensure  that  fundamental  Treaty  principles  are  ensured  with 
respect  to  the  cross-border  management  of  copyright  and  related  rights.  In  addition,  this 
screening  of  national  rules  that  my  hamper  the  proper  functioning  of  cross-border 
management of online rights can only be efficiently undertaken at EU level. 

2. 

OBJECTIVES 

The  following  graph  gives  an  overview  of  the  general  policy  objectives,  the  specific 
objectives and the operational objectives. 

Table 2: General objectives, specific objectives and operational objectives 

OBJECTIVES
OBJECTIVES

Opening up of Europe’s large and mainly
Opening up of Europe’s large and mainly
underexploited potential of growth in 
underexploited potential of growth in 
legitimate online services
legitimate online services

Strengthening the confidence of right-holders
Strengthening the confidence of right-holders

General
General

Improved accessibility of
Improved accessibility of
creative output especially to 
creative output especially to 
internet content providers
internet content providers

Full participation of right-holders 
Full participation of right-holders 
in the revenue stream generated 
in the revenue stream generated 
by more efficient cross-border 
by more efficient cross-border 
exploitation of copyright
exploitation of copyright

Specific
Specific

A licensing 
A licensing 
policy of 
policy of 
CRMs
CRMs
societies that 
societies that 
is in line with 
is in line with 
the demand of 
the demand of 
online content 
online content 

providers
providers

Enhancement 
Enhancement 
of 
of 
transparency 
transparency 
of CRM 
of CRM 
societies 
societies 

Improved 
Improved 
clearance of 
clearance of 
copyright 
copyright 
protected 
protected 
works across 
works across 
the EU
the EU

A significant
A significant
increase in the
increase in the
availability of
availability of
multi-territorial
multi-territorial
licenses for 
licenses for 
online content 
online content 
providers
providers

Freedom for 
Freedom for 
right-holders
right-holders
to choose the
to choose the
best placed
best placed
CRM and to 
CRM and to 
switch
switch
between CRMs
between CRMs

Enhancement
Enhancement
of
of
transparency
transparency
and
and
accountability
accountability
of CRM 
of CRM 
societies, 
societies, 
equitable
equitable
royalty
royalty
distribution 
distribution 
and
and
enforcement
enforcement
of rights
of rights

Distribution of
Distribution of
royalties 
royalties 
collected on 
collected on 
behalf of
behalf of
rightholders in 
rightholders in 
territories
territories
other than the
other than the
home territory
home territory
to rightholders
to rightholders
directly and
directly and
without
without
discrimination 
discrimination 
on the
on the
grounds of
grounds of
residence, 
residence, 
nationality or 
nationality or 
category of
category of
membership
membership

Operational
Operational

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General objectives 

Opening  up  of  Europe’s  large  and  mainly  underexploited  potential  of  growth  in  legitimate 
online services 

The general objective of EU policy in the field of copyright should be to harness the potential 
that European music has in stimulating growth of the EU online sector. European policy must 
therefore create a vibrant market for online exploitation of copyright across the Community. 
This  policy  goal  clearly  falls  within  the  framework  of  the  Lisbon  strategy  and  more 
specifically of the i2010 strategy25. 

Strengthening  the  confidence  of  right-holders  that  the  pan  European  use  of  their  creative 
works will be financially rewarded irrespective of where their musical works are exploited or 
where the right-holders are located 

European  policy  must  therefore  create  a  vibrant  market  for  online  exploitation  of  copyright 
across the Community in which the revenue stream is transferred back to creators in the most 
efficient and direct manner possible. 

Specific objectives 

Improved accessibility of creative output especially to online content providers 

In order to drive the growth of the online music sector, accessibility of copy-right protected 
works  needs  to  be  enhanced.  This  implies  that  the  way  in  which  copyright-protected  works 
are cleared across the European Union needs to be improved. 

Full  participation  of  right-holders  in  the  revenue  stream  generated  by  more  efficient  cross-
border exploitation of copyright 

Right-holders  must  be  able  to  enjoy  copyright  and  neighbouring  right  protection  wherever 
such rights are established, independent of national borders, modes  of  use  during  the  whole 
term of their validity. Therefore, any EU initiative on the collective cross-border management 
of  copyright  must  strengthen  the  confidence  of  artists,  including  writers,  musicians  and 
filmmakers, that the pan-European use of their creative works will be financially rewarded26. 

Operational objectives 

–  With regard to accessibility: 

Improved clearance of copyright protected works across the EU 

New  technologies  have  also  led  to  the  emergence  of  a  new  generation  of  service  providers, 
including  online  interactive  content  providers  or  webcasters,  operating  via  computers  or 
mobile  telephony  networks.  In  the  era  of  online  exploitation  of  musical  works,  commercial 
content  providers  need  a  licensing  policy  that  is  in  line  with  the  ubiquity  of  this  online 
environment. 

25 

26 

The  i2010  strategy  notably  aims  at  developing  “a  Single  European  Information  Space  offering 
affordable and secure high bandwidth communications, rich and diverse content and digital services.” 
Report  by  the  EP  on  a  Community  framework  for  collecting  societies  for  authors’  rights,  15  January 
2004, recital 29. 

EN 

16 

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A  significant  increase  in  the  availability  of  multi-territorial  licences  for  online  content 
providers 

The overall number of multi-territorial licences awarded for the online exploitation of musical 
works needs to increase in line with the number of service providers engaged in cross-border 
content service provision. 

Enhancement of transparency of CRM societies 

The  freedom  to  choose  the  CRM  which  provides  the  best  service  would  lead  to  a  society 
being  chosen  on  the  basis  of  the  right-holders’  best  cost-benefit  analysis  with  respect  to 
quality  of  service  provided  and  provisions  charged  by  the  CRM.  Right-holders  choice  will 
enhance transparency, accountability, royalty distribution and the quality of enforcement. 

–  With regard to efficient cross-border exploitation and royalty payments: 

Freedom for right-holders to choose the best placed CRM and to switch between CRMs 

A  core  aim  in  fostering  effective  structures  for  cross-border  collective  management  must 
entail  giving  right-holders  the  possibility  to  freely  choose  and  move  among  CRMs.  If  their 
services were either inefficient or too expensive, right-holders would move to another rights 
manager.  This  level  of  competitive  discipline  would  counteract  any  tendency  toward 
monopoly at the Community level. 

Enhancement  of  transparency  and  accountability  of  CRM  societies,  equitable  royalty 
distribution and enforcement of rights 

This  implies  that  all  right-holders,  authors,  composers,  publishers,  performers  or  others, 
should be treated  equally, irrespective of their domicile, by the putting in place of effective 
structures to enhance transparency, and accountability. 

Distribution  of  royalties  collected  on  behalf  of  right-holders  in  territories  other  than  their 
home  territory  to  right-holders  directly  and  without  discrimination  on  the  grounds  of 
residence, nationality, or category of membership 

EU policy must aim to ensure that royalties collected on behalf of right-holders in territories 
other  than  their  home  territory  should  be  distributed  to  right-holders  as  directly  as  possible. 
Distribution  of  royalties  must  be  fair  and  equitable  and  there  should  be  no  difference  in 
treatment on the basis of where a right-holder is resident; on the grounds of his nationality; or 
his category of membership in the collective rights management society. 

3. 

POLICY OPTIONS 

In order to create efficient structures for cross-border rights management for legitimate online 
music services, three policy options are considered: 

–  Do nothing (Option 1); 

–  Eliminate  territorial  restrictions  and  customer  allocation  provisions  in  reciprocal 
representation  agreements  concluded  between  CRMs  (Option  2):  Option  2  would 
attempt  to  create  a  multi-territorial  licence  for  legitimate  online  music  services  by 

EN 

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to 

in  relation 

eliminating  certain  restrictions 
territory  and  potential  commercial 
users/licensees in reciprocal  representation agreements  concluded  between  CRMs.  As  far 
as  the  territory  is  concerned,  this  option  would  provide  that  restrictions  that  hinder  the 
affiliate society from licensing the management society’s repertoire beyond its own home 
territory (the “territorial restriction clause”) are removed from all reciprocal representation 
agreements.  As  far  as  potential  commercial  users/licensees  are  concerned,  reciprocal 
representation  agreements  governing  multi-territorial 
licensing  (like  Santiago  and 
BIEM/Barcelona) should no longer provide that the affiliate society is restricted to granting 
a multi-territorial licence to content providers whose economic residence is located in its 
“home” territory (the “customer allocation clause”); 

–  Give  right-holders  the  additional  choice  to  appoint  a  rights  manager  for  the  online 
use of their works across the entire EU (Option 3). Option 3 would attempt to create a 
multi-territorial license for legitimate online music services by giving right-holders across 
the EU the additional possibility to appoint any rights manager of their choice for the EU-
wide  exploitation  of  their  online  music  rights.  By  choice  of  this  right-holder,  the  rights 
manager  receives  an  EU-wide  mandate  to  manage  this  right-holder’s  copyright  protected 
works without any recourse to an intermediary (the affiliated society). But it should be left 
to  right-holders  themselves  whether  they  want  to  avail  themselves  of  this  option.  Other 
right-holders  should  still  have  the  option  of  being  indirectly  represented  by  reciprocal 
representation  agreements  and  the  societies  that  have  been  elected  as  EU-wide  licensors 
would  remain  in  the  network  of  reciprocal  agreements  in  order  to  be  able  to  offer  the 
traditional aggregate EU musical repertoire next to the specific repertoire they have been 
entrusted with. 

4. 

ANALYSIS OF IMPACTS 

4.1. 

Legal Certainty 

Stakeholder comments 

If  nothing  is  done  with  respect  to  multi-territorial  licensing  of  legitimate  online  music 
services,  the  current  system  of  reciprocal  representation  agreements  may  not  be  sustainable 
once  each  participant  in  the  network  of  reciprocal  representation  agreements  is  granted  a 
licensing  authority  that  spans  all  other  CRMs  repertoire  and  the  entire  EU  territory.  The 
MCPS-PRS submits that it was more than likely that something like the model promulgated 
under the Commission’s Option 3 will develop organically even if the Commission elects to 
do nothing, i.e. Option 127. The MCPS-PRS states that this prognosis is based on what appears 
to be increasing pressure from certain rights owners for more direct control over CRMs and 
the  terms  and  conditions  on  which  they  are  appointed  to  represent  those  right  holders.  The 
MCPS-PRS  also  believes  that  it  the  Option  3  model  will  also  become  a  long-term  result  of 
any imposition of the Option 2 model; given that under the Option 2 model the likely ultimate 
result  will  be  a  downward  price  pressure,  then  in  order  to  provide  a  floor  against  such 
pressure,  right  holders  will  withdraw  rights  from  that  model  and  at  best  will  require  the 
control  over  administration  for  their  rights  as  envisaged  under  the  Option  3  model,  or  even 
more  drastically  withdraw  from  the  collective  licensing  model  to  create  scarcity  and 
exclusivity in order to preserve the value of their copyright or related rights. 

27 

Submission by the MCPS/PRS alliance, 28 July 2005. 

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This view is echoed by IMPA, the international music publishers association28. According to 
IMPA,  Option  2  may  encourage  right  holders  to  consider  licensing  their  online  rights 
individually  as  it  only  benefits  those  commercial  users  who  do  not  wish  to  reward  creative 
efforts fairly, but are only interested in pan-European licensing at the cheapest possible price. 
Consumers certainly will lose out as devaluing copyright has an inevitable roll on effect on 
future investments and creativity. So, in the long run option 2 delivers cheap deals and less 
attractive  and  less  diverse  content,  thus  violating  the  ambitions  of  the  Lisbon  strategy  for 
further innovation, jobs and competitiveness in Europe. 

EDIMA is of the opinion that CRMs under Option 2 will withdraw or threaten to withdraw 
from reciprocal agreements with other societies that offer more competitive terms to content 
distributors.  This  would  quickly  unravel  the  cross-border  licensing  scheme  which  relies  on 
these agreements or render the scheme ineffective raising legal uncertainty29. 

VODAFONE argues that there is a danger to legal certainty if individual rights holders could 
move  collective  rights  managers  at  any  time  (i.e.  part  way  through  the  licence  period). 
VODAFONE proposes that in this scenario it should be avoided that the licence obtained by 
the commercial  user  may  no longer  cover all repertoires that it was  intended  to. In order to 
solve this issue there would need to be provision that any licence entered into would continue 
to be valid until the end of the licence period. 

Evaluation 

The Commission is aware of the risk that MCPS-PRS describes. The MCPS-PRS was echoed 
by  other  parties  the  Commission  consulted,  who  wished  to  remain  anonymous.  From  the 
extensive  stakeholder  consultation  it  emerges  that  it  would  be  especially  big  and 
commercially successful right-holders or a CRM with a “must-carry” repertoire that is prone 
to leave the network of reciprocal representation agreements because its members think that 
the value of their rights is endangered if left for other CRMs to license. This reality of this risk 
is further evidenced by the emergence of DRM technologies described in Section 1.2.3. of this 
IA.  A  large  CRM  with  an  attractive  repertoire  will  leave  the  network  of  reciprocal 
representation agreements, especially if he has the DRM technology to effectively manage its 
repertoire across the EU and its right-holder members decide that this is a better alternative to 
maximise the value of their copyright or their related rights. 

Option  3  is  an  efficient  tool  to  stem  this  erosion  of  solidarity.  Giving  those  groups  that  are 
most  likely  to  leave  the  network  of  reciprocal  representation  agreements  the  opportunity  of 
appointing a rights manager of their choice for the EU-wide management of their online rights 
gives these players an important tool to preserve the value of their copyright. But awareness 
of  this  option  will  also  help  preserve  the  system  of  reciprocal  representation  as  the 
consequences of a downward price spiral will be made clear to all societies represented in the 
reciprocal agreements. 

28 

29 

Submission by the International Music Publishers Association, 28 July 2005. The International Music 
Publishers' Association (IMPA) is a trade association open to international music publishing groups and 
which  currently  represents  the  five  major  music  publishing  companies  namely,  BMG,  EMI,  Sony, 
Universal and Warner/Chappell Music. 
EDIMA submission, 29 July 2005. 

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19 

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4.2. 

Transparency/Governance 

Stakeholder comments 

The UK Music Publishers Association (MPA) points out that UK music publishers have been 
concerned  over  the  years  about  the  level  of  deductions  from  their  income  by  overseas 
societies on account of local distribution rules which have tended to favour the members of 
the  local  collecting  society  and  which  have  accordingly  enabled  cross-subsidisation.  Such 
monies have been applied towards local cultural and social funds and distributions have often 
been weighted in favour of local members. The MPA believes that Option 3 will address the 
issue of discriminatory distribution rules in the most effective manner possible. By removing 
the restrictions on direct membership of collecting societies, music publishers will be able to 
choose to entrust their rights to collecting societies which are able to meet their expectations. 
According to the MPA, Option 3 would foster governance by (1) allowing direct membership 
by publishers; (2) allowing music publishers to be appointed to their Boards and so to have a 
say in the distribution rules and in the application of any deductions from  their income; (3) 
applying non-discriminatory distribution rules; (4) allowing for the withdrawal of their rights 
within  reasonable  timescales;  (5)  creating  accountability  of  the  right-managers  to  their 
members obliging them to operate transparently, efficiently and cost-effectively. 

According to the MPA, Option 3 will encourage CRMs to offer improved services in order to 
attract members, including: (a) direct distribution on a line-by-line basis which will result in 
faster and more cost-effective distributions due to the fact that the monies will not go through 
an  intermediate  collecting  society  but  instead  will  be  straight-lined  to  right-holders;  (b) 
flexibility for right-holders to withdraw some or all of their rights and to choose to place them 
elsewhere, and (c) better administration and better services. 

Also  the  ICMP/CIEM30  agrees  with  the  Commission’s  analysis  that  individual  membership 
contracts  should  create  a  fiduciary  duty  between  the  society  and  its  members,  and  that  this 
duty incorporates an obligation to treat fairly and equitably all rights holders and categories of 
rights holders, whether representing domestic or non-domestic rights; this being also subject 
to the EU treaty principles as outlined in the Study. 

IMPA,  the  International  Music  Publishers  Association,  submits  that  Option  3  is  the  best 
solution for establishing governance and transparency. IMPA welcomes the fact that Option 3 
not only lifts territorial restrictions and allows for cross border services, but it also guarantees 
that discrimination on the basis of nationality will no longer be allowed. Thus option 3, unlike 
option 2, is fully in line with internal market rules. By allowing for direct membership of right 
holders, option 3 creates a competitive dynamic among collecting societies thus pushing them 
to  deliver  the  best  possible  service  to  their  members.  Collecting  societies  will  be  naturally 
encouraged to be transparent and accountable to their members, they will enjoy a less unequal 
bargaining position vis-à-vis users, will not have to engage in complicated re-distribution of 
royalties  via  their  affiliate  societies  nor  depend  on  their  reciprocal  agreements  with  other 
societies.  Royalties  due  to  members  will  no  longer  be  subject  to  a  number  of  deductions 
related to commissions due in the various territories. 

Additionally, IMPA submits that Option 3 delivers legal certainty to right holders and users 
and  clear  mandates  to  collecting  societies  thanks  to  their  direct  relationship  with  members. 

30 

Submission by the International Confederation of Music Publishers, 28 July 2005. 

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20 

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Monitoring  and  enforcement  functions  by  collecting  societies  will  also  greatly  benefit  from 
this model, an important consideration at a time when launching and fostering legitimate on 
line  services  needs  to  go  together  with  fighting  illegal  ones  by  establishing  and  pursuing 
illegality more swiftly and forcefully than before. 

The  Trade  Marks  Patents  and  Designs  Federation,  (TMPDF)  representing  the  intellectual 
property interests of many British-based industrial companies, both large and small, states that 
Option 3 might, at least to some extent, improve transparency in the mode of operations of the 
CRMs31. 

Evaluation 

The Commission agrees with this analysis and believes that Option 3 can create a higher level 
of good governance and transparency for right-holders because the collective rights manager 
of  their  choice  is  accountable  for  all  use  made  of  works  across  the  Community  and  for  the 
redistribution  of  royalties  in  exact  proportion  to  this  use.  If  the  right-holder  is  not  satisfied 
with the functioning of the relationship he has the choice to seek Community-wide clearance 
services  elsewhere,  a  strong  incentive  to  carry  out  optimal  and  transparent  clearance  and 
royalty payment services. In these circumstances, in order to retain or attract business, CRMs 
will  have  to  adapt  their  business  practices  and  become  more  efficient  in  relation  to  their 
management of services. Right-holders will most likely take into account the DRM solutions 
applied or imposed by the CRMs to protect and monitor their rights in the most efficient way, 
which should have an impact on the development of DRM. 

Empowering  right-holders  to  choose  their  collective  rights  manager  and  award  this  rights 
manager an EU-wide management mandate would lead the latter, in order to attract or retain 
business,  to  adapt  their  business  practices  and  become  more  efficient  in  relation  to  their 
management services. This will ultimately benefit the commercial user community as well, as 
only  efficiently  managed  services  are  able  to  provide  the  transparency  as  to  the  scope  of 
repertoire represented, territorial scope of licenses awarded and applicable tariffs. 

4.3. 

Culture/Creativity 

Stakeholder comments 

According to GESAC, Option 2, by putting collective management societies into competition 
with  one  another  vis-à-vis  users,  would  lead  users  to  seek  to  benefit  from  the  least  robust 
copyright,  the  society  that  is  weakest,  least  effective  or  least  demanding  in  negotiating  and 
enforcing the licensing requirements to secure the best conditions for a Europe-wide licence 
for the world repertoire in a market whose specific characteristic is that the most “appealing” 
“supplier” for the customer is actually the least effective. For GESAC this “forum shopping” 
is unacceptable to right-holders, European and non-European alike. 

Option 2, in GESAC’s view only strengthens the position of commercial users, in particular 
the big international media, compared to that of right-holders, at the expense of the necessary 
balance between the different parties, and that it entails the risk of leading to a real reduction 
in right-holders’ incomes. 

31 

TMPDF submission, 28 July 2005. 

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21 

   EN 

 
                                                 
But GESAC is also against Option 3 because it would lead to a weakening of local authors’ 
CRMs and, in consequence, undermine cultural diversity32. According to GESAC, only local 
authors’  CRMs  are  in  a  position  to  know  and  develop  the  local  music  repertoire.  This  is  a 
particularly  important  activity  in  the  countries  with  small  language  areas.  According  to 
GESAC,  the  emerging  EU-wide  licensor  CRMs  would  be  dominated  by  multinational 
publishers, a development that could lead to a decreased interest of these CRMs in supporting 
works that are commercially less attractive than their own repertoire. According to GESAC, 
such  a  development  would  be  at  odds  with  the  position  taken  by  the  Commission  during 
UNESCO’s  work  on  the  draft  convention  on  cultural  diversity,  articles  5  and  6  of  which 
enable and encourage the Member States to establish cultural policies. 

As  a  small  society  representing  smaller  right  holders'  works,  often  in  language  understood 
only  by  5  million  people  Teosto,  the  Finnish  Composers´  Copyright  Society,  is  concerned 
with  the  impact  of  both  Options  2  and  3  on  cultural  diversity  and  the  European  identity.  If 
small CRMs were eliminated, the small right holders' music would not easily be accessible. 
Teosto  believes  that  big  CRMs  competing  with  each  other  for  the  successful  right  holders 
might  not  be  able  to  cater  for  all  their  right  holders  equally.  For  Teosto,  the  outcome  of 
Option  3  could  be  undesirable  from  the  perspective  of  cultural  diversity  and  the  European 
identity. 

Dutch  CRM  Buma/Stemra  considers  that  a  full  scale  implementation  of  Option  3  will  be 
beneficial  for  American  owned  repertoire  only,  rather  than  creating  a  huge  potential  for 
growth and prosperity of European repertoire. The effects will be damaging for the majority 
of right holders, will endanger their professional well-being and could be very harmful to the 
survival of a European variety of music cultures. 

In  contrast,  the  UK  Music  Publishers  Association  (MPA),  which  represents  over  90%  of 
music  publishers  in  the  UK,  97%  of  which  are  SMEs,  argues  that  Option  3  will  enable  the 
value  of  the  music  to  be  realised  and  will  provide  for  much  more  direct  and  efficient 
distribution of royalties with the maximum amount possible being passed on directly to right-
holders.  Music  publishers  have  already  sought  to  limit  the  deductions  made  by  collecting 
societies  where  monies  are  distributed  via  more  than  one  collecting  society  through  the 
Cannes  Agreements.  Such  contractual  arrangements  would  no  longer  be  necessary  if  there 
was provision for direct distribution as a consequence of direct membership33. The MPA also 
believes  that  Option  3  will  encourage  cultural  diversity  with  each  society  promoting  the 
distinctive  repertoire  that  it  manages.  There  will  also  be  the  opportunity  for  societies  to 
promote  cultural  activity  in  relation  to  their respective  repertoires  throughout  the  EU  which 
will enhance consumer choice. 

Evaluation 

Culture and cultural diversity are a fundamental concern for the EU, but the threat to cultural 
diversity that GESAC describes does not result from Option 3 – which would preserve a role 
for  smaller  CMRs  –  but  from  maintaining  the  status  quo  that  carries  the  inherent  risk  of  a 
breakdown of the system of reciprocal representation agreements once big right-holders or big 
CMRs  withdraw  their  repertoire  from  the  system  of  reciprocal  representation  (See  Section 
4.1. above). 

32 
33 

GESAC submission of 28 July 2005. 
MPA submission, 28 July 2005. 

EN 

22 

   EN 

 
                                                 
As  described  in  Section  4.1.,  big  right-holders  or  collective  rights  managers  have  every 
economic  incentive  to  withdraw  their  repertoire,  once  they  come  to  the  conclusion  that 
traditional reciprocal representation does not safeguard the economic value of their protected 
repertoire.  In  addition,  with  respect  to  the  licensing  of  legitimate  online  music  services, 
legitimate online service providers would not suffer immediate and negative repercussions if 
big  right-holders  or  big  CMRs  would  do  so.  This  is  because  the  “must-carry”  content  for 
cross-border online music services is more concentrated and thus more easily available than 
the current system of collective management suggests: 

–  In a 1996 report on the supply in the UK of the services of administering performing rights 
and  film  synchronisation  rights  the  Monopolies  and  Mergers  Commission  (MMC)  found 
that  in  1993  the  highest  earning  1.3%  of  the  Performing  Rights  Society  (PRS)  writer 
members  received  nearly  41%  of  royalty  distributions  and  the  highest  earning  19.5% 
accounted for some 92%34. 

–  According to the MMC the imbalance of earning power would appear even greater if set in 
the  context  of  the  entire  PRS  membership  as  there  were  a  further  7,900  PRS  writer 
members  who  did  not  have  works  performed  in  the  UK  that  gave  rise  to  distributions 
during the period analysed. 

–  GESAC itself points out that if all attractive repertoire was available with a few large-scale 
rights management bodies this could lead the latter, out of profitability considerations, to 
make  their  repertoire  as  appealing  as  possible  by  cutting  their  management  costs  and 
dropping  internationally  lesser-known  works  and  authors  whose  administration  entails 
costs  but  generates  no  revenues  to  cover  them.  GESAC  further  points  out  that  a 
commercial user would simply acquire licences for the biggest repertoires, and ignore most 
of the remaining authors35. 

Thus,  the  picture  that  a  legitimate  online  music  service  would,  in  the  absence  of  collective 
management  of  copyright,  have  to  negotiate  with  thousands  of  songwriters  or  music 
composers is untrue. As the above MMC figures demonstrate, the fact that there are thousands 
of  songwriters  does  not  imply  that  an  online  music  service  needs  to  individually  negotiate 
with such a large number of them. The withdrawing big right-holders and big CMRs would be 
in a position to license the necessary “must-carry” repertoire to any cross-border online music 
service. 

In  addition,  as  the  bulk  of  the  smaller  CRMs  business  consists  in  licensing  the  larger  ones 
repertoire, an Option 2 approach with increased transparency would require smaller CRMs to 
remit  a  high  percentage  of  their  income  back  to  the  large  ones  and  the  authors  attached  to 
them. Thus Option 2 and not Option 3 would leave small CRMs with little means to support 
“works that are commercially less attractive”. 

Option  3,  on  the  other  hand,  would  organise  right-holders  choice  to  opt  for  direct  and  EU-
wide  licensing  of  their  repertoire  for  legitimate  online  music  services  and  ensure  that  this 
choice does not have a negative impact on smaller CRMs and cultural diversity: 

–  EU-wide licensing as envisaged by Option 3 would ensure that there is a continued role for 
the  smaller  CRMs.  The  non-mandatory  character  of  Option  3  acknowledges  that  many 

34 
35 

1996 MMC Report at point 5.33. 
GESAC submission of 28 July 2005. 

EN 

23 

   EN 

 
                                                 
small right holders will remain loyal to their national CRM and this will put those societies 
in a strong position when negotiating representation of local repertoire with the larger EU-
wide licensor societies. Option 3 would allow smaller societies to play a considerable role 
in  the  administration  of  the  online  rights  in  their  territory  as  local  representative  for  the 
society chosen by the right holders to administer the online rights; 

–  To  a  large  extent  smaller  CRMs  already  play  the  role  of  a  local  representative  for  their 
repertoire  while  transferring  most  of  the  royalties  collected  domestically  to  right-holders 
abroad.  According  to  the  GESAC  submission  Swedish  society  STIM  in  2004  transferred 
69% of royalties collected to foreign right-holders and Danish society KODA distributed 
more than 60% of its total collected revenue to foreign right-holders in the same year; 

–  In  addition,  Option  3  permits  the  EU-wide  licensors  and  the  local  representative  from 
pursuing  initiatives  on  cultural  diversity  or  the  use  of  cultural  deductions,  if  these  are 
approved by a representative board of right-holder members and provided that deductions 
are made in a clear and transparent manner. According to Option 3, it is the decision of the 
right-holder  members  of  the  collecting  societies,  i.e.,  authors,  composers  or  music 
publishers how to support cultural diversity. If consensus among right-holders reveals that 
revenues obtained from online licensing should be used for these purposes, Option 3 would 
not exclude this use; 

–  The  decision  on  how  to  support  cultural  diversity  will  be  one  that  will  influence  right 
holders’ choice as to which CRM they select for licensing legitimate online music services. 
Option 3 should thus increase societies’ transparency towards their members. Additionally, 
Option 3 requires that clear rules on the governance of CRM and royalty distribution are in 
place  which  will  enable  their  members  to  agree  collectively  the  best  way  to  promote 
culture and cultural diversity. 

4.4. 

Innovation and growth 

Stakeholder comments 

Teosto,  the  Composers´  Copyright  Society,  states  that  itself  and  its  sister  societies  are 
constantly working on new business models to  encounter  the challenges  of  the cross-border 
online and mobile use of the musical works36. Teosto states to be in everyday dialogue with 
different new media stakeholders to ensure our products correspondent both right holder and 
user needs. Teosto believes that solutions are best found between the players in the market, 
i.e.  the  right  holders,  their  CRMs,  and  the  music  users.  According  to  Teosto,  bilateral 
agreements between the CRM's safeguarding a blanket licence to the users could be the best 
solution even in the online world. Teosto claims that users would welcome a re-launch of the 
Santiago/Barcelona Agreements in a revised format, to suite the DG Competition views. 

IFPI  believes  that  Option  2  provides  the  right  direction  for  a  solution  for  effective  and  fair 
cross-border  collective  licensing.  It  enables  the  collecting  societies  to  grant  multi-territory, 
multi-repertoire licenses to users, while at the same time ensuring adequate remuneration for 

36 

Teosto  submission  of  28  July  2005.  Teosto  is  a  copyright  organization  that  administers  the  rights  of 
composers, lyricists, arrangers and music publishers in Finland. It represents more than 16,000 Finnish 
music  authors  and  publishers.  Teosto  also  promotes  Finnish  music  through  the  Finnish  Music 
Information Centre (www.fimic.fi). Fimic actively promotes all Finnish creators but is especially strong 
in promoting marginal music. 

EN 

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the  use  of  the  rights  across  Europe.  The  one-stop  multi-territory,  multi-repertoire  license  as 
provided by virtue of the Simulcasting Agreement “is quite simply a superior product to the 
multi-territory, mono-repertoire license that would be the result of the Option 3.” 

In  addition  IFPI  submits  that  a  major  obstacle  to  successful  online  licensing  is  the  CRMs 
decision – in marked contrast to the practice in the US – to only license the online retailers at 
the exclusion of the societies’ traditional commercial partners, the record companies, even if 
the retailers would prefer to reduce the transactions costs and obtain all the rights through the 
record companies. 

The  AER,  the  Association  of  European  Radios,  argues  that  there  is  no  “one-size-fits-all” 
licensing  model  and  that  different  rights  and  different  forms  of  exploitation  of  these  rights 
require  tailor  made  licensing  policies.  In  particular,  the  AER  points  out  that  internet 
simulcasting  as  carried  out  by  commercial  radio  may  require  a  different  licensing  policy  as 
that applicable to online music content providers that provide “on demand” type services. 

Bertelsmann states that Option 3 is most suited for the EU-wide licensing for authors’ rights, 
while  record  labels  should  continue  to  license  their  neighbouring  rights  in  line  with  the 
IFPI/Simulcasting model. 

Evaluation 

The Commission agrees that licensing models for the digital music market should be left to 
right-holders  and users themselves. This is particularly true as digital music only represents 
about  1.5%  of  record  company  revenues  at  this  stage.  But  as  the  introduction  of  new 
broadcasting  platforms  such  as  web-based  and  other  online  delivery  solutions  will  lead  to 
different  business  models  involved  in  the  online  music  services,  the  Commission  would 
consider it premature to state that Option 2 is in all circumstances “the superior product to the 
multi-territory, mono-repertoire license that would be the result of the Option 3”. 

In particular, Option 3 which gives the right-holder more power to define the exact scope of 
the  mandate  he  awards  for  the  EU-wide  management  of  his  rights  appears  more  suitable  to 
address IFPI’s concrete concerns on the CRMs lack of responsiveness in licensing to a variety 
of  commercial  partners.  With  Option  3  the  right-holder  could  mandate  his  chosen  rights 
manager to license to any person that might require a licence in order to provide: (1) online 
services via the Internet or (2) other networks such as mobile telecommunications networks37. 
This would include: 

–  the service provider, i.e., the entity providing the technical assistance for making 

the content accessible; 

–  any other intermediary that packages or aggregates content for online use; 

–  the content provider, i.e., the entity responsible for transmitting the service which 
includes  the  musical  works  to  the  public  and  which  is  typically  the  last  in  the 
chain of transmission to the end-user (the “last window”); and 

–  any other entity that markets the rights in musical works. 

37 

E.g. Short Messaging Services (SMS) or other mobile entertainment platforms. 

EN 

25 

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Moreover, with the greater deployment of DRMs, whether or not the mode of rights 
management  is  collective  or  individual,  the  technology  based  industries  would 
benefit as there would be an incentive to develop and deploy technological solutions 
in the marketplace, in each situation described above. 

4.5. 

Competition 

Stakeholder comments 

The  Trade  Marks  Patents  and  Designs  Federation,  (TMPDF)  representing  the  intellectual 
property interests of many British-based industrial companies, both large and small, states that 
Option  3  might  also  lead  to  increases  in  efficiency,  but  it  is  at  least  as  plausible  that  all  it 
would do is encourage CRMs to seek to surpass one another in the size royalties they pass on 
to  right-holders  by  charging  more  to  users.  That  is  a  consequence  of  the  fact  that  the 
arrangement as proposed would be likely to lack the most important feature of a competitive 
market, namely competition between suppliers in the offer of services to users. According to 
the TMPDF, in order to obtain the full advantages that competition can offer in driving out 
inefficiencies and reducing costs, there should be competition between CRMs in the supply of 
licences for individual works. That is also important to right-holders who choose to offer their 
works through CRMs. They must be able to enter into non-exclusive agreements with more 
than one CRM. In this way they can foster competition between the different CRMs. 

On the other hand, for GESAC contest that the freedom to go shopping around Europe for the 
“best”  licensing  agent  is  an  elementary  condition  for  the  emergence  of  the  European  online 
music market. 

IFPI is concerned that Option 3 actions would do little to solve the current problems related to 
cross border licensing because this Option is “aiming at the wrong target”38. IFPI believes that 
as far as sound recordings are concerned content is widely available and the current problems 
relate only to the authors’ societies’ licensing practices. Rather than strengthening the authors 
societies’  position  the  Commission  should  seek  ways  to  ensure  that  societies  become  more 
open  and  responsive  to  the  markets,  and  this  way  ensure  that  content  is  accessible  on  fair 
market based terms. 

Evaluation 

The Commission is aware that the basic difference between options 2 and 3 is that option 3 
would  introduce  competition  in  the  relationship  between  right-holder  and  collective  rights 
manager while option 2 would introduce competition at the level of commercial users. 

In Option 3, CRMs would have to compete among themselves to attract right-holders, while 
in Option 2 reciprocal representation agreements would allow any CRM, whether he attracted 
right-holder business or not, to compete to provide multi-territorial and multi-repertoire rights 
management services to commercial users. Option 3 can therefore be referred to as the “right-
holders  option”  while  Option  2,  where  25  CRMs  compete  in  offering  the  exact  same 
repertoire to commercial users across the EU, is more favourable to commercial users. 

With  option  2,  the  elimination  of  the  two  forms  of  territorial  restrictions  that  govern  the 
current  reciprocal  agreements  appears  at  first  sight  to  introduce  more  competition.But 

38 

IFPI submission, 28 July 2005. 

EN 

26 

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dismantling the two forms of territorial restrictions, while leaving in place a system that does 
not foresee right-holder’ choice to license their repertoire directly across the EU introduces a 
“static” multi-repertoire service. Removing the territorial restriction and customer allocation 
clauses would give all 25 potential entry points the unlimited ability to grant multi-repertoire 
licences that, in addition, covers all 25 national territories. But there would be no variation as 
to  the  multi-repertoire  and  multi-territory  service  offered  by  the  25  competing  management 
organisations. All 25 societies would offer an identical product. 

Option 3, by giving right-holders the possibility to freely choose a rights manager for the EU-
wide  licensing  of  their  online  music  services  would  create  the  competitive  discipline  that 
forces rights managers to compete among themselves for right-holders and offer optimal EU-
wide management services, e.g. by competing on the technological solutions they are offering 
to  protect  and  monitor  copyright.  If  their  services  were  either  inefficient  or  too  expensive, 
right-holders would move to another rights manager. This level of competitive threat would 
counteract any tendency toward monopoly at the Community level. 

4.6. 

Employment 

Stakeholder comments 

None  of  the  stakeholder  comments  dealt  with  employment  impacts  or  the  consequences  of 
outsourcing. 

Evaluation 

Preserving  the  status  quo  forfeits  the  business  opportunities  that  would  be  provided  by  the 
more efficient cross-border provision of legitimate online services. This would leave untapped 
the  potential  to  create  employment  in  online  service  provision  and  the  copyright-dependent 
electronic infrastructure industries. 

Both  Options  2  and  3  have  the  potential  to  foster  new  and  attractive  forms  of  cross-border 
copyright  licensing.  This  has  the  potential  to  create  employment  opportunities  with  service 
providers/equipment  manufacturers  that  supply  the  technological  infrastructure  to  exploit 
copyright across borders. 

If CRMs would have to compete for right-holders (Option 3) they would have to restructure 
their businesses and become more efficient. The increased availability of digital technologies 
would allow CRMs to compete by outsourcing some of their management services when this 
is more efficient than providing these services themselves. This could lead to cost savings as 
outsourcing  specialists  achieve  economies  of  scope  by  combining  certain  operational 
“backroom”  management  functions  (such  as  the  maintenance  of  databases  comprising  the 
different right-holders that contributed to a musical work) on behalf of several CRMs. 

This process of streamlining existing business models may lead to transition effects whereby 
employment  opportunities  in  classical  territory-based  collective  rights  management  will  be 
reduced and shifted toward new employment opportunities, either in-house with the emerging 
successful  online  licensors  or  through  outsourcing.  This  is  to  be  welcomed  because 
employment  will  shift  to  higher  skill  future-oriented  forms  of  employment,  in  line  with  the 
Lisbon  process.  Outsourcing  of  certain  collective  management  tasks  would  also  be  a  net 
benefit for the information technology and accounting industries. 

EN 

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4.7. 

Consumers/prices 

Stakeholder comments 

According to GESAC, Option 2 would unduly strengthen the position of commercial users, in 
particular the big international media, compared to right-holders. Option 2 would thus upset 
the  necessary  balance  between  the  different  parties,  and  entails  the  risk  of  leading  to  a  real 
reduction in right-holders’ incomes. 

IMPA, the international music publishers association, believes that Option 2 encourages right 
holders  to  consider  licensing  their  online  rights  individually  as  it  only  benefits  those 
commercial users who do not wish to reward creative efforts fairly, but are only interested in 
EU-wide licensing at the cheapest possible price. Thus, under Option 2 consumers certainly 
will lose out as devaluing copyright has an inevitable roll on effect on future investments and 
creativity.  According  to  IMPA,  Option  2,  in  the  long  run,  delivers  cheap  and  less  attractive 
and less diverse content. 

British  Music  Rights  (BMR),  representing  British  composers,  music  publishers  and  their 
collecting societies reiterates that collecting societies owe a fiduciary duty to their members 
and  Option  2,  by  introducing  competition  between  societies  for  users  by  allowing  “forum-
shopping”,  would  totally  undermine  that  duty39.  BMR  therefore  welcomes  in  particular 
Option  3,  which  would  ensure  that  right  holders  have  the  ability  to  authorise  the  collecting 
society of their choice to manage their online rights for the entire EU. 

Buma/Stemra,  the  Dutch  CRM,  believes  that  CRMs,  by  the  very  nature  of  their  mission, 
cannot  be  expected  to  contribute  to  systems  wherein  tariffs  would  be  spiralling  down, 
resulting in gradually diminishing revenues for their members40. Option 2, described as a new 
version  of  the  Santiago  and  Barcelona  Agreements  that  should  not  contain  a  customer 
allocation clause is the way forward. However, Buma/Stemra believes that the new Santiago 
Agreement  should  contain  the  principle  of  the  application  of  the  tariff  of  the  country  of 
purchase and/or of consumption, as already provided for in the Barcelona Agreement as well 
as  in  the  Simulcasting  Agreement.  In  order  to  establish  a  certain  level  of  price  competition 
between societies, Buma/Stemra would accept that societies should be allowed to use part of 
their commissions to grant rebates or incentives to their online or mobile licensees. 

EDiMA fears that the fewer, larger CRMs expected ultimately to result from Option 3 will not 
be subject to any operational efficiency-enhancing competitive pressures except on the right-
holders side. The emerging CRMs will not be subject to any competitive discipline in terms of 
rates  which  will  worsen  the  already  existing  asymmetry  of  bargaining  power.  According  to 
EDiMA  creating  a  few  large  EU  CRMs  would  reduce  price  competition  at  the  music  user 
level.  In  allowing  for  premium  content  to  be  priced  higher  because  it  gives  the  collective 
rights  manager  who  has  attracted  such  content  a  very  strong  bargaining  position  vis-à-vis 
commercial  users,  Option  3  would  lead  to  upward  price  pressure.  According  to  EDiMA 
higher prices for music content would hinder the development of the online music market in 
the EU even more than under the present state of play. 

Evaluation 

39 
40 

Comments by British Music Rights, 29 July 2005. 
Buma/Stemra submission of 4 August 2005. 

EN 

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The Commission is aware that the basic difference between options 2 and 3 is that option 3 
would  introduce  competition  in  the  relationship  between  right-holder  and  collective  rights 
manager while option 2 would introduce competition at the level of commercial users. 

But the Commission does not agree with the assertion that Option 3 would automatically lead 
to  upward  price  pressure.  Competitive  pressures  on  the  right-holders  will  result  from  the 
continued  availability  of  classical  “Option  2”  licenses.  This  competitive  threat  –  that  an 
attractive  repertoire  is  still  available  in  parallel  as  part  of  the  bundle  that  is  offered  as  the 
aggregate EU repertoire in  Option 2  will ensure the emerging CRMs do not “out-price” the 
repertoire from the market which would be doing a disservice to their members. 

In  addition,  those  right-holders  who  spoke  out  in  favour  of  more  choice  to  award  EU-wide 
licenses  did  so  not  to  price  their  specific  repertoire  out  of  the  market  but  they  believe  that 
Option  3  will  encourage  rights  managers  to  offer  improved  services  in  order  to  attract 
members,  streamline  the  process  of  royalty  distribution  (direct  distribution  on  a  line-by-line 
basis) and result in faster and more cost-effective distributions due to the fact that the monies 
will not go through an intermediate CRM (cf. submissions by the MPA, the ICMP/CIEM and 
IMPA quoted above). 

Finally,  the  licence  agreement  between  commercial  users  and  rights  managers  concluded 
according to Option 3 should expressly stipulate that users are entitled to contest tariffs and 
licensing  conditions  before  the  competent  national  authorities  and  courts.  To  this  end,  the 
Commission will invite Member States to provide for effective dispute resolution mechanisms. 

4.8. 

Impacts outside the EU 

Doing nothing will have no impact outside the EU. 

Introducing  enhanced  royalty  flow  across  national  borders  and  introducing  better  multi-
territorial licensing might lead to right-holders from third countries, especially under Option 
3, electing to have their rights or repertoire managed centrally by EU-based CRMs. Option 3 
would thus enhance business opportunities for EU CRMs provided there are no obstacles in 
place which would prevent non-EU right-holders from exercising the choice. 

4.9. 

Consequences for large CRMs 

Doing nothing will not entail financial expenditure on CRMs, but will lessen attractiveness of 
their  business  model  and  give  rise  to  their  substitution  by  other  forms  of  cross-border 
management  (e.g.,  individual  clearance  by  means  of  DRMs).  If  new  forms  of  online 
exploitation  will  not  be  collectively  licensed,  there  will  ultimately  be  less  revenue  to  be 
generated through collective management of copyright. 

Option 2 might entail initial one-off costs (software, audit function) to better ensure the non-
discriminatory distribution of royalties. While the removal of representation agreements that 
exclude  the  exchange  of  royalties  (B-type  agreements)  may  lead  initially  to  less  revenue 
retained  by  the  affiliated  society,  but  this  loss  should  be  compensated  by  the  additional 
revenue  to  be  earned  if  society  can  become  licensor  of  choice  for  increasing  set  of  online 
licences.  But  maintaining  a  web  of  300  bilateral  reciprocal  representation  agreements  will 
incur cost to CRMs who operate in this network. 

EN 

29 

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Option  3  is  expected  to  lead  to  significant  cost  savings  for  right-holders  as  repertoire 
specialisation will streamline the online licensing process and create a license category where 
royalties  are  distributed  directly  to  the  right-holder  who  has  elected  to  grant  an  EU-wide 
license for his repertoire. This is because rights-holders having opted for this license will all 
be direct contract partners of the rights managers and the money will be channelled back to 
right-holders  without  intermediaries  and  in  a  financial  circuit  separate  from  the  Option  2 
licenses. 

4.10.  Consequences for medium size CRMs 

Doing nothing will not entail financial expenditure on CRMs. 

As reciprocal agreements ensure that any CRM could be the access point of choice, Option 2 
can provide new business opportunities for smaller but efficient collective rights managers in 
smaller  Member  States.  But  Option  2  will  not  resolve  the  issue  that  most  of  these  smaller 
CRMs  are  entirely  dependent  on  reciprocal  agreements  in  order  to  offer  the  aggregate  EU 
repertoire, unless right holders are free to appoint the CRMs of their choice. 

Option  3  will  indeed  remedy  the  smaller  CRMs’  extreme  dependency  on  the  attractive 
repertoire  of  their  larger  peers  because  small  societies  can  compete  directly  to  attract  right-
holders’ EU-wide licensing mandates. This is because option 3 would give all CRMs a chance 
to  compete  for  members  irrespective  of  their  nationality  or  domicile.  This  would  empower 
CRMs that do not have a strong domestic repertoire but, on account of their efficiency, can 
attract right-holders from other jurisdictions. This would be consistent with a recent trend that 
some  of  the  smaller  CRMs  have  managed  to  attract  major  record  labels  mandating  them  to 
administer  Community-wide  licensing  arrangements.  In  addition,  smaller  CRMS  which  do 
not  attract  the  membership  for  the  provision  of  online  exploitation  might  find  new  roles  in 
providing  services  on  behalf  of  the  CRMs  to  which  a  right-holder  has  entrusted  his  online 
rights.  These  CRMs  could  act  as  contractual  partners  in  relation  to  each  of  the  service 
elements that comprise the collective management of copyright. 

4.11.  Consequences for right-holders 

As  mentioned  above,  Option  2  might  lead  to  pressure  to  deflate  online  royalty  rates  for 
particular national markets. Removing the customer allocation clause introduces competition 
among  25  CRMs  to  provide  an  identical  product  (aggregate  EU  repertoire  assembled  under 
reciprocity)  which  may  only  be  distinguished  in  the  level  of  the  service  provided  i.e.  the 
administrative  fees  for  the  elements  of  the  management  service  provided  namely  licensing, 
monitoring, collection and distribution of royalties for their aggregate repertoire. This form of 
competition would leave 25 CRMs, some of them very small societies, competing for the pan-
European licensing business across Europe. 

Smaller  societies  may  have  less  bargaining  power  vis-à-vis  large  commercial  users  and 
commercial  users  will  exploit  this  to  obtain  lower  tariffs  at  the  cheapest  entry  point  for  the 
aggregate repertoire.  

In the short term, in such circumstances, it would be commercial users that benefit from lower 
tariffs  and  right-holders  that  would  lose  out.  But  diminishing  royalties  would  lessen  the 
incentive to create new musical works within an industry that already faces other threats such 
as from piracy and declining sales in the offline environment. 

EN 

30 

   EN 

 
Option 3 would enhance cross-border distribution in a more effective manner by the simple 
fact that every collective rights manager owes royalties to the all the members it has managed 
to attract, independent of where these members are resident. Direct licensing on an EU-wide 
basis creates a fiduciary duty as between the collective rights manage and its direct members. 

Successful  CRMs  will  therefore  transfer  a  considerable  amount  of  the  royalties  collected 
across  the  Community  to  right-holders  domiciled  across  the  entire  Community.  In  addition, 
option 3 is more effective than option 2 because it eliminates all administrative costs inherent 
in  channelling  non-domestic  right-holders  royalties  through  the  affiliate  society.  In  this 
respect,  option  3  is  the  option  that  relies  most  on  the  fundamental  freedom  to  provide 
licensing services across the Community to right-holders across the Community. 

According  to  Option  3  right-holders  will  have  the  option  of  having  to  deal  with  only  one 
collective  rights  manager  who  is  directly  accountable  to  them  for  the  online  exploitation  of 
their  musical  works  across  the  Community.  This  is  the  best  option  to  increase  right-holders 
trust  in  the  functioning  of  collective  rights  management  because  this  option  avoids  the 
“middleman” in the cross-border clearance of copyright and thus there is no more distinction 
between domestic and non-domestic right-holders. Direct EU-wide licensing would avoid that 
authors’  royalties  are  subject  to  multiple  deductions  to  cover  the  costs  of  other  CRMs  in 
various  jurisdictions.  Direct  licensing  would  reduce  the  deductions  inherent  in  reciprocal 
arrangements  and  in  so  doing  increase  the  authors’  net  revenues.  But  the  reduced 
administrative  cost  should  also  enable  rights  managers  the  opportunity  to  offer  repertoire-
specific  licenses  at  rates  below  those  that  need  to  be  paid  for  the  bundle  of  rights  available 
under Option 2. 

In Option 3, societies could also compete on parameters such as the speed on which royalties 
are remitted to right-holders or the level of detail in which a right-holder is informed of the 
different uses made of his protected works. These features are particularly relevant for smaller 
right-holders.  CRMs  will  also  have  to  compete  among  themselves  on  the  basis  of  the 
technological solutions they are offering  to protect and monitor copyright and societies will 
have an incentive to make innovative use of DRM technologies in this respect. Option 3 may 
also stimulate CRMs to compete for right-holders in being more innovative as to the methods 
in  which  copyright  fees  are  determined  (flat  fees  as  opposed  to  usage-specific  fees  or  fees 
based  on  user’s  revenue).  Option  3  would  thus  be  best  suited  to  reflect  the  increasing 
importance of the value and pricing that musical copyright has for all right-holders in musical 
works. With Option 3 right-holders could choose on the basis of several parameters between 
these different models in line with their individual needs. 

4.12.  Consequences for online music service providers 

Maintaining the status quo comes at a considerable cost to online music providers. EDiMA, 
the  organisation  representing  online  music  providers,  estimates  that  the  direct  cost  of 
negotiating  one  single  licence  at  €  9.500  (which  comprises  20  internal  man  hours,  external 
legal  advice  and  travel  expenses).  On  the  assumption  that  mechanical  rights  and  public 
performance rights in most Member States can be cleared with one society, the overall cost of 
the requisite licences per Member State would amount to 25 X € 9.500 = € 237.500. On the 
basis that a profit of € 0.10 can be achieved per download, the online music provider would 
have to sell 2.37 million downloads merely to recover the cost associated with obtaining the 
requisite communication to the public and mechanical reproduction licenses. 

EN 

31 

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As legitimate online music services have to compete with the readily available free and illegal 
music services, these costs will stifle legitimate business models, while they are not borne by 
illegal competition. As many forms of online exploitation will, as a result not be remunerated, 
the “royalty cake” will stagnate and even shrink. 

5. 

ASSESSMENT AND EVALUATION 

Assessment and evaluation will be conducted in line with the policy objectives as identified 
above. 

The assessment could develop along three strands: 

(i)  The  first  concentrates  on  the  short-term,  starting  right  after  the  adoption  of  the 
proposal. It focuses on the sheer implementation of the proposal, i.e. amendments of 
rules, contract clauses etc; 

(ii)  The  second  mid-term  strand  focuses  on  direct  effects  like  the  number  of  new 
multi-territorial  licences  issued  at  a  given  point  in  time  which  should  be  clearly 
identifiable after about two years; 

(iii)  The  last  strand  tries  to  aims  on  monitoring  the  overall  economic  and  social 
impacts of the proposal “on the ground” in the mid- to long-term. 

An effective assessment of the proposal would have to rely on the cooperation of CRMs and 
require  some  effort  in  distinguishing  between  national  and  cross-border  activities  in  their 
reporting.  Once  such  reporting  has  been  established  it  should  be  possible  to  effectively 
monitor the effects of the proposal over time. 

A first comprehensive evaluation could then take place after the adoption of the proposal. The 
objective would be to get a clear picture of the situation in order to decide whether additional 
or different measures were necessary. The evaluation would be based on the information and 
data  produced  by  the  monitoring  complemented  by  additional  information  about  the  sector 
and the general context like the technological development. 

5.1. 

Improved accessibility of creative output especially to online content providers 

We propose to monitor improved accessibility of copyright-protected musical works to online 
content providers by monitoring attainment of the following four operational objectives. 

5.1.1.  A licensing policy of CRMs societies that is in line with the demand of online content 

providers 

Success in enhancing cross-border licensing for commercial users is measurable if all clauses 
in reciprocal representation agreements that hinder cross-border licensing are eliminated and 
if, as a consequence, the amount of cross-border licences awarded to legitimate online music 
service providers increases by 2009 as compared to 2005. 

Indicators: 

•  Share of restrictive clauses in reciprocal agreements that have been eliminated; 

EN 

32 

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•  Increase in the number of cross-border licences compared to 2005. 

5.1.2.  Enhancement of transparency of CRM societies 

Success  of  this  policy  objective  can  also  be  measured  if,  as  a  consequence  of  increased 
competition  among  CRMs,  the  latter’s  transparency,  accountability,  royalty  distribution  and 
the  quality  of  enforcement  improves.  This  can  be  measured  by  surveying  right-holders  and 
monitoring, for example, the quality of CRMs websites and other publications. 

Indicators: 

•  Opinion survey on the transparency and accountability of CRMs, the efficiency of royalty 

distribution and the quality of the enforcement of rights; 

•  Relationship between overhead costs and royalties collected; 

•  Relationship between royalties collected and royalties distributed. 

5.1.3. 

Improved clearance of copyright protected works across the EU 

Attainment  of  this  objective  is  both  measurable  and  verifiable  if  legitimate  online  music 
services  create  revenue  in  2009  that  exceeds  the  revenue  created  by  legitimate  services  in 
2005. Revenue from legitimate online music can be measured on the basis of CRMs annual 
accounts,  which  should  list  all  revenue  generated  from  legitimate  online  exploitation  of 
musical works separately. Most rights managers already at present identify the different forms 
of exploitation, e.g., public performance income vs. broadcasting and dubbing income in the 
PPL annual report. 

Indicators: 

•  Share  of  revenues  from  legitimate  online  music  services  in  total  revenues  of  CRM 

societies; 

•  Relationship  between  the  revenues  from  legitimate  online  music  services  collected  by 

CRM societies and those collected directly by right holders via DRM etc. 

5.1.4.  A  significant  increase  in  the  availability  of  multi-territorial  licences  for  online 

content providers 

A licensing policy that is in line with the ubiquity of the online environment can be measured 
if  the  number  of  online  music  service  providers  that  operate  with  a  multi-territorial  licence 
increases between 2005 and 2009. Another way of measuring success in reaching this policy 
objective would be a corresponding reduction of online music service providers that continue 
to  operate  on  the  basis  of  mono-territorial  licences.  In  practice,  these  phenomena  can  be 
measured  by  making  regular  enquiries  with  the  industry  associations  of  online  service 
providers between 2005 and 2009. 

Indicators: 

•  Increase in the number of multi-territorial licences issued; 

EN 

33 

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•  Share of multi-territorial licences in the total number of licences issued to online content 

providers. 

5.2. 

Full  participation  of  right-holders  in  the  revenue  stream  generated  by  more 
efficient cross-border exploitation of copyright 

We propose to monitor whether right-holders are able to enjoy copyright protection wherever 
such rights are exploited under licence, independent of modes of use or national borders, by 
monitoring attainment of the following three operational objectives. 

5.2.1.  Freedom  for  right-holders  to  choose  the  best  placed  CRM  and  to  switch  between 

CRMs 

Success  in  enhancing  use  made  of  the  basic  Treaty  freedom  to  seek  out  the  most  suitable 
collective rights management service throughout the EU can be measured if authors with an 
international  following  increasingly  choose  their  collecting  society  for  the  management  of 
their online music rights independent of domicile or nationality. Indicators for success would 
be  data  on  authors  that  actually  change  CRM  for  the  online  exploitation  of  their  rights  in 
musical works. 

Indicator: 

•  Number of right-holders that have switched to another CRM society. 

5.2.2.  Enhancement of transparency and accountability of CRM societies, equitable royalty 

distribution and enforcement of rights 

Success  of  this  policy  objective  can  also  be  measured  if,  as  a  consequence  of  increased 
competition  among  CRMs,  the  latter’s  transparency,  accountability,  royalty  distribution  and 
the  quality  of  enforcement  improves.  This  can  be  measured  by  surveying  right-holders  and 
monitoring the quality of CRMs websites and other publications. 

Indicators: 

•  See 5.1.2. above; 

•  Share  of  statutes  that  have  been  amended  in  order  to  abolish  e.g.  discrimination  of  non-

domestic right holders. 

5.2.3.  Distribution of royalties collected on behalf of right-holders in territories other than 
their  home  territory  to  right-holders  directly  and  without  discrimination  on  the 
grounds of residence, nationality, or category of membership 

A  more  effective  cross-border  distribution  of  royalties  can  be  measured  by  continuing  the 
monitoring  of  the  evolution  as  described  in  the  table  under  Section  1.4.2.  and  comparing 
royalties distributed to non-domestic societies (as a % of royalties collected) with the relative 
importance  of  the  non-domestic  repertoire.  If  the  gap  between  the  two  percentages  narrows 
between 2005 and 2009, this policy objective has been met. 

Indicator: 

EN 

34 

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•  Share  of  royalties  distributed  to  foreign  right-holders  in  the  total  of  royalties  distributed 

relative to the share of non-domestic repertoire in the CRM society’s repertoire. 

6. 

RESULTS OF STAKEHOLDER CONSULTATION 

This  impact  assessment  has  been  drawn  up  making  use  of  the  data  available  to  the 
Commission. It is based on three sources: 

–  a  stakeholders  consultation  launched  on  16  April  2004  (Commission  Communication  to 
the Council, the European Parliament and the European Economic and Social Committee 
on the Management of Copyright and Related Rights in the Internal Market, COM (2004) 
261 final)41; 

–  a follow-up consultation launched on 7 July 2005 (Music copyright: Study on a community 
the  cross-border  collective  management  of  copyright,  available  at: 

initiative  on 
http://europa.eu.int/comm/internal_market/copyright/management/management_en.htm); 
and 

–  answers  submitted  by  Member  States  in  response  to  a  Commission  questionnaire.  No 
external study was commissioned specifically in order to prepare this Impact Assessment, 
although studies on collective management of copyright were commissioned earlier. 

The principal positions taken by stakeholders on the three policy options set out in this IA can 
be summarised as follows: 

Authors’  societies,  via  GESAC,  come  out  in  favour  of  option  2  with  additional  safeguards 
against  dumping  of  valuable  repertoire  by  smaller  rivals  within  the  network  of  reciprocal 
representation agreements. They do not think that further regulation on governance or dispute 
resolution is necessary. Authors’ societies would like a form of EU-wide licensing using the 
existing reciprocal arrangements but would like to have safeguards enabling them to control 
the price of their own repertoire; if need be, very large authors’ societies such as the UK and 
the  French  societies  are  willing  to  withdraw  from  reciprocal  arrangements  with  authors’ 
societies that they perceive “devalue” their repertoire by undercutting on price. 

Performers’  societies  are  almost  exclusively  concerned  with  improved  governance  on  the 
cross border distribution of royalties. They show no particular interest in fostering EU-wide 
licensing and are uncommitted on any of the options. 

Music publishers, BMG, EMI, Sony, Universal, Warner-Chappell and independent publishers 
(International  Confederation  of  Music  Publishers  and  IMPALA)  favour  option  3.  Music 
publishers wish to maximise returns achieved with their repertoire. Certain music publishers 
have indicated that they, regardless of any Commission action, will withdraw their repertoire 
from the existing reciprocal agreements and tender it for a single EU wide licence. 

41 

Collecting societies and their umbrella organisations, a wide range of right-holders and their umbrella 
organisations and a wide variety of users of copyright content, as well as manufacturers of information 
technology equipment submitted detailed comments in response to the Commission Communication of 
16 March 2004. 

EN 

35 

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Major  record  producers  (IFPI)  are  licensees  of  authors’  rights  and  favour  option  2.  As 
licensees, their main interest is to minimise royalties to be paid to authors’ societies. In this 
context,  interest  in  low  rates  as  licensees  outweighs  their  interest  as  licensors  of  sound 
recordings.  Record  producers  have  no  interest  in  regulation  on  governance  or  dispute 
resolution. 

Independent  record  producers  (IMPALA)  favour  option  3  as  this  would  allow  them  to 
establish their own rights management society. 

Record  producer  societies  favour  option  2  as  they  would  like  to  improve  governance  and 
accountability  via  reciprocal  arrangements  and  introduce  increased  accountability  of 
commercial users as part of this governance. 

Radio  broadcasters’  favour  option  2  as  their  main  interest  is  to  serve  national  markets  at 
lowest possible licence rates. This can best be achieved by creating an EU-wide one-stop shop 
where  the  entire  EU  repertoire  is  available  in  a  single  transaction.  In  addition,  competition 
between collective rights managers to function as this single one-stop shop licensor will lead 
to competitive rates. 

Niche  European  cross-border  television  channels  e.g.  MTV,  favour  option  2  because  this 
model would favour competition between societies and tariff levels that reflect market forces. 

Online  music  providers  favour  option  2  with  mandatory  dispute  resolution.  Their  main 
interest is an EU-wide licence for the aggregate EU repertoire. Online rates should be subject 
to dispute resolution. 

Mobile network operators favour a combination of options 2 and 3 with dispute resolution. 
They want societies that have EU-wide mandates. Commercial users should be in a position to 
obtain  a  licence  from  societies  that  (a)  license  rights  directly  for  the  entire  EU;  and  (b)  via 
reciprocity for the remainder of the repertoire. 

Consumers  (BEUC)  favour  Option  2  as  it  represents  the  traditional  approach  built  on 
reciprocity on the basis that the artistic community is driven to create, not by success or level 
of income, but guaranteed minimum income levels, which leads to greater consumer choice at 
more attractive prices. 

7. 

COMMISSION PROPOSAL AND JUSTIFICATION 

7.1.  What is the final policy choice and why was it chosen? 

The  chosen  policy  option  involves  inviting  Member  States  to  take  the  steps  necessary  to 
promote  a  regulatory  environment  in  which  right-holders,  rights  managers  and  the 
commercial users of copyright and related rights can freely chose the individual or collective 
structures  best  suited  for  the  EU-wide  management  of  copyright  and  related  rights  for  the 
provision of legitimate online music services. 

The Commission would recommend that Member States take all measures deemed necessary, 
including national legislation, to ensure the full application by collective rights managers in 
their  territories  of  the  recommended  practice  of  collective  management  of  copyright  and 
related rights for the provision of legitimate online music services. 

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The relationship between right-holders, collective rights managers and commercial users will 
be  governed  by  a  series  of  fundamental  freedoms  that  these  parties  enjoy  in  their  dealings 
with each other: 

Commercial users: 

(1) 

(2) 

(3) 

Commercial users should be able to obtain multi-territorial licenses covering the entire 
EU  for  the  provision  of  legitimate  online  music  services  irrespective  of  the  Member 
State  of  residence  or  nationality  of  either  the  rights  manager  or  the  right-holder. 
Commercial  users  should  specify  the  features  of  the  online  service  they  wish  to 
provide. 

A licence granted to the commercial user should define the categories of rights being 
licensed and the territorial scope of the licence. 

Rights managers should publish repertoire, existing reciprocal arrangements with other 
rights managers, territorial licensing authority for their repertoire and applicable tariffs 
on their websites. 

Right-holders:  

The  relationship  between  collective  rights-holders  and  rights  managers,  whether  based  on 
contract or statutory membership rules, should include a minimum set of guarantees for right-
holders  with  respect  to  all  categories  of  rights  that  are  necessary  for  the  provision  of 
legitimate online music services: 

(1) 

(2) 

(3) 

Right-holders  should  be  able  to  determine  the  categories  of  rights  entrusted  for 
collective management. 

Right-holders should be able to determine the territorial scope of the collective rights 
managers’ licensing authority. 

Right-holders  should  have  the  right  to  withdraw  the  rights  necessary  to  operate 
legitimate  online  music  services  from  existing  agreements  with  collective  rights 
managers  and  transfer  their  management,  on  a  territorial  scope  of  their  choice,  to  a 
collective rights manager of their choice, irrespective of the Member State of residence 
or  nationality  of  either  the  collective  rights  manager  or  the  right-holder.  Collective 
rights managers should, therefore, be free to accept right-holders from other Member 
States  as  their  members,  thereby  encouraging  rights  managers  to  lift  any  territorial 
restrictions. When withdrawing the categories of rights necessary to operate legitimate 
online music services right-holders should give reasonable notice of their intention to 
withdraw any right or categories of rights to their current collective rights manager. 

(4) 

Once a right-holder has transferred the management of a right or categories of rights 
linked to the EU-wide management of musical works for online use collective rights 
managers  should  ensure  that  these  rights  or  categories  of  rights  are  withdrawn  from 
the scope of any existing reciprocal representation agreements concluded with another 
collective rights manager. 

In  order  to  better  organise  the  exercise  of  the  above  principles,  it  is  proposed  that  Member 
States  ensure  that  collective  rights  managers  active  in  their  territory  respect  rules  on 
governance, transparency and accountability. Additional recommendations on accountability, 

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right-holder  representation  in  the  decision-making  bodies  of  collective  rights  managers  and 
dispute  resolution  should  ensure  that  collective  rights  managers  achieve  a  higher  level  of 
rationalisation  and  transparency  and  that  right-holders  and  commercial  users  can  make 
informed  choices.  Governance  rules  would  introduce  a  culture  of  transparency  and  good 
governance  enabling  all  relevant  stakeholders  to  make  an  informed  decision  as  to  the 
licensing model best suited to their needs. Such rules would include: 

(1) 

(2) 

(3) 

(4) 

Collective  rights  managers  should  grant  commercial  users  licences  on  the  basis  of 
objective criteria and without any discrimination against users. 

Collective rights managers should be obliged to distribute royalties to all right-holders 
or category of right-holders they represent in an equitable manner. 

Collective  rights  managers  should  establish  clarity  among  themselves  and  vis-à-vis 
commercial users as to which right-holders they represent and update this information 
on a regular basis. 

Collective rights managers should specify vis-à-vis all the right-holders they represent, 
the deductions for purposes other than for the management services provided. 

(5)  Management  contracts  between  collective  rights  managers  and  right-holders  for  the 
EU-wide  management  of  musical  works  for  online  use  should  also  specify  whether 
and  if  so,  to  what  extent,  there  will  be  deductions  for  purposes  other  than  for  the 
management services provided. 

(6) 

(7) 

(8) 

The relationship between collective rights managers and right-holders, whether based 
on contract or statutory membership rules should comprise the principle that a rights 
manager  treats  domestic  and  non-domestic  right-holders  or  category  of  right-holder 
equally in relation to all elements of the management service provided. 

The relationship between collective rights managers and right-holders, whether based 
on  contract  or  statutory  membership  rules  should  contain  the  principle  that  right-
holders’  representation  in  the  internal  decision  making  process  is  fair  and  balanced 
namely commensurate with the economic value of their rights. 

Collective  rights  managers  should  report  regularly  to  all  right-holders  they  represent 
whether  directly  or  under  reciprocal  representation  agreements  on  licences  granted, 
tariffs applicable and royalties collected and distributed. 

(9)  Member  States  are  invited  to  provide  for  effective  dispute  resolution  mechanisms  in 
relation  to  tariffs,  licensing  conditions,  entrustment  of  online  rights  for  management 
and  withdrawal  of  online  rights  available  to  commercial  users  and  right-holders  in 
their territories. 

The  Commission  intends  to  assess,  on  a  continuous  basis,  the  development  of  the  online 
music  sector  and  in  particular  to  what  extent  the  territorial  restrictions  in  the  reciprocal 
representation  agreements  have  been  lifted,  whether  commercial  users  can  freely  choose  a 
collective rights manager across the Community, whether right-holders have been allowed to 
withdraw  their  online  rights,  whether  domestic  and  non-domestic  right-holders  as  well  as 
different  categories  of  right-holders  enjoy  the  same  rights  and  service  levels  in  relation  to 

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membership and all elements of the management service provided and whether there has been 
an increase in the grant of multi-territorial licences to commercial users. 

This  Recommendation  would  be  addressed  to  the  Member  States  and  to  all  economic 
operators that are involved in the management of copyright and related rights in the EU. 

7.2. 

How will this policy choice be implemented? 

In  line  with  better  regulation  principles,  the  form  of  EU  policy  needs  to  be  tailored  to  the 
severity and urgency of the problems to be addressed. In addition, all policy initiatives should 
ensure that the cost of compliance does not exceed the expected economic benefits. 

Introducing direct EU-wide mandates alongside existing reciprocal representation agreements 
requires a two-phase approach. 

A first phase should consist in issuing a Commission Recommendation based on Article 211 
EC. The Commission would recommend that all Member States should screen their applicable 
national  rules  in  order  to  avoid  any  provisions  that  would  hinder  EU-wide  licences  being 
granted by any rights management entity for copyright and related rights for legitimate online 
music services, if that is what the market requires and right-holders want. 

In particular, applicable national rules and regulations should be screened as to whether right-
holders  are  free,  even  after  the  exercise  of  their  initial  choice,  to  withdraw  their  rights  and 
choose  another  collective  rights  manager  in  another  Member  State  best  suited  for  the 
exploitation  of  their  works.  Applicable  national  rules  and  regulations  should  not  preclude 
right-holders from withdrawing part of their rights (“unbundling”), as a minimum the rights 
necessary  for  the  emergence  of  legitimate  online  music  services,  within  a  reasonable  notice 
period. In addition, applicable national rules and regulations should not preclude cross-border 
rights management services and the grant of EU-wide licenses. 

A  Commission  Recommendation  should  indicate  a  second  phase:  it  would  contain  a  sunset 
clause according to which the Commission would review practical results achieved in meeting 
the stated policy objective of the Recommendation. The Recommendation would reserve the 
Commission’s right to propose legislation should the self-regulatory voluntary  approach not 
foster the policy objective set forth above. 

7.3. 

Compatibility with international obligations 

Introducing rules with respect to the better functioning of cross-border copyright management 
would  comply  with  the  Union’s  obligations  under  the  relevant  international  conventions  to 
which the Community and its Member States are party. The creation of improved standards 
for  rights  management  would  be  compatible  with  copyright  principles  and  norms  at 
international  level.  Respect  for  the  territorial  application  of  copyright  protection  does  not 
preclude Community wide or cross-border licensing models. The aim would be to ensure that 
Community  wide  or  cross-border  licensing  models  are  available,  should  the  right-holder  so 
choose and not restricted by agreement by CRMs. 

There  would  not  be  any  contravention  of  any  of  the  Community’s  or  Member  States’  own 
international  obligations  under  the  intellectual  property  treaties  to  which  either  the 
Community  or  the  Member  States  are  party.  These  are  more  specifically  the  Berne 
Convention (to which only the Member States are party and not the Community), the Rome 

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Convention  1961,  the  WTO  TRIPS  1994,  the  WPPT  and  the  WCT  1996.  The  international 
conventions  do  not  expressly  address  the  issue  of  management  of  rights  but  the  underlying 
premise is that of the exercise of exclusive rights based on individual rights management. The 
Berne Convention states that countries of the Berne Union may determine through legislation 
the conditions under which certain rights may be exercised42. This allows Union countries to 
effectively  choose  the  method  of  management.  The  WIPO  WCT  and  WPPT  which  were 
adopted  in  1996  and  which  the  Community  has  not  yet  ratified  do  not  deal  with  the 
management of rights. 

7.4. 

Have  any  accompanying  measures  to  maximise  positive  impacts  and  minimise 
negative impacts been taken? 

In  order  to  increase  the  cultural  awareness  within  the  Union,  it  might  be  worth  considering 
direct  and  transparent  subsidisation  of  national  social  and  cultural  funds  and  make  such 
funding available to right-holders in other Member States. This might foster the emergence of 
a true European cultural identity. Such considerations are, however, outside the scope of this 
impact assessment. 

42 

Article  11bis  and  Article  13(1)  of  the  Berne  Convention  provide  for  the  possibility  of  limitations  on 
certain exclusive rights. 

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ANNEX 1: MAJOR EUROPEAN PERFORMANCE AND MECHANICAL RIGHTS 
SOCIETIES 

COUNTRY 

COLLECTING SOCIETY 

RELEVANT 
COPYRIGHTS 

Austria 

AUSTRO-MECHANA 
Wahrnehmung 
Urheberrechte Gesellschaft mbH. 

(Gesellschaft 
zur 
mechanisch-musikalischer 

Mechanical Rights 

AKM  (Staatlich  genehmigte  Gesellschaft  der 
Autoren, Komponisten und Musikverleger 

Performance Rights 

Belgium 

SABAM (Société Belge des Auteurs) 

Mechanical 
performance rights 

rights , 

Cyprus 

No public organisation 

Czech 
Republic 

Denmark 

OSA  (Ochranny  Svaz  Autorsky  –  Performing 
and  Mechanical  Rights  Society  of  Composers, 
Authors and Publishers) 

Mechanical  and  performing 
rights 

KODA 
Internationale 
Danmark) 

(Selskabel  & 

af 
Forvatning 
Kemponlstretfighederi 

Performance Rights 

Estonia 

EAU (Eesti Autorite Uhing) 

Full repertoire 

Finland 

France 

Germany 

TEOSTO 
d’Auteur des Compositeurs Finlandais) 

(Bureau 

International  du  Droit 

Performance Rights 

SACEM  (la  Société  des  auteurs  compositeurs 
et éditeurs de musique 

Performance Rights 

SDRM  (Société  pour  administration  du  droit 
des  reproductions  mécaniques  des  auteurs, 
compositeurs et éditeurs) 

Mechanical Rights 

(Gesellschaft 

GEMA 
Aufführungs- 
Vervielfältigungsrechte) 

und 

für  Musikalische 
Mechanische 

Mechanical 
Performance rights 

Rights; 

Greece 

AEPI (Hellenic Copyright Society) 

Mechanical 
Performance rights 

Rights; 

Hungary 

ARTISJUS  –  Hungarian  Bureau  for 
Protection of Authors Rights 

the 

Mechanical  and  performing 
rights 

Ireland 

MOPSI 
Society Ireland) 

(Mechanical  Copyright  Protection 

Mechanical Rights 

IMRO (Irish Music Rights Organization) 

Performing Rights 

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Italy 

SIAE (Società Italiano degli Autori ed Editori) 

Mechanical 
performance rights 

rights; 

Latvia 

AKKA-LAA – Latvian Copyright Agency 

Multi-repertoire 

Lithuania 

LATGA-(A) (Lietuvos Autoriu Teisiu Gynimo 
AsociacijosAgentura) 

Multi-repertoire 

Malta 

KOPJAMALT (Maltese collecting Society) 

Multi-repertoire 

Netherlands 

Nordic 
Countries 

Norway 

Poland 

STEMRA 
Mechanische) 

(Stichting 

tot  Exploitatie  van 

Mechanical Rights 

BUMA (Het Bureau voor Muziekauteursrecht)  Performance Rights 

Nordisk Copyright Bureau 

Mechanical Rights 

Norsk 
fremførings (TONO) 

Selskap 

for 

Forvaltningen 

av 

Performance Rights 

ZAIKS  (Zwiazek  Autorow  I  Kompozytorow 
Scenicznych  –  Assocation  of  Authors  and 
Stage Composers 

Mechanical  and  Performing 
Rights 

Portugal 

SPA – Sociedade Portuguesa de Autores 

Mechanical 
Performance Rights 

Rights ; 

Slovakia 

SOZA  (Slovensky  Ochranny  Zvaz  Autorsky  – 
Slovak Society of Authors) 

Mechanical  and  Performing 
rights 

Slovenia 

Spain 

Sweden 

United 
Kingdom 

SAZAS  Združenje  skladateljev,  avtorjev  in 
avtorskih  pravic 
zascito 
založnikov 
Slovenije  –  The  Society  of  Composers, 
Authors and Publishers of Slovenia 

za 

Mechanical  and  Performing 
Rights 

SGAE  (Sociedad  General  de  Autores  de 
España) 

Mechanical 
Performance Rights 

Rights; 

STIM  (Svenska  Tonsättares  Internationella 
Musikbyrá) 

Performance Rights 

MCPS 
Society) 

(Mechanical  Copyrights  Protection 

Mechanical Rights 

PRS (Performing Rights Society) 

Performance Rights 

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