The Collective Licensing Question: To B2B or to B2C?

Music industry income can be divided into two main categories. There is business-to-consumer (B2C) income, the music that the public pays for directly. This includes record sales and live music. There is also business-to-business (B2B) income, music that is purchased by licensees from licensors. This includes broadcast music and the use of recorded music in public premises.

            As always, when it comes to matters of music and copyright, there are oddities and there are complexities. Curiously, the music that the public pays for is often private, whereas the music that is licensed between businesses is usually public. The B2C purchase of recorded music is regularly an individualistic affair. The consumer will select titles from the wide repertoire of music. They will choose when and where to listen to them. Each of these processes can take place in a solitary fashion. B2B licensing, in contrast, is the music of everyday life. This is particularly the case with the blanket licensing of music for radio stations, bars and shops. In these situations it is the collection societies who perform the task of the ‘2’. They sit between the licensor and licensee. If a music user obtains a blanket licence it will give them unfettered access to the entire repertoire of music of the collection society’s members. As I have written elsewhere, this process provides a reversal of Lord Macaulay’s oft-quoted beliefs. He argued that copyright ‘produces all the effects which the general voice of mankind attributes to monopoly ... to make articles scarce, to make them dear, and to make them bad’. The music industries’ most obvious monopolies are the collection societies. Collective licensing makes music abundant and it prices it democratically.

            The second issue is that the categories of B2C and B2B are not clear-cut. Although records and gigs usually classify as B2C, they include an element that can be considered B2B: the songwriting copyright. This money is passed from record companies and venue owners to composers and publishers by means of the collection societies. However, although the specifics of this income move from business to business, it is the consumer who generates the money. This income is built into the dealer price of recordings and forms part of the ticket price of gigs. This is Will Page’s viewpoint in his influential Adding Up the Music Industry reports. It is in fact possible to extend this line of thinking to the entirety of collection society income. In the final analysis, the consumer pays the copyright royalties for broadcast music: with public service broadcasting they are built into the licence fee; with commercial broadcasting they form part of the cost of the goods that are being advertised. And it is the consumer who foots the bill for the use of the collection societies’ music in public premises: this expense is added to the costs of the products that the premises are trying to sell.

This is not the perspective of the collection societies, however. They maintain that all of their transactions – broadcast, online, public performance or recorded media – should be categorised as business-to-business. Responding to a Monopolies and Mergers Commission (MMC) enquiry, PRS stated that ‘our primary customers are our members and affiliates but in our capacity as a rights licensing body, the licensee can be seen as a customer’. The MMC reported that ‘PRS did not accept that the ultimate music user, the listener, was its customer’. This outlook is reflected in the PRS for Music website, which is divided between sections for its licensor members and its licensee customers. There is no portal for listeners. PPL’s website is similarly divided between a section for its members and a section for music users. MCPS shares this twin perspective. When I worked for the company in the late 1990s, the executive director, Chris Martin, encouraged us to think of the society as being an estate agent, facilitating the sale and purchase of (intellectual) property. The concern was not with the music listeners, the people who actually had to live in these musical buildings.

The collection society’s B2B perspective has been influential. MMC investigations into PPL in 1988 and PRS in 1997 aimed to find out whether these societies were operating in the ‘public interest’. Their reports dealt with a circumscribed ‘public’, however. They dealt solely with the interests of licensors and licensees. In each case the MMC sought the correct balance between the amounts music users should pay and the amounts music creators should receive. Ultimately, they endorsed the practice of the collection societies ‘because the convenience they offer to both the owner and the user of copyright is unlikely to be matched by any other means’. They did not consider the listener.

The raison d’être of the collection societies is ‘to do collectively what creators cannot effectively do for themselves’. This is putting them in jeopardy, however, as what seemed ‘unlikely’ in the 1980s and 1990s is less so today. Creators are breaking ranks. Record company members of PPL are self-administering the income from streaming. Many publisher members of MCPS are also withdrawing from this field, as they too feel that they can negotiate higher streaming income licences on their own. These manoeuvres weaken the collection societies. They are losing out on a significant area of income, which has a knock-on effect for their cost-effectiveness as a whole. The collection societies also face the prospect of blockchain technology, which could make it possible for any of their members - whether large conglomerates or individual writers or musicians – to self-administer their rights. Graham Davies of PRS is fatalistic about this. He has stated, ‘If there were a new model which meant that our members didn’t need PRS that would be fine in principle. We should disappear because we would no longer add any value’.

This is B2B thinking. It is restricted to the value that collection societies hold for licensors and licensees. There is, however, a consumer value in collective licensing. If the collection societies go they will take blanket licensing with them. This will be disastrous. We are already witnessing its effects in streaming: the repertoire of even the biggest providers is patchy, principally because the biggest stars are holding out for more pay. Its effects will be felt more profoundly when it comes to the licensing of broadcasters and public premises. If we lose blanket licensing in these areas then music really will become more expensive and scarce. It is time, therefore, to start collectively thinking B2C.  

It's Not a Game of Monopoly

In an earlier blog entry, I found myself arguing with Lord Macaulay’s famous 1841 speech about the extension of copyright and its impact on the free trade of ideas. Macaulay argued that: ‘Copyright is monopoly, and produces all the effects which the general voice of mankind attributes to monopoly. .... The effect of monopoly generally is to make articles scarce, to make them dear, and to make them bad’.

In contrast, I suggested that music collection societies, which operate as natural monopolies in most countries, produce the opposite effects. Through their blanket licences they help to make music accessible and they sometimes make it cheap. In fact, in their ability to facilitate the business-to-business trade in music, they provide the context in which the public is able to receive a great deal of its music for free. They also help us to access a variety of music, as most of their licensing schemes provide standard rates. Thus it costs users no more to play a Beyoncé record than it does for them to play one Bis.

In addition, I argued that it is those artists who manage to gain individual control over their copyrights who are most likely to commit the evil that Maccaulay describes. It has generally been established and successful performers, such as Taylor Swift, Prince or Thom Yorke, who have managed to escape blanket licensing, whether that is the licensing of a record company or the licensing of a collection society. There are, of course, many positives about the degree of control that they have been able to gain over their careers. This control has nevertheless enabled them to make their work scarce (it doesn’t appear on streaming services) and to sometimes made it dear (as those forced to purchase 1989 on CD will testify).

Collection societies have, in general, been transparent and fairly even-handed. Their licensing schemes are made public and they offer standard terms. There are some injustices, nonetheless. PRS, for example, has had policies that divert income from popular music towards classical repertoire. MCPS, meanwhile, operates licensing schemes that become cheaper the higher up you go. Smaller record companies have to pay licences on the basis of the number of records of manufactured, while larger companies pay on the basis of the number of copies sold. The former have to pay their bills upfront; the latter are invoiced at a later date. Larger companies also pay lower commission rates and benefit from further economies of scale if they use MCPS to licence throughout Europe.

These various concessions don’t compare, however, to the secrecy and inconsistency that surrounds streaming deals. While some artists are escaping monopolies in order not to appear on streaming platforms, record companies and publishers are escaping monopolies in order to deal directly with the same sites. As I have previously documented, record companies maintain that streaming falls under the ‘making available’ right and they believe it is analogous to the sale of sound recordings rather than the broadcast of digital radio. As a consequence they have been able to escape the monopolistic licensing that public performance would entail. They have conducted their own deals with streaming companies and they have avoided the 50% royalty that PPL accords to performing artists.

In some ways, this isn’t a great break with tradition. Record companies have always made most of their deals directly. The same is not true of the publishing companies: the majority of their mechanical and performance licensing has taken place via the monopolistic rates and regulations of the collection societies. By making direct deals with the streaming companies they are entering unchartered waters. And this is precisely what attracts them: they want to escape those collective rules. It’s a complicated business nonetheless. Although record companies have convinced themselves that streaming is largely ‘mechanical’ in nature, the publishing world regards it as being equally divided between the performing and mechanical rights. However, while it is relatively easy for publishing companies to withdraw from MCPS and to self-administer the mechanical right for streaming purposes, they have no such jurisdiction over the performing right. Songwriters assign this right to their collection societies, rather than to their publishers. Consequently, in this area it is the collection societies who have control.

In Europe, the publishers’ solution to this problem has been to form ‘Special Purpose Vehicles’ with the collection societies. These SPVs entitle the publishers to deal directly with streaming companies and secure terms that cover both the performing and mechanical rights. Any terms reached must be agreed by the collection societies, however. Once the royalties have been calculated the income will make its way to artists either via their collection societies (the performing right share, presumably) or directly from their publishers (if this aspect of the mechanical right is escaping the collection societies it will mark another another area of income that is less readily identifiable as recorded music).

The publishers argue that licensing directly enables them to negotiate higher royalties for their artists, as they escape the flat demands of the collection societies. They also argue that this method is more efficient for the streaming companies, as these deals can be completed more quickly and can expand beyond the home country remit of the collection societies. Songwriters are less comfortable. According to the Music Managers Forum many of them would prefer for streaming income to fall under the remit of the collection societies:

possibly because they trust their CMO [collection society] more than their label or publisher; or because payments via CMOs often circumvent contractual terms that enable labels or publishers to retain income; or because they feel collective licensing is fairer to all, because everyone earns the same per play fees, rather than bigger artists or rights owners having a better deal.

Nevertheless, if they are signed with a major publisher, they will find that they have no choice. Sony/ATV has entered into an SPV with PRS and GEMA, Universal has one with SACEM, Warner/Chappel has SPVs with a number of collection societies including PRS, while BMG has a joint venture with GEMA. Meanwhile, Kobalt, who are probably the most innovative publishing company operating today, have actually bought the collection society, AMRA, which they employ to conduct their SPVs.

            And what does this mean for the consumer? In the first instance, it might make some music scarce. Although these direct deals are of potential benefit to the streaming companies because they can licence one publisher for multiple territories, the drawback is that they have to do deals with each publisher individually. Some catalogues may well be left out. These joint ventures might also make music dear. If publishers are able to negotiate higher royalties for their songwriters, then the consumer may well end up paying for them. This could be directly, via subscription charges, or indirectly, via the advertising fees that result from fremium services. In addition, some music might end up being dearer than others, which in turn might make it scarce. The withdrawal from monopoly tumbles on and on . . .  

Community Chest

When campaigners have wished to curtail the duration of copyright they have called upon the public. This practice is as old as copyright law itself.

The Statute of Anne (1710) is titled ‘An Act for the Encouragement of Learning, by Vesting the Copies of Printed Books in the Authors or Purchasers of Such Copies, during the Times therein mentioned’. The time being referred to is the term of copyright, which was set at a period of 14 years and could be extended by a further 14 years if the author was still living at the end of the initial period.

The Act also indicated how it would encourage learning. Copyright would inspire writers. It would motivate ‘learned men to compose and write useful books’ because they would now have some legal assurance of getting paid. In addition, the restricted duration of copyright would boost reading, as it would lead to cheaper books. Books in copyright would be monopolistically owned: an author would have the ‘sole right’ to their books, while any bookseller to whom they assigned that right would have ‘the sole liberty of printing and reprinting such book’. Although monopolies drove up prices, the public domain would bring them down. Expiry of the term of copyright would give any bookseller the liberty to reprint the work; the ensuing competition would result in lower costs.

The price of books had been a genuine concern. Prior to the Statute of Anne, the old licensing laws had given members of the Stationers’ Company monopoly rights to book titles. When they were due for renewal in 1693, a group of peers protested about the law, stating that it ‘subjects all Learning and true Information to the arbitrary Will and Pleasure of a mercenary, and perhaps ignorant, Licenser; destroys the Properties of Authors in their Copies; and sets up many Monopolies’. The Statute of Anne aimed to curb the practice of these mercenaries, not only via limited copyright duration, but also via a clause that allowed any ‘person or persons’ to raise a complaint to the Lord Archbishop of Canterbury about any book whose price they deemed to be ‘too high and unreasonable’.

Copyright law therefore aims to achieve a balance. It has raised monopolies in order to protect the interests of authors, and it limits them in order to make their works affordable. This idea was carried through from British law into the American Constitution, which talks of promoting ‘the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries’. It can also be seen in the Universal Declaration of Human Rights, which counters ‘everyone has the right freely to participate in the cultural life of the community’ with ‘everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which they are the author’. In 1841 Lord Macaulay made what is perhaps the most famous case for this balance. In a speech to the British Parliament he argued that:

Copyright is monopoly, and produces all the effects which the general voice of mankind attributes to monopoly. .... The effect of monopoly generally is to make articles scarce, to make them dear, and to make them bad. ... It is good that authors should be remunerated; and the least exceptionable way of remunerating them is by a monopoly. Yet monopoly is an evil. For the sake of the good we must submit to the evil; but the evil ought not to last a day longer than is necessary for the purpose of securing the good.

Mark Rose believes this statement is a ‘standard point of reference in discussions of the history of copyright’. It should be noted, however, that Macaulay was campaigning against an extension to copyright. It is therefore natural that the people who refer to him most are those who wish to free copyright from the extensive grip of monopolies. This includes Andrew Gowers, who quoted the speech in his 2006 Review of Intellectual Property. This report rejected an extension to sound recording copyright in Britain. Gowers argued that a properly functioning copyright system is one where ‘incentive to innovate is balanced against the ability of follow-on innovators to access knowledge’.

I think Gowers was right. If copyright is supposed to both inspire artists to create and enable audiences to access their work, extending the duration of sound recording copyright from 50 to 70 years would be of little account to either cause. I’m not sure that Macaulay was the best person to turn to, however. There is a lacuna in copyright debates. Campaigners against extension have made excellent analyses of the figure of the author, looking at the ways that corporations have hidden behind artists’ rights in order to achieve their own ends. In contrast, the effects of copyright upon the public have received less attention. Although campaigning centres upon the idea of ‘access to knowledge’, there is little investigation of how access works in different artistic fields.

Macaulay was arguing against claims for copyright extension that were being made in respect of books. Books work differently to music. Monopolies do make them expensive. Despite the textual expansion of the internet and a continuing tradition of book readings, the most common way of accessing a book is to pay for it: the majority of the trade takes place between businesses and consumers. As a result, a book that is in copyright will almost always be more costly than one that is in the public domain. In fact, in arguing that the public domain leads to cheaper prices, Gowers used the book trade as his example, even though this was in a section of the Review of Intellectual Property that was debating the merits of sound recording copyright extension. 

It should be noted, however, that there is a lot of ‘free’ music that is within copyright. Or, to put it another way, the public enjoys a lot of music without having to make a direct monetary exchange. We get to hear music for nothing on the radio; on television; in the cinema; in shopping malls; in bars, pubs and clubs; and on much of the internet, whether we are pirating or not. Many monetary transactions relating to music take place business-to-business, rather than business-to-consumer. According to PRS for Music figures from 2011 these business transactions make up nearly a third of the market for music in the UK. The value of B2B income for the music industries in that year was £1,057m, while B2C income was £2,736m (split £1,112m for recorded music and £1,624m for live music).

We do, of course, end up paying for much of this B2B music in other ways. If music is being played for free by a public broadcaster, its costs form part of the licensing fee. If it is free because it is advertising-funded, we bear the cost of that advertising in the goods we are encouraged to buy. Similarly, if music is being played for free in public premises, we pay for it indirectly via other goods that the retailers are selling us. There is also a human cost. We are denied agency: businesses choose our music for us, and they choose songs that best underpin their own needs. Moreover, we need to be aware that on many occasions when we hear music without paying for it, it is us who are being sold to advertisers.

Music’s monetary waters are muddied further when we begin to think about monopolies. There are situations when monopolies actually help to keep costs down. Most of the music that we hear over airwaves and through public address systems is paid for via blanket licences. The users of music don’t licence it directly from publishers and record companies, they instead use collection societies. In most countries there is just one collection society for each of the principal streams of income. There will be a society that collects public performance income on behalf of songwriters and publishers; a society that collects public performance income on behalf of record companies and recording artists; and a society that collects ‘mechanical’ income - money from record sales and other uses of recordings - on behalf of songwriters and publishers (the record companies act for themselves when it comes to collecting their own mechanical income and the royalties from recording sales that are due to their artists). In Britain these societies are PRS for Music, PPL and MCPS, respectively. They operate as monopolies.

One effect of blanket licensing is that all music costs the same. The BBC pays as much to play a track by the Beatles as it does to play a track by Bogshed (this is one of the reasons why it tends to use such well known music in its own promotional films). Some of the collection societies are more monopolistic than others, however. The writer members of PRS assign the performing right in their works to the society. PRS therefore ‘owns’ this right and can offer its whole repertoire of works to the broadcasters and premises it has licensing deals with. In contrast, MCPS merely administers the mechanical right. Its relationship with songwriters is instead enshrined in its Membership Agreement, which covers a number of standard and blanket licences. While PRS controls all aspects of the performing right on behalf of its members, there are some areas where MCPS members can opt out of blanket licences and instead negotiate directly with users. This includes music for films, adverts and some commercial TV broadcasters. One reason why members choose to operate in these areas is because they can negotiate higher fees. Here monopoly breaks down and the Beatles will cost more than Bogshed. PPL’s monopoly is also limited. It collects money from public premises and from broadcasters but generates little online income. The majority of this licensing is instead carried out directly by the owners of the sound recordings. PPL argue that this ‘reflects the prevailing view of record companies that downloading and on-demand streaming is analogous to the distribution of sound recordings, a traditional record company function’. Moreover, if you want to use a sound recording in an advert or a film you will have to negotiate directly with its owners. If you want to use a major star or a big hit this will cost you dearly.

As the income from recorded music declines, the money that can be made from licensing becomes more important. Consequently, some performers are seeking greater control of their rights. Artists such as Prince have successfully gained ownership of their sound recording copyrights. While most record companies use PPL to licence their catalogues of recordings to radio and TV at standard rates, and they will have their own blanket licences in place with streaming services, artist owners are more likely to operate in a restrictive manner. The performers whose music is not available on internet platforms such as YouTube or Spotify generally fall into two categories. There are artists who own their copyrights and there are artists who have the status to negotiate contractual clauses about licensing rights with their record companies. Although in each case they are standing up to monopolies, this does not result in music that is cheaper or more readily available.

In addition, there are publishers who are choosing not to be members of MCPS. They believe there is more money to be made if they avoid the collection society’s blanket licences. Recently the BBC announced that it would no longer be able to play music by Neil Young, Bonnie Raitt, Journey and the Doors. It was introducing a new iPlayer radio app, which would provide users with the opportunity to listen to BBC radio offline. Wixen music, the publisher for these artists, was not a member of MCPS and therefore the BBC was not covered in respect of this new mechanical distribution of their music. The publisher had decided to forego membership because they felt they could more profitably negotiate television rights for their artists’ songs independently. The situation was eventually resolved via an one-off agreement between Wixen, the BBC and MCPS. The case does, however, highlight the fact that it is not always monopolies who make music scarce or dear. On the contrary, in modern times this fate is more likely to befall music that has escaped the collection societies’ monopolistic demands.