30 August 2005 - AER SUBMISSION TO THE COMMISSION STAFF WORKING DOCUMENT STUDY ON A COMMUNITY INITIATIVE ON THE CROSS-BORDER COLLECTIVE MANAGEMENT OF COPYRIGHT

The Association of European Radios (AER) is a Europe-wide trade-body of private and commercial radio broadcasters in France, Germany, Italy, the UK, Greece, Spain, Portugal, the Netherlands, Denmark, Finland, Sweden, Switzerland and Romania. As such, AER represents the interests of over 4.500 private and commercial radio operators broadcasting to millions of listeners across Europe every day.

AER has frequently pointed out to the lack of competition that exists in rights provision in the Internal Market and the resulting inequities faced by private and commercially funded radio broadcasters across the EU. Our sector pays over €325 million per year for copyright and neighbouring rights and as such plays an important part in the funding of the so-called “royalty cake”. AER therefore welcomes the Commission’s acknowledgement that the current structures for collective management of copyright are inadequate and commends this first – long awaited – attempt to reform the system.

We thank the Commission for its invitation to comment on the Staff Working Document but we contend that the three weeks in the middle of the summer which have been offered to react to the complex commercial, market and legal issues raised by this paper are not acceptable.

While we are happy to submit preliminary reactions, we trust that this is only part of the dialogue which the radio industry wishes to continue developing with the Commission to ensure that final proposals are well-balanced, take fair account of the realities of rights-users in general and radio broadcasters in particular and help rather than hinder the development of a vibrant radio industry in Europe with a strong footing in tomorrows digital technologies.

Summary of main points

Before we comment on some of the detail of the proposals, we wish to make the following general points.

• The focus on cross-border collective management of online music services is extremely narrow. AER supported the Commission’s 2004 Communication and its intention to deal with some of the more general and urgent problems linked to collective management of music rights faced by rights users whether in terms of competition, governance or arbitration and is disappointed by the current approach.
• AER believes a key point is missing from this proposal. The Commission study seems to argue that the platform governs the content to be licensed and its cost. The document lacks the understanding that for radio broadcasters content is key and that a licence should be issued on the basis of use and not the platform it will be used on.
• By suggesting a “one-fits-all” solution, the Commission’s study also misses the opportunity to distinguish between radio broadcasting services – whether off or online – and other forms of on-line services. Radio services (whether simulcasting or webcasting) are by and large targeted at “passive consumption” by the audience. This is very different from pro-active or inter-active services such as music downloads via the Internet or “music-on-demand” in which the audience / consumer plays an active part. 
•  The focus on rights-holders which seems to drive the Commission’s proposals is regrettable as are some of the Working Document’s assumptions regarding “powerful commercial users with considerable bargaining power”. While radio stations play a key role as intermediaries between music copyright owners and the public and indeed pay large amounts into the “royalty cake”, private and commercial radio broadcasters in their vast majority can hardly be considered as “powerful users with considerable bargaining power”. Daily experience and an increasing number of litigations show that it is indeed the Collecting Societies in general and the music industry in particular who are increasingly in powerful bargaining positions vis-à-vis radio broadcasters.
• While AER agrees that option 1 is not an option, we note with serious concern that from the three solutions discussed, the Working Paper expresses a preference for option 3. From a radio broadcaster’s perspective, this option in its current form shows surprising lack of understanding of the legal, commercial and practical realities of radio simulcasting via the Internet. The separation of on-line rights acquisition from the off-line model suggested in the Staff Working Document is unsustainable for radio broadcasters. Two different legal regimes would apply and this could mean the end of radio simulcasting over the Internet. Surely this cannot be the intention of the European Commission.
• As already stated, in AER’s view, the platform is largely irrelevant and any proposal to achieve a true one-stop shop for music rights must cover the on-line and offline as well as all digital transmission platforms used.
• AER therefore suggests that option 2 of the Working Paper, although imperfect in its present form, offers the best basis to reach some of the objectives including a onestop- shop for Community-wide licensing, legal security for rights-users and owners and possibly increased transparency as a result of competition.

The Working Document proposals – impact on private and commercial radio Internet simulcasting

AER agrees with the Commission that Option 1 – Do Nothing – is not an option. We are concerned however that the Commission is expressing its preference for Option 3 – Give rights-holders the choice to authorise a collecting society of their choice to manage their works across the entire EU.

AER has strong reservations – some of which are outlined below - regarding the feasibility and practicality of Option 3. We believe it could be detrimental to the radio industry in general and to any attempts for this industry to make the best use of the Internet or any other new technologies for the benefit and enjoyment of all stake-holders including listeners and users of radio services.

A. Current situation of radio simulcasting over the Internet and rights clearance

• Because the Working Document focuses on on-line music services it fails to take into account the specificity of simulcasting as the process of simultaneous broadcasting of the same content off-line and on-line and the way in which the rights for simulcasting are cleared. Radio broadcasters do not operate in the same way than “online music content providers” and suggesting a “one-fits-all approach” is unrealistic.
• The vast majority of private and commercial radios broadcast to local, regional and national audiences. An increasing number across Europe simulcast their analogue or digital free-to-air output over the Internet. This practice is perceived by radio broadcasters better to enable listeners to access their services, via the state-of-the art means of the listeners’ own choice. The target audience remains the same. Accessibility outside the intended market (so-called “multi-territoriality of Internet simulcasting”) is from the point of view of private and commercial broadcasters an unintended consequence of the ubiquity of the Internet and has no revenue value for these broadcasters.
• Fees for music rights are most often calculated on the basis of advertising revenue. In some countries, audience figures are also taken into account. If additional income is generated from Internet activities, Collecting Societies AUTOMATICALLY get their share, since the payments are being made as a percentage of the broadcaster’s income.
• Some collective agreements are negotiated by national radio associations with Collecting Societies and increasingly with representatives of the music industry (IFPI). In some cases, fees are part of a general agreement which includes free-to-air analogue broadcasting, cable simulcasting and Internet simulcasting of the same content. Collecting Societies however are using the introduction of new technologies – such as Internet simulcasting – to charge differentiated or additional fees which sometimes are reasonable and sometimes not.
• In addition to attempting to introduce special “simulcasting tariffs”, representatives of the music industry are arguing that the fees charged to radio broadcasters should also be based on accessibility outside the intended market. This claim however is nonsensical for most private/commercial radio broadcasters since Internet accessibility outside of the intended market has no revenue value for these broadcasters who, by their local nature, do not have global brands which might appeal either to listeners or to advertisers.
• The current situation thus requires urgent legal clarification (on European and at international level). The Commission’s proposal however might exacerbate this situation by making purchasing the rights for simulcasting in the EU even more complex, expensive and legally insecure for radio broadcasters.

 B. Administrative and financial consequences of option 3 for private and commercial radio broadcasters

• The Commission proposal suggests that rights-holders should be able to withdraw certain categories of rights (in particular categories of rights linked to online exploitation) from their national CRMs and transfer their administration to a single rights manager of their choice. For that to work, the online rights will have to be withdrawn from the scope of reciprocal agreements as well.
• This means that radios will continue to be restricted to the national CRM for off-line rights and will have to deal with 2 or 3 (or more) CRMs elsewhere to find the equivalent on-line content. If the rights are “unbundled” and indeed the content split up between 2, 3 or more “on-line” CRMs elsewhere in the remaining 24 EU Member States, it will be very difficult – indeed virtually impossible - for most radios (or associations representing them) - to get access to the repertoire they need at a reasonable cost. There are the obvious language and cultural barriers as well as the added travel and administrative costs which radios or radio associations in smaller markets will be unable to bear.
• Furthermore, the ability for rights holders to move from one CRM to another on short notice would make clearing rights for radio simulcasting simply impossible since the licensed content could alter from one day to the next as a result of rights holder movements.
• The Working Document also suggests that option 3 would allow premium content to be priced higher because it gives the CRM who has succeeded in attracting such content a very strong bargaining position vis-à-vis commercial users. This is clearly a serious concern considering that Collecting Societies (and indeed the music industry) today already are monopolies with extremely strong bargaining positions vis-à-vis radio broadcasters and in some instances with no appropriate arbitration systems.
• More generally, the idea regarding “premium pricing” of certain music or artists is questionable. Private and commercial radio caters to local audiences and language plays an important role. Our radio product does not travel well. Therefore a “premium artist” for one radio station / format can be a non-premium for another. For example, a Finnish or Latvian premium artist might be considered as “premium” in Finland or Latvia but will probably not be considered as such in other EU-Member States. In addition, this cannot be in the interest of creators of cultural content; broadcasters with limited financial means would be unable to include expensive “premium content” in their programmes. This would decrease, not increase, the income of “premium” rights holders.

C. Consequences of focus on rights-holders and assumption that commercial users have considerable bargaining power

• While improving the situation for rights-holders (RHs) in terms of empowering them to pick and chose the CRM which offers the best price and service is commendable and in tune with free access and provision of services across borders, AER however wonders what category of RHs will actually take advantage of this opportunity and whether it is really in their interest. We also question whether the Collecting Societies would appreciate being reduced down to 3 or 4 entities whether they are genre-specific or not.
• The Working Document clearly suggests that its proposals could lead to the emergence of limited amount of (3 or 4) powerful CRMs for on-line licensing who effectively defend right-holders interests vis-à-vis powerful commercial users at a pan-European level. The system would foster consolidation of the rights administered into one CRM and make possible mergers of small CRMs with larger ones for on-line activities while continuing off-line as before. It would also allow for premium content to be priced higher because it gives the CRM who has attracted such content a very strong bargaining position vis-à-vis commercial users. 
•  Depending on what the Working Document means by “major commercial user”, this assumption if it relates to private and commercial radio broadcasters is not correct. While radio stations play a key role as intermediaries between music copyright owners and the public and indeed pay large amounts into the so-called “royalty cake”, they cannot possibly be considered as “powerful users at pan-European level” or as being part of “vertically integrated media conglomerates”. Daily experience and an increasing number of litigations show that it is indeed the Collecting Societies in general and the music industry in particular who are in increasingly powerful bargaining positions vis-à-vis radio broadcasters for all music rights. The consolidation process suggested under option 3 would lead into de facto additional on-line music rights monopolies at EU level in addition to the national monopolies which already exist at national level.

D. Consequences on transparency and accountability of CRMs

• In its submission to the Commission’s Communication of April 2004, AER called for transparency on the part of the CRMs, clearer procedures and a minimization of costly administrative burdens imposed on users and members. As the Commission rightly noted, AER would support the development of any system which improves transparency with regard to where the funds go and if they are effectively paid to the rights holders, but at the condition that this be balanced against similar rights and advantages for users.
• By allowing CRMs to compete for rights-holders on the basis of better service criteria, the Working Document argues that it would achieve this aim at the benefit of both rightsholders and users. It is suggested that CRMs would compete for rights-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 users’ revenue).
• This raises the question of the criteria on which CRMs would determine copyright fees for on-line rights. AER questions to what extent the system will really benefit the users and whether the users will have a say with regard to the criteria on which the fees will be determined.

 E. Legal consequences

• In AER’s view, the copyright law applicable to broadcasting/communication to the public has always been that of the country where the transmission of the signal takes place/originates. This is enshrined in Article 11bis of the Berne Convention and was later confirmed by the 1993 Cable & Satellite Directive. Currently, however, there is no European legal text confirming that this principle applies to Internet simulcasting as well although simulcasting is widely accepted (by legislators and Collecting Societies) as being an act of broadcasting and that the rights (of authors, composers, performers and record producers) used during this act are therefore submitted to collective management.
• There is a situation where certain rights holders – mainly the music industry and their representatives – are increasingly claiming that a country of destination theory should be applied to Internet simulcasting and – as stated earlier - are using this claim to create special Internet fees or increase their tariffs unreasonably.
• The Commission’s Working Document says that “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. Rights may be licensed with any territorial scope that is chosen by rights-holders”.
• If rights-holders can choose the territorial scope, they could differentiate between off-line and on-line as well as the platform on which they would want to make their content available. This could mean different territorial scopes and criteria for the same content whether off or on-line and thus different legislations for the clearance of off-line and online music rights for radio simulcasting.
• This makes any attempt to simulcast off-line content over the Internet legally insecure for radio broadcasters. AER therefore contends that the European Commission should use this opportunity to clarify that mere reception of real-time streams such as Internet simulcasts of free-to-air broadcasts has no relevance for the applicable law. In this way any remaining confusion or legal uncertainty or – incidentally – undue pressure on radio broadcasters by the music industry can be avoided.

F. Option 2+

We believe we have raised some of the main issues that spring to mind when looking at the proposed Option 3 and suggest that any further proposal should take option 2 as a starting point. In our view, option 2 – a network of reciprocal agreements between CRMs without territorial restrictions – is the closest response to what AER is asking: a single Community-wide license granted by a single collective rights manager in a single transaction for exploitation of the rights granted throughout Europe. However, this option should take the following, non exhaustive, points into account:

• The separation of on-line from off-line rights is unsustainable. It makes neither business nor legal nor common sense for radio broadcasters to buy their off-line content at their national CRM and to have to shop around the EU for the identical online content. 
•  It is important that copyright blanket agreements or licenses, wherever and with whoever they are negotiated, should cover only the needs of the applicant broadcaster and nothing beyond that. In other words, the broadcaster should be able to buy the content he needs and not be obliged to buy more.
• The urgent problems linked to collective management of music rights faced by radio broadcasters whether in terms of competition, governance or arbitration, should be dealt with as a priority.

G. Conclusions

While AER strongly supports the Commission in its decision to reform cross-border collective management of copyright, it regrets that the narrow focus “on-line distribution in Europe” has prevented it from recognising and thus supporting the important role that radio stations are playing also with regard to on-line distribution of music.

A recently published OECD report on Digital Broadband Content notes the immense rise in popularity of new digital distribution channels and proposes recommendations to support that trend. At the same time, it notes that “consumers do not often purchase music with which they are unfamiliar and that airtime on the radio or other means of exposure for a particular artist or band is important”. It also states that “radio remains the most important medium in 2004 despite digital distribution outlets”.

 In its option 3, the Commission shows a surprising lack of understanding for the issues at stake for copyright users in general, and radio broadcasters in particular. After all, radios pay a very large share of the eggs, sugar and flour of the “royalty cake”. The Commission also shows surprising lack of insight into the potential consequences of its proposals on this industry. If implemented in its present form, option 3 could lead to the end of radio simulcasting over the Internet. We are convinced that this cannot be the intention of the Commission and are prepared to continue working with the Copyright Unit to ensure that any future proposals will provide balanced and fair proposals to improve the management of copyright and related rights in the Internal Market.

NOTES: Brussels-based AER (the Association of European Radios) represents the interests of 14 national private and commercial radio associations in 11 EU Member States, Switzerland and Romania. The combined membership is of over 4,500 private/commercial radio stations broadcasting to millions of daily listeners across Europe. The AER web site provides further information at www.aereurope.org