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Business Planning: Prepare to Face the Music

It is an often forgotten and sometimes ignored part of the economic reality for distributing audio-visual (AV) content via digital media that this distribution creates the need to clear music rights and that there can be serious financial risks and consequences in failing to plan for that.

The risks vary from market-to-market, but it is fair to say, as a broad-brush proposition, that they will be present from day one of distribution in all developed markets where a distributor is exploiting US or other international content.

That risk may seem a distant one in less well-developed copyright regimes, especially where the concepts of copyright and ownership are not established. Even where they are beginning to get traction, there might not be any systems in place locally (in the territory of distribution) to license use and remunerate copyright owners.

However, the use of US and other international content will, in any event, create a liability to the copyright owners, wherever they are, and they may not wait indefinitely for local markets to provide effective solutions.

What do we mean by music rights in this context?

There are two separate pieces of IP that are relevant – one in the musical work and a separate one in the sound recordings of that musical work (of which they could be many). These copyrights will generally be owned by different parties and, in the context of the musical work, it’s possible to have multiple interested parties.

For AV content, the two key activities that require a licence from the copyright owner are reproduction (including synchronisation of music with visuals) and communication to the public/making available (often referred to in relation to musical works as “the performing right”).

As far as reproduction rights are concerned, these are capable of being cleared by the content creator and the normal model is that they are. That said, if the AV distribution platform creates, for instance, server copies in order to facilitate its distribution of the AV content, this could create a need for a licence to cover this activity and that licence would have to be obtained by the platform.

This article focuses on the communication to the public/making available rights for musical works where it’s beyond dispute that these rights are legally the responsibility of the distribution platform.

Who manages these rights?

The performing right is managed throughout the world by collecting societies set up to represent composers, lyricists and publishers.

These societies, sometimes also called Performing Right Organisations (PROs) or Collective Management Organisations (CMOs), tend to exist on a national basis, controlling their own repertoires. In most countries, these PROs are, in effect, monopolies. There are exceptions. In the US, for instance, there are now four such societies. What binds the majority together, when it comes to the repertoire they own or control, is a system of reciprocal mandates that delivers each of them the right to include the others’ repertoires when they license the performing right. This is what is colloquially referred to as global repertoire.

How is the performing right licensed?

As it would be logistically impossible, for both copyright owners and distributors, to work effectively with an ad-hoc licensing system for the performing right, where each clearance is individually licensed by the copyright owner, so called blanket licences have been established over a great number of years to service the radio and TV broadcasting markets. This blanket licence concept has been extended to serve new digital media for communication to the public rights, including the so called “making available” right for on-demand activity, and it will deliver the right to communicate global repertoire.

Is the performing right managed globally or territorially?

While the system of reciprocal mandates delivers global repertoire, it doesn’t create the circumstances that enable a one-stop shop for VOD services when it comes to obtaining the performing right licences for all the countries of distribution. On the contrary, the places where the licences have to be obtained for VOD services are determined by where they are accessed by consumers, on a country-by-country basis.

Is clearance at source possible?

The performing right cannot be cleared at source by the content creator unless the music has been composed by a composer who is not a member of a performing rights organisation (PRO) anywhere in the world, the music is unpublished, and the content creator has a valid assignment or licence of those rights direct from the composer.

While it is possible that some of the music embedded in AV content has been created in this way, the liability for clearing the performing right relates to the complete audio-visual service, so even if there are some musical works for which the performing right can be cleared at source, in all likelihood, there will be many others for which it can’t, which means that a performing right licence is still going to be required to be obtained from a PRO.

Summary

The distributor of AV content, as the last window out to the consumer, will always be liable for clearing the performing right in the musical works embedded in that content. The degree of the risk and the financial consequences will be affected by several issues and will vary between mature and developing markets, but even where in practice the risk seems low or, maybe, even non-existent, it’s important to factor it into the costs of distribution.

PRO schemes for licensing digital AV services are not necessarily well established. Even in the mature markets, there’s still some room to negotiate. No-one necessarily wants to be the first adopter of a new PRO rates, although there may be reasons why that can happen to suit one particular player but not the others.

Digital distribution has opened up the possibility for many different business propositions and models and for organisations whose primary business interests lie in other areas. This makes arriving at a one-size-fits-all solution for licensing a challenge.

Digital distribution has opened up the possibility for many different business propositions and models and for organisations whose primary business interests lie in other areas. This makes arriving at a one-size-fits-all solution for licensing a challenge.

Understanding what’s happening in the individual markets, and also internationally, is key to creating a bespoke strategy for launching new VOD services or rolling existing ones into new territories. At Footprint Music we specialise in developing and executing those strategies.

Paul Kempton is Managing Director of Footprint Music Ltd. Paul is speaking at TV Connect MENA on October 29 at 2.05pm. Find out more here 

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