10 Apr 2016

The Brave New World of the EU CRM Directive

Today, 10 April 2016, is an important day for the music industry. Today the European Union's Directive on Collective Rights Management comes into effect in all EU member countries.

Better known as the "EU CRM Directive", it has been in the works for over four years. It started with a Consultation on Copyright Rules back in 2012, to which the EU received more than 9,500 formal replies, plus more than 11,000 messages with questions and comments. It clearly was a topic that many people and organisations care about.

The CRM Directive itself came into force on 10 April 2014, and (as with all EU Directives) had to be implemented in each EU member's national laws within two years. Today is the day that all these laws come into effect, and today is the day that all collective management organisations ("CMOs") must abide by these new laws. Today should be the start of a Brave New World for Europe's music publishing sector.

There are many CMOs across Europe: More than 250. In the UK alone, there are two dozen of them. Collective management of copyrights is common practice across the whole creative sector, because collective management has many benefits for those who own copyrights. But in this article, I will only look at music-related CMOs, and in particular those on the music publishing side, because that is the sector in which I work.

I will be using the term "rightsholders" a lot, because that is the term used in the Directive. A righsholder is defined as any person (or company) that owns a copyright, or is entitled to a share of the rights revenue under an agreement for the exploitation of rights. On the music publishing side, that means that the rightsholders are: composers, lyricists, arrangers, publishers, administrators, as well as anyone who has acquired copyrights, for example through an inheritance.

Rightsholders Are Now in Charge

The CRM Directive's main objective is to ensure that CMOs act in the best interest of all rightsholders. Its primary aim is to "modernise and improve standards of governance, financial management, and transparency of all EU CMOs, thereby ensuring that rightsholders have more say in the decision making process, and receive accurate and timely royalty payments". That sounds pretty useful to me, especially those accurate timely payments.

The Directive applies to CMOs in all creative sectors, but there is a special section for CMOs engaged in the multi-territorial licensing of musical works for online use. Following the EU's consultation, the commission correctly concluded that that particular market was not working very well, and that additional specific legislation was needed to improve it. There are not many such CMOs. In the UK, that section of the law applies only to PRS and IMPEL, and partly to PRS for Music because they do much of the actual work for those two organisations. They must be thrilled that there are now five-and-half pages of UK Law that exclusively apply to the companies based on the top four floors of 2 Pancras Square!

Membership and Representation

The first big point of the EU Directive is that rightsholders must be able to choose which CMOs they want to mandate to collectively manage their rights. For each CMO that a rightsholder wishes to mandate, they must be able to select the categories of rights, the types of works, and the territories they wish to mandate that CMO for. Thus, a rightsholder can divide his rights into a number of "baskets", and mandate a different CMO for each of those.

CMOs must accept any such mandate, as long as the selected rights and territories fall within the scope of what that CMO manages. Or, to refuse management, they must provide objectively justified reasons for that.

It is important to note that this is not equivalent to "membership", although membership is currently the only way for a rightsholder to mandate a CMO. But there are alternatives: For example, with SIMIM in Belgium, a recordings rightsholder has the option to become a member of SIMIM by purchasing a share in the cooperative at the cost of 1,250 euros. Or... they can simply mandate SIMIM to manage their rights, which does not incur any entry fee. Such "mandated rightsholders" have the same rights and obligations as members, and get paid on the exact same basis, but only members can actively participate in the governance of the organisation.

For composers, lyricists and arrangers, this new rule may require changes at many of the music publishing CMOs, because most of them only allow writers to join for all their works, all categories of rights, and for the whole world. That is not compliant with the Directive.

There already is a bit more flexibility for publishers, but probably not enough. For example, it is often unclear how to select which categories of rights to include or exclude. But more objectionable are the membership requirements of some CMOs. I am referring to a handful of societies that require a publisher to provide commercial-grade sheet music with their membership application (to prove one is a "proper publisher"). I work primarily with electronic music, where sheet music is totally irrelevant, and this requirement causes problems for publishers in that genre. More generally, sheet music is not used in the process of collectively license performing rights and mechanical rights, and should therefore not be a requirement for mandating a CMO.

But from today, those CMOs are no longer allowed to refuse management of a publisher's rights for the inability to produce sheet music. CMOs will need to change their membership requirements, or introduce options for non-member mandated rightsholders along the lines of SIMIM's model. As publishers, we don't necessarily need to be "members" of all CMOs we wish to deal with, but we do need to be able to mandate any CMO of our choice to manage some of our rights.

Voting Rights

Under the new rules, all members of a CMO must have the right to participate the governance of the CMO. That primarily means that all members must be allowed to vote for the board, and vote at the annual general members meeting.

Many publishing-side CMOs have multiple classes of membership, with each member's class based on earnings from that CMO. Most of them include a lowest class of "provisional member" for those who have just started out and not yet earned above a certain set threshold. Those provisional members are not allowed to vote. They become eligible to vote only after earning a certain amount of royalties.

The Directive does allow for some voting restrictions based on the duration of membership and/or the amounts paid or due to the member, but only if those restrictions are "fair and proportionate". The current voting restrictions at PRS are such that 80% (!!) of the members are excluded from voting. I do not believe that that is "fair", and it is certainly not "proportionate".

Data Management

This topic only applies to CMOs "engaged in the multi-territorial licensing of musical works for online use". That is a very narrow scope, but does cover most of the music publishing CMOs across Europe.

They now must ensure to have sufficient capacity to electronically process all data needed for the administration of multi-territorial licenses. In particular, they must be able to identify accurately which works they represent, in which territories they represent those, which rights they represent for each work, and who the current rightsholders are for all works. This is needed to accurately and efficiently process all the usage data they receive from the licensees.

But many of the CMOs have processes in place whereby the processing of amendments to works information (or in some cases the intial registrations of works) are delayed until there is a certain amount of money for the work. These thresholds vary wildly between CMOs, from 50 cents at one of them, to 50 euros at the other extreme.

An update to a work registration can involve a correction to writer details and/or changes to publisher details. When such an update has not yet been applied, the CMO will not know for certain whether they represent a certain right in a certain work in a certain territory, nor will they be able to accurately identify the rightsholder(s).

I have heard complaints from a number of digital service providers (ie. "licensees") about overlaps and gaps between the charges from the various CMOs. These happen because the CMOs cannot accurately identify the repertoire they represent, which is partly caused by these delayed processing of updates. I guess these DSPs have also mentioned these issues in their responses to the various consultations, with the result that the EU has now mandated that all multi-territorial CMOs must significantly improve their data management processes, in order to streamline the multi-territorial licensing of musical works.

Excuses such as "There's too much data" and "It would cost too much" have been outlawed as of today.

A Brave New World?

The EU Directive has been in force since 10 April 2014, and all CMOs have had two years to prepare for the implementation. I am looking forward to the barrrage of announcements of changes that all CMOs will be making tomorrow. It's the start of a Brave New World for Europe's music publishing sector.

But somehow I can't escape this horrible feeling that my expectations may be to optimistic...

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