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Tuesday, 12 January 2016

Cash Me Out - some more on CMOs

Following an earlier post on Collective Management Organisations (CMOs, the bodies responsible for copyright licensing), a number of discussions on the relationship between publishers and creators, and in particular Dennis Collopy's research, arose.  Dennis was kind enough to send me detailed comments, which I've edited into a blog post:

Neighbouring rights

Neighbouring rights are the, "rights related to the public performance of master recordings." In Dennis's view, neighbouring rights are one of the most problematic issues in music licensing as they are less developed than other rights. The US only relatively recently embraced them for online or ‘digital’ performances. Almost 90 years after publishers and writers gained the right to license rights to radio in the USA, there is still no automatic right for the recording artist and record label to be compensated for terrestrial (i.e the majority of) of radio broadcasts of a sound recording. 
Neighbours cat, by Grant Pickup
Since the new right for online broadcast was finally introduced in the US earlier this century, the new CMO for Neighbouring or ‘performance” rights, called Sound Exchange, has become the largest neighbouring right CMO in the world with distributions hitting $1.5 billion per annum. This could be even greater if the US could pass a law requiring terrestrial radio to pay neighbouring right fees. There has been a considerable amount of lobbying to achieve this, as the US is apparently one of only three countries in world without such a law (the others being Iran and North Korea). The campaign to change the law in the US can be seen here and here

Cost estimates

Another debate is that of Performing Rights (the rights to publicly perform music) administrative costs (the deductions made on licensing fees before they are distributed to creators.) Public discussion in recent years suggests these costs are falling. In 2010, the International Confederation of Music Publishers (ICMP) questioned,  "how many 100s of millions of Euros could be saved in back office costs for the benefit of writers and publishers."  The 2010 International Confederation of Authors and Composers Societies (CISAC) Annual Report acknowledges, “efforts continue by the authors’ societies and performing rights organisations around the world to reduce their administration costs”. In fact, the 2010 CISAC report said, "Efforts by the authors’ societies to reduce their administration costs, combined with constantly expanding coverage of their territories and of the various forms of use of creative works within all the repertoires, particularly in the digital sector, enabled the societies to increase the amount of royalties distributed to right owners in what was still a difficult economic context. This shows that the system of collective management is fit for the 21st century.” 
Blue's pink nose, Andrew
Dennis is ascertaining how far the total and specific right administrative costs have fallen, and in which countries. Is the reduction in costs consistent across the various CMOs? Looking at SACEM (France), SABAM (Belgium),  Koda (Denmark), SIAE (Italy) and GEMA (Germany), there is evidence admin costs are decreasing.  Yet there is still a disparity between the overall costs of collection in different markets; for example, Belgium's costs are still almost twice those of Denmark. There is also a lack of clarity on social and cultural deductions in the various annual reports. 
In the latest annual reports, the UK's PRS for Music claims, “despite investment in 2014 across IT and property, our cost to revenue ratio of 11.4% remains one of the lowest rates in the world.” The US PRO ASCAP similarly claims for 2014 it had, "one of the lowest overhead rates in the world at 12.7%,” although that had risen from 2012’s 11.6%. <Merpel loves a good spin doctor and would like to report she has one of the lowest flea-per-whisker rate in the world.>
In mainland Europe, SACEM is showing a 15% overall cost of collection, GEMA is 15.4%, SABAM’s is 16.26% in 2014 (down from 17.89% in 2013,  22.49% in 2011 and 24.81% in 2009), and Koda in Denmark is around 9% showing a consistent reduction across the past 5 years. Italy’s SIAE is 17.12% in 2014, down from 17.33% in 2013. <Merpel, with her statistics hat on, questions if these differences are statistically meaningful.  Small differences may simply be random fluctuations.> It would seem the net effect of the EC 2005 Recommendation, followed by the initial 2008 CISAC decision and the 2014 EC Directive on collective management of copyright has been a shake up of the main EU CMO’s producing some efficiencies and lower costs.

Your Kat's Thoughts

So, there we have it - a look at administrative costs in Europe and the U.S. It reminds this Kat of similar discussions (and the occasional scandal) on value-for-money associated with the administrative costs of charities. From an economic perspective, digital technologies typically reduce transaction costs (the costs of each transaction, e.g. an individual license), so we should expect to see downward economic, in additional to the political, pressure on CMOs administrative costs. In a more competitive market, where CMOs might not benefit from the monopolies created by copyright, competition between CMOs on an international scale would introduce further incentives for a reduction in administrative costs.  Dennis's query on international disparities, and the EC's activities, suggests there is more to the story than meets the eye.

N.B. If readers are aware of more recent or detailed figures, please get in touch.


Yegor Gaidar said...

Nicola, thanks for the post and these figures.

There has to be some kind of collecting society otherwise the money would never get anywhere, so I guess losing 15% of royalties is the trade-off. I assume SABAM's reduction relates to previous litigation.

To what extent would an EU-wide body save money? Not certain. Big start-up costs, political wrangling, e.g. location of HQ. Thoughts?

Nicola said...

Many thanks for your point - yes, collecting societies fill an important role in facilitating the music (and other) licensing markets. Some costs are inevitable, it is more of a question of efficiency. An EU body could, theoretically, benefit from economies of scale and be more efficient.

A reader has made a very interesting point - while the per transaction costs is decreasing, the total transaction costs may be increasing as the number of transactions increasings. So the transaction costs of an individual license for radio, which might be £100 per 10,000 plays may be higher than the £.001 transaction cost for a single online play. But, the quantity of online transactions may mean that the total costs are actually increasing.

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