Global Economics

Digital Content Spurs EU Licensing Fight


Explosive growth in the online music market has pushed musicians, record labels, computer firms and EU politicians into a fight over how to manage authors' rights on the internet, with one Hungarian MEP confident she has found the right model for the digital era.

Traditionally, European songwriters' rights have been managed by "collecting societies" who grant distribution licences for record labels and online shops, collect royalties of a few cents per download, gather levies on products like MP3 players used to make private copies of songs and sponsor cultural projects.

The societies - some of which date back to the 1850s - hold monopolies for each EU member state and cooperate with each other via reciprocal contracts that allow, say, a Swedish society to licence Danish music in Sweden while channelling cash from Swedish royalties back to Denmark.

But with the EU digital music sector set to become a ??3.9 billion a year industry by 2011 and with the spread of digital rights management (DRM) technology, the major record labels and computer firms are pushing Brussels to break-open the rights monopolies and scrap the levy system.

DRM technology prevents people from making too many copies of music in their own home, so that songs from Apple's iTunes website, for example, contain software that block replication after a handful of CDs have been burned.

The lobbying is fierce, with software firms describing most collecting societies as pointless, self-serving bureaucracies that violate EU law.

"They hide behind the 'drapeaux d'exception culturelle'," software lobby BSA spokesman Francisco Mignorance told EUobserver. "There's no transparency and money is getting lost."

Most collecting societies accuse big business of trying to bulldoze a system that protects small, independent artists in order to push mainstream US and UK records on the internet.

"It's a war of the worlds," collecting society lobby CISAC spokeswoman, Pia Raug, says. "They want to control the digital market."

And the battlefield is complex. Some of the biggest collecting societies, such as the UK's PRS or Germany's GEMA, stand to profit from sweeping reforms. Caught in the middle, the International Federation of the Phonographic Industry (IFPI) represents both the major five world record labels and over 1,400 independent record producers.

EUROPEAN COMMISSION WADES IN. So far, the European Commission is putting the needs of the common market first. A non-binding "recommendation" in October 2005 threatened new laws unless societies opened up to competition and found ways to grant pan-EU digital music licences.

The recommendation quickly made waves when in January EMI - the world's biggest record company - clinched a deal with PRS and GEMA to handle the EU-wide digital licensing of all its US and British songs. The same month, Brussels also threatened to fine several collecting societies on competition grounds.

On the levies front - a sector which BSA estimates is worth ??1.6 billion a year in the EU and rising - the commission is preparing a fresh recommendation due in November.

"There's intense lobbying and it still has to go through interdepartmental consultation," an EU official said. A draft internal analysis written in June leans toward BSA's view.

Meanwhile, the record producers are calling for a gradual phase-out of levies as DRM technology takes root. "Less than 10 percent of devices are DRM-enabled today," IFPI spokeswoman Frances Moore said. "You can't just yell 'death to levies.' We need to move away from the levy system in a civilised way."

Hacking into "a jungle" is how Hungarian socialist MEP and classical music lover Katalin Levai described her attempt to make sense of the issues. After four months of work with copyright lawyers and the independent record labels association, IMPALA, Ms Levai - who has never downloaded a song - believes she has found a third way.

The MEP is set to propose in a report in late October that the commission issues a binding directive in 2007 that could lead to two or three big societies - such as PRS and GEMA - sucking-in most European songwriters and then issuing pan-EU licences, but would also set cast-iron safeguards to protect smaller societies and indie producers.

WONDERFUL MOMENT. "This was a wonderful moment. It was a turnaround - all the different stakeholders seem to be content with what I am saying," Ms Levai indicated after presenting a draft of her report in Brussels on 11 September.

Parliament officials say the commission is also on board and might even drop the proposed fines in early October to foster good will.

The Levai research does not contain any specific recommendations on how to create artists' safeguards however, with the European Commission jealously guarding its exclusive right to propose new EU laws. And the collecting societies will have to reckon with the big personality of Charlie McCreevy in both the licence and levy scraps.

The Irish single market commissioner is known as a friend of multinational firms such as Microsoft, with one running joke saying Microsoft put a major office in Dublin so its lobbyists could bend his ear on Monday morning flights to Brussels. Ireland is one of the five EU countries that functions without a levy system.

The collecting societies also have friends in high places, with BSA saying that "they are padded, in some countries they are run like quasi-government bodies" promising a lively debate among member states if any directives come out.

"If this goes to council, there will be an unholy battle," predicts IFPI's Frances Moore.


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