The European Commission has ensured that collecting societies may enter the music publishing or record production business and may continue giving rebates to attract record company licensees.

The European Commission has ensured that collecting societies may enter the music publishing or record production business and may continue giving rebates to attract record company licensees.

The EC today (Oct. 4) accepted a negotiated commitment between the major music publishers and 13 European collecting societies to alter provisions in their Cannes Extension Agreement. The EC made legally binding the commitment -- covering rebates to record companies under central licensing agreements and removal of a no-competition clause -- under EC Treaty competition rules.

The action closes a case initiated in 2003 after the EC questioned certain provisions of the agreement as anti-competitive.

In 1997, the five major music publishers -- EMI Music Publishing, Universal Music Publishing Group, Warner/Chappell Music, BMG Music Publishing International and Sony/ATV Music Publishing Europe -- entered the Cannes Agreement with 13 European mechanical rights societies. Its purpose was to bring about greater efficiencies in the administration of European mechanical rights.

The Cannes Extension Agreement in 2002 extended the term of the original agreement and addressed other issues, which required a mutual understanding between the publishers and collecting societies.

The EC, under its competition rules, focused on two provisions of the agreement.

One provision pertained to central licensing agreements. Under this type of agreement, a record company can obtain a mechanical license from one society covering the repertoire of all European collecting societies. Some societies desired to compete for record companies, hoping that they would secure licenses from them, by offering rebates or a reduction of tariffs (royalties).

Under the Cannes Extension Agreement, publishers and societies agreed that before any society could give any money to a record company, including a rebate or reduction in tariffs, the relevant member (such as music publishers) must agree to that concession. The EC noted that these rebates are currently the only form of price competition among collecting societies.

In another provision, the societies acknowledged that their primary role was to administer, protect and promote the interests of their members, including publishers. If a society wished to engage in any commercial activity, it should be carried out to promote its members and never as an activity that would be undertaken by a publisher or a record company. Publishers promised not to take any action to impair or preclude the societies' role of administering, protecting or collecting for their members.

To resolve the EC case, the publishers and societies made commitments that the societies may continue, in the context of the central licensing agreements, to give rebates to record companies out of the administration fees that they retain from collected royalties. The publishers and societies also committed to remove the no-competition clause that would have prevented the societies from ever entering the music publishing or record production market.

The European societies that are parties to the commitment are AEPI, Austro Mechana, GEMA, MCPS, MCPSI, NCB, SDRM, SABAM, SGAE, SIAE, SPA, STEMRA and SUISA.

Even though the EC's acceptance of these commitments ends the proceedings, the Commission noted that it could impose a fine of up to 10% of "total turnover" -- without having to prove any violation of the Treaty's competition rules -- if the parties break their commitments.

Additional reporting by Leo Cendrowicz in Brussels

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