France's mission to improve the growth of legal digital services for cultural works has hit the headlines, thanks to its proposal to tax advertising revenues from online giants such as Google to support the creative industries hit by the digital revolution.
But the report, led by Patrick Zelnik, CEO of French independent label Naïve, has plenty of other things to say about the digital music market. It has received the backing of President Sarkozy and been submitted to culture and communication minister Frédéric Mitterrand.
Amongst the main ideas regarding the music sector, the mission recommends that streaming and a-la-carte download licenses should be delivered by a collecting society. The mission calls for labels and artists societies to come to an agreement on this point by the end of 2010, otherwise the government will legislate. It also recommends Web radio should be under the same legal licensing regime as terrestrial radio channels.
The report also calls for the state to help young consumers access legal music online by subsidizing a-la-carte download and subscription services through a "youth card," which would be worth €50 ($71.50) but sold for €20 ($28.60) to €25 ($35.80); the difference would be paid by the government up to €20, and by the music sector for the remaining part. The card could be used on any partnering platform.
With €25 million ($35.8 million) injected by the state, the measure could reach 1 million people and inject €60 million ($85.8 million) into the online music market, according to the report.
Zelnik's mission also recommends to prorogate and improve the tax credit scheme already in place to support record labels and to provide French organization IFCIC, designed to support cultural industries, with a €10 million ($14.3 million) fund to support young digital music startups.
Overall, the mission evaluated the cost of these measures at €50 million ($71.5 million) the first year and €35 million ($50.1 million) to €40 million ($57.2 million) the two following years, the major part being attributed to the music sector. The state would pay for this cost, but would benefit from new revenue sources compensating these expenses.
The report introduces a 1% to 2% tax on online advertising, targeted on large-sized services such as Google, Microsoft, AOL, Yahoo or Facebook. This measure could ultimately generate €10 million ($14.3 million) annually. There was also a proposal to alter the reduced VAT sales tax rate which ISPs currently pay on a proportion of their services so that they would pay more VAT.
However, the report rejected the principle of taxing ISPs, whether to legitimate file-sharing or to compensate the loss caused by file-sharing, arguing it would go against "the very essence of copyright, which is the exclusive right of a free and independent creator."
Finally, the mission calls for France to lobby the EU on a lower VAT sales tax on cultural goods, on simplifying the management of authoring rights in music, and to collectively consider the impact of Internet U.S. giants such as Google on European cultural industries.
The report, which was initially due mid-November 2009, is the result of a major consultation amongst the cultural sectors and involved a survey amongst 997 users about their expectations in terms of cultural goods.
The government has yet to announce the measures they intend to implement or the time scale.
Speaking to an audience from the cultural sector, French President Nicolas Sarkozy requested a collective effort from the music sector and backed Zelnik's mission proposal to "give a year for the producers [labels] to negotiate the rights and 'free' their music files on all platforms."
He also asked the government to look at the idea of the music card for young users and backed the mission's suggestion that French antitrust authorities should look at Google's potential dominant position in the online advertising market. Finally, Sarkozy renewed France's long time call for a lowered VAT on all cultural goods.
In a statement, French authors, composers and publishers society Sacem expressed its "profound disappointment" at these conclusions that "are clearly inadequate to provide rapid, significant support to a market in transition affected by violent degradation."
Sacem renewed its call for compensation to be paid by the ISPs for copyright infringement by their subscribers.