The plummeting sales of physical CDs in 2011 are hurting the U.K.'s MCPS (Mechanical-Copyright Protection Society) and are expected to continue this year, the society's officials disclosed at the Music Publishers Association (MPA) annual general meeting on June 27.
MCPS is part of PRS for Music, the U.K.'s performing rights society, via an alliance in which they share the costs of running both operations. MCPS focuses on collecting rights owners' mechanical royalties for the copying of their works' recordings on physical media.
Although last year's revenues from broadcast and online were up 1.2% and 45.3% respectively, MCPS chairman Nigel Elderton said slowing CD and DVD sales led to a 13.2% loss in mechanical revenues to £101.7m ($159.4 million).
Speaking at the AGM, Elderton painted a bleak picture that illustrated how MCPS costs far outweighed its income. In addition to the decrease in physical sales, he said low interest rates triggered by the uncertain economy contributed to the financial struggle.
A £2.5m ($3.9 million) loss in mechanical royalties in 2011 represented an ongoing decline that saw the society report a £2.3m ($3.6 million) loss in mechanicals during 2010, and a £1 million ($1.56 million) loss in 2009, according to documents on its website.
"We're predicting five to seven years before we see good growth again," he said.
Elderton, who is also peermusic's European president, then read a speech written by Robert Ashcroft, PRS for Music's CEO, who could not attend the AGM.
"The financial health of MCPS is not good, however and, in fact, it is getting worse," Ashcroft said in his speech. "In 2011, the company made a loss of £2.5m; we need to be open and honest about this fact and work together to address this."
A PRS-MCPS task force has been launched to examine all possible solutions to help MCPS return to profit.
Interim solutions include PRS and MCPS forming alliances with sister societies in other European markets to help slash long-term back-office expenditure. Last year, they formed a joint venture with NCB (Nordisk Copyright Bureau), the alliance of Nordic royalties-collection organizations (Denmark's KODA, Iceland's STEF, Sweden's STIM, Finland's TEOSTO and TONO in Norway).
The joint venture's goal is to share the back-office fees for their mechanical rights processing and cut back on unnecessary duplication. The improved efficiency led to MCPS winning the contract to process EMI Music's central licensing arrangement covering its CD sales across Europe.
In his speech, Ashcroft added: "Consolidation is essential. MCPS is not alone in experiencing financial pressure; other mechanical copyright collecting societies worldwide are suffering from the effect of declining CD sales."
Another interim solution sees PRS for Music taking up more of MCPS' costs. Originally, PRS for Music had agreed to pick up about 72% of MCPS' costs, while MCPS handled the remaining 28%. PRS for Music has agreed to pick up more of the costs in the 18 months starting January 2012 to help MCPS get back on its feet.
The move is expected to help MCPS save £1 million ($1.56 million) a year in IT costs. "This will allow MCPS to break even during 2012 or the first half of 2013," Elderton told Billboard.biz. "As MCPS' chairman, I'm convinced the steps we've taken will provide a stable platform towards an upturn in future business prospects."