During MIDEMNet in Cannes, France, industry newcomers and veterans had the rare opportunity to hear points of view from very experienced executives running the world's largest music publisher. EMI Music Publishing's Roger Faxon, president/co-CEO (soon to be the sole chief executive), and Clark Miller, general counsel worldwide, shared the stage for a Q&A session, led by yours truly.

Just days before my Jan. 21 on-stage interview of them, EMI Group announced a restructuring program to cut costs as well as board and management changes. Group executive chairman Eric Nicoli became Group CEO, and deputy chairman John Gildersleeve became nonexecutive chairman.

For the recorded music division, EMI Music chairman/CEO Alain Levy and vice chairman David Munns were asked to leave the company. Nicoli took on direct responsibility for management of EMI Music's North American recorded music division, Tony Wadsworth continued as chairman/CEO of EMI Music U.K. and Ireland, and JF Cecillon became chairman/CEO of EMI Music International.

This news raised some questions about the relationship between record company, publisher and their corporate parent, which I explored with Faxon. As I discuss in my Billboard Legal Matters column this issue (Feb. 10), these questions could certainly be asked of executives at Warner Music Group or Universal Music Group as well since they have similar management structures to those of EMI. After all, the sometimes-contentious relationship between label and publisher is an issue as old as the industry itself.

In the last year, EMI Music Publishing announced the joint venture of GEMA and the [MCPS-PRS] Alliance [for pan-European licensing]. Considering the European Commission's October 2005 recommendation on cross-border licensing, followed by EMI's licensing plan, what are your views on the current structure of collecting societies in Europe and how well they're functioning in this digital age?

RF: As we said last year, and it continues to be the case, the existing collecting society structure has not been an effective means of licensing digital rights, both mobile and online. The evidence of that is that there's a lot of activity going on in Europe in that space, but our songwriters aren't getting paid. That means there's something fundamentally the matter.

Why are they not getting paid?

RF: My question, exactly. The fact is that when you look at the receipts paid through from the collecting societies, very little of the money that's received comes from these sources. We know, from objective information, that there is a great deal of activity going on, well in excess of what is flowing through the system.

Part of that is because rates are in dispute, part of that is because there's lack of compliance with licensing, and part of that is just a structural problem with the way that licenses are done in this space, which is geographically based -- country by country, right by right.

The reality of the online world is that it has no borders, and, therefore, the license needs to recognize the expanse of the use territorially. The license also needs to recognize the expanse of the rights required. Given the structural nature of the way in which the society systems have grown and the publishing system has grown, those rights are separated in administration.

With those problems, there comes a solution. Our solution, which we announced last year, is what we are now calling CELAS. We are working with GEMA and the U.K. Alliance to license our rights on a pan-European basis. Users are able to come to CELAS and get all of the rights they need for the entire expanse of Europe. We think that's certainly consistent with the European Commission's approach, but we also think that it's consistent with what users ultimately need to have.

As important for us, it offers us and our writers something that they haven't gotten: transparency into the user community to get paid -- accurately paid and promptly paid.

There was a settlement recently in the United Kingdom with respect to an ongoing tribunal proceeding to determine rates for some digital music services, a settlement with the Alliance at 6.5% [of revenue] for non-interactive uses and 8% [of revenue] for interactive uses. I understand that still has to be approved... But that percentage rate is a lot lower than publishers have been asking for in, for example, the Untied States. How does EMI feel about this settlement, and will it affect rates in other countries so that you might get less than what you'd really like?

CM: You have to understand that with the settlements, you're talking about copyright. Copyright is, by necessity, a national as opposed to an international thing. With all of these settlements, they are, in and of themselves, not precedential. I think the U.K. settlement says it's not precedential.

But human nature being what it is, if you moved into any rate hearing or tribunal, if you found something from another time or another place that you thought would help you, you would probably try and argue that it is precedential. If you're on the other side of the table and it didn't help you, then you would find some way of making sure that it was not part of what you are doing, right?

With respect to the U.K. tribunal and going into a U.S. hearing, I think that what happened in the U.K. was this unique little thing; it was very specific to that time and that place and doesn't really have much relevance in the U.S.

If you look at the fact that the U.S. legal system hasn't really paid much attention to the U.K. or anything that happened in it since about the time of the Boston tea party, this would not be a good time to start doing that.

Earlier this month, there was an announcement from the EMI Group that there would be changes in the structure of the board and management within the Group, and there would be a restructuring program that would generate some cost savings for EMI's recorded music division as well as publishing. With respect to the restructuring program, Roger, what do you expect to occur at EMI Music Publishing in the next year?

RF: First, I'd like to take a little bit of your question and [answer] it first. What does restructuring mean for EMI Music Publishing within the context within EMI Group? EMI Music Publishing will continue, as it has always been, as a separate, distinct business and line of business. The organizational structure has not changed at EMI.

What has changed is something that affects everybody in this room and at this conference, which is that the music market has changed. The EMI Group has decided that what it needs to do is to take definitive action to reposition its business to most effectively take advantage of the changes in the marketplace. That's what the restructuring is about. It's not just cost savings. It's about a vision of how both businesses need to operate in the new world.

For us, at EMI Music Publishing, we have been on this track for some time. We know that there are efficiencies that we can gain, and there are skills that we need to add, expand on and build on. We have the strongest creative team, I think, in the world. We have the best licensing, we have the best of almost everything, which is why we have been so successful.

But we know that we need to address issues as we move forward. We have to be more in contact with the people who want to use music, expose music. We need to have a more complete understanding of the development of new music.

All of that requires additional resources. Where's that going to come from? That's going to come from us creating greater efficiency in our overall business. So we've been investing in renewing virtually every single system and process in our business, all to create greater efficiency so that we can apply greater resources to the future. And we're very optimistic about the future.

Will it involve layoffs and perhaps lower advances for songwriters?

RF: It will involve a change in some personnel, yes. Whether that will take the form of layoffs, I can't say. There will be a movement from people who are largely process-focused to those who are largely talent- and licensing-focused. Some people who are in the company will be able to make that transition, and others may not be able to.

With respect to artist and songwriter advances, obviously our greatest goal is to deliver the most value to our songwriters. Advances are only evidence of that; you're advancing against your future view of what the value of the songs are. I hope that as our capabilities increase, that the certainty of the future will allow people to moderate their demands for advances.

We're not reducing our investment in artists and songwriters. If anything, we're increasing our involvement because we believe in the future of the music business, in the broadest sense of the word.

For the internal changes for your personnel, is there a time-line?

RF: As you know, our financial year ends March 31. We're in our budget season, which is always a time to consider all of these issues, so that's what we're doing.

On the management end, is there any change in the senior management that you're expecting at EMI Music Publishing as a result of the changes at EMI Group?

RF: No, I think we have the finest leadership in our industry. We do not expect to see a change there.

There was a change on the board for EMI Group. Eric Nicoli, executive chairman, took the role of CEO with direct responsibility for management of EMI's recorded music division. Do you report directly to Eric still?

RF: I do. Marty [Bandier] and I report to Eric in his role as chief executive of EMI Group.

Record companies and music publishers, on occasion, don't get along with each other. If there is a problem that EMI Music Publishing is having with EMI Music, and Eric Nicoli has direct responsibility for the recorded music division, who do you go to if there is a problem if you report to him?

RF: Many of the people in this room know Eric well. They know him to be an open, fair and understanding human being. Also, those of us who have worked with him, and I've worked with him for a very long time, know that he understands and is absolutely of the view that each of the businesses needs to pursue their business purpose. Our business purpose is to assure that our songwriters are properly compensated for their rights and that the rights are protected.

He will allow the marketplace, as he has over these many years, to determine what the resolution of those disputes are. That's right when you believe, as we do at the board level of EMI Group and at each business, that each business has to stand on its own. I don't foresee there to be any conflict.

Do you expect to sit on the board of the National Music Publishers' Assn. when Marty Bandier exits?

RF: That's for the membership of the National Music Publishers' Assn. to determine.

Would you like to?

RF: I would love to be a part of any forum that is trying to effect positive change in the music business. The National Music Publishers' Assn. certainly falls into that category.

We know that in the U.S., there is the Copyright Royalty Board proceeding that is really going to be contentious, with digital media companies, record companies and publishers all arguing rates. If you are sitting on the board of the NMPA and reporting to Eric Nicoli, will you be required to disclose to him things going on at the NMPA while he also has management over the recorded music division?

RF: Eric, in his previous role, never asked Marty or me about such matters because he felt, as I said earlier, that each of the businesses needs to pursue its own business purpose. He would never create a situation in which there is a conflict of interest. Evidence of that is that I, with Clark's help, put in a paper to the CRB for their consideration, and David Munns, on behalf of the record company, did the same thing.

Regarding the CRB proceeding, I think it surprised a lot of digital media companies that publishers are asking again for a penny rate for digital phonorecord deliveries (DPDs), rather than a percentage, because there are a lot of users who believe that a percentage rate would be more in line with changing business models. Why did publishers ask for a penny rate, and what's better?

CM: It's not a question of what's better. Fundamentally, whether it's a penny rate or a percentage rate, what you're really trying to do is the same thing. You're trying to find a fair value for what our songwriters do; you're trying to put a fair value on what the use of a song is worth.

As publishers, we fundamentally believe that songs have some intrinsic value. It's a value that exists quite apart from the economics of the thing that the song happens to be embodied on or associated with. And that's the thing, I suppose, that pushes you toward a penny rate.

With that said, EMI Music Publishing has been pioneering in its efforts to find ways, particularly in the digital space, that move well beyond penny rates.

I look at the deals we made with record companies over the last few years in America, the subscription deals that we're making now, and the digital-video deals that we're making now. What characterizes those is trying to move out of the penny rate into a hybrid structure, that we call the three-tiered structure. It works very simply in the following way.

We're looking to get the greatest value of three things. The top tier is the biggest value out there -- the gross, the retail, the thing that the consumer pays -- we're looking to get a percentage of that. The second tier is the content pool, the aggregate of what we get together with the record companies, the so-called "pie." We're looking to divide the pie.

Thirdly, and very importantly, is the minima. In the three-tiered structure, that takes the place of the penny rate because it's expressed as a penny.

It's very dangerous to look at a percentage rate apart from a second and a third tier, because as soon as you move to pure percentage rate, you're really positing a pricing model that is one step away from the pricing model of the gadget itself.

Why is that a dangerous place to be? Because then you're starting to lose the thing that I talked about first, which is the intrinsic value of the song itself. You're starting to say that that thing, the gadget, is what it's about, and not the song. I just don't believe that. It may be because I'm an old guy, and I've seen so many gadgets come and go. I fundamentally believe that at the end of the day, it's always about the music, not about the gadget.

In our world, gadgets come and go, but great music doesn't come and go. Great music endures.

The Copyright Royalty Board proceeding in the U.S. is about the compulsory license for compositions. But digital music services may also come directly to, and license from, publishers the rights for other types of uses. What attributes does a digital music service, a mobile phone company or any other type of company need to have for you to say, "I want to take the time to cut a deal with these people"?

CM: That's a simple question. We're looking to put our music everywhere, into all digital services, provided that they give us the appropriate protections for our rights and, most importantly, the rights of our songwriters. And that they come with a compensation model that works for us and our songwriters.

Frankly, we're quite open to business models -- surprisingly open. We've been very aggressive in this area. Look at our deals SpiralFrog, QTrax and, most importantly, the user-generated business now. We made the first and only worldwide publishing licensing deal not just for subscription, but for tones and downloads as well.

That's what we're looking for -- all of your business models -- and we're looking to try and find a way of putting our music into it. Frankly, we, and our songwriters, don't make money if our music isn't being used.

What is the most important thing that the music industry, as a whole, should be worried about, or should actually be doing something about, today?

RF: It's probably the theme of MIDEMNet and will be the theme of MIDEM. What they need to understand is that it's about the consumer. That the consumer is who decides how they're going to listen to, acquire, participate in music, how they're going to pay for it, what music they want. So understanding that the consumer is who's in control of our future is the greatest challenge and the greatest opportunity.

We must, as an industry, stop the view that if we make it, they will take it. We should know that that's not the case. The consumer is going to tell us what they want. We need to find ways of understanding and discovering what they want, just as we need to improve our ability to understand and discover the music itself.

What does EMI do to discover what consumers want?

RF: We're involved in a whole range of market research. We try and create close relationships with services and businesses that themselves are consumer-driven so we gain a better understanding of that.

As you do that, you find much more effective means of allowing your music to get into the world. Thereby the songwriters and the performers will benefit. There's a lot to learn. We're at the very beginning of that learning process, but we're very active in it.

What's the most important thing for music publishers to worry about or to take immediate action on?

CM: Two things. First, from a music publishing point of view, it's important to understand the new dynamic of the relationship between the record company and the publishing company. In the old days, it was very simple because the music business was essentially the record business - it was all about records.

But these days it's about other things, too. Notwithstanding the legal opinion of the RIAA, quite simply, things like ringtones, online video, and most importantly, user-generated content are not records.

The guy that we are licensing for those uses, and so many future uses, isn't the record company anymore. It's the other guy.

The other guy gets a license from us and a license from the record company. We are both content holders. We license our rights, our content, to the other guy in parallel to each other.

In the American context, in recently going through the effort to reform the music licensing process, I think the biggest single obstacle to that reform was the reluctance of the record companies to accept that new model.

Interestingly in the Canadian context, one of the most fascinating parts was that the essential question put to the record companies in the ringtone hearing wasn't, "What rate do you think it should be?" It was, "What are you doing here?"

When you start understanding that new dynamic, not only is it easier to set rates, but it's easier to get rid of a lot of the baggage of the past. I'm talking about controlled compositions, cross-collateralization, packaging deductions and so on.

But this is not to say that we should be opponents of record companies. Quite to the contrary. The point of realigning ourselves and understanding this new dynamic is to be better partners, so that we're not about beating each other up to try and find a larger share of our collective space.

Quite to the contrary, it's trying to work together collectively, with each other, to try to make that space a little bit bigger.

One other thing, and I think this afflicts us all as content owners. One of the greatest problems right now is this appalling erosion of value in our business -- publishers and record companies.

I think a majority of our children these days think it's probably okay to steal the products that we create. We have a hard time convincing those kids to want to be the great artists of the future when we can't even convince them in the present that great art is worthy or capable of protection.

We can't solve all the problems of the world, but as a publisher, what we try to do is put value back into that process.

How do you do that? It starts with a songwriter and moves through the whole chain right on down to the consumer. Hopefully it finds a place to put some value back where it belongs, into the song. Because if we can put value into the song, then I think we're going a long way to putting value back into our business.