Why CISAC Expelled Spanish Rights Society SGAE and What Happens Next

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Madrid, Spain

Over the last half decade, the Spanish General Society of Authors and Publishers (SGAE) has been mired in a series of controversies and investigations over how it collects and distributes royalties. 

Matters finally came to a head on Thursday (May 30) when CISAC, the International Confederation of Authors' Societies, decided to temporarily expel SGAE, by a vote of 3,580 votes to 346, at its general assembly meeting in Tokyo.

"It's a very regrettable step, but the board of directors felt there was no choice," CISAC director general Gadi Oron tells Billboard. "We hope there will now be pressure on the society to reform and change and address all of the very serious issues that we have identified."

The most serious of those issues concerns SGAE's role in a long-running royalty scam known as La Rueda ("the wheel"), in which members that are also broadcasters played songs they owned rights to on late-night Spanish television -- sometimes as low-level background music. (In Spain, some music publishers are owned by TV stations, which pay a set annual fee to SGAE to license music from its catalog. Unlike most other societies, SGAE collects a fixed amount from television stations, so playing more music would not change the overall amount of money broadcasters owe.)

In 2017, 18 people were arrested at SGAE's Madrid headquarters for their suspected involvement. Police documents revealed that a number of SGAE members also had falsely claimed ownership of public-domain classical compositions by Mozart, Vivaldi and other composers, which they registered in their own names -- as well as those of their parents, children and pets.

More recently, the Spanish government blocked the distribution of royalty advances of more than €2.5 million (over $2.8 million) by SGAE over concerns about its operations. And this week the Spanish Supreme Court ordered the society to pay a €3.1 million fine in connection with abusive practices around the collection of royalties from live concerts, according to a report in Spanish newspaper El Pais

CISAC's own investigation into SGAE's conduct, published last April, found "serious concerns" about conflicts of interest, "distorted and inequitable distribution of royalties" and a "lack of regard for the common good." It recommended the organization make 17 changes concerning its governance and business practices. But by December 2018 there was "absolutely no progress," Oron says. 

Following the appointment of Pilar Jurado as president in March, replacing José Angles Heiva (who held the position for just three months), Oran says SGAE has made improvements -- but not enough to prevent its ejection from CISAC. The embattled society represents more than 120,000 authors and publishers, and over 80 million creative works. 

As Oron points out, "this is not just a local issue. All of the societies that voted today on this sanction receive royalties from Spain and if the society [there] is not functioning the way that it should then international rights holders are affected as well." 

The expulsion is set to last for one year, although it can be lifted if CISAC determines that sufficient reforms have been made. The consequences for SGAE are severe damage to its international reputation, restricted access to CISAC's legal, financial and operational services, as well as limited use of its global databases, which help members license, collect and distribute royalty payments internationally. However, reciprocal licensing and cross border collections should not be directly affected by the CISAC expulsion -- and SGAE is not subject to financial penalties.

"Our goal is not to punish anyone, but to promote better practice and support reforms in the society -- we want SGAE to rebuild itself," says Oron. "Normally we cut-off expelled societies from our systems and databases, but in the case of SGAE we will, under certain conditions, allows them to use this network to encourage the society to change and complete reforms it only recently started." 

One indirect consequence of CISAC's actions is that international CMOs and publishers may look elsewhere for the administration of their repertoires in Spain. Warner/Chappell, Sony/ATV, Universal Music Publishing Group, BMG and Peermusic are reported to have previously threatened to remove their catalogs from SGAE, while a number of alternative rights management organizations are looking to break the society's long-held monopoly. 

One is Barcelona-based Unison, which is set to launch its proprietary platform and rights management operation next January. It claims to already have "contracts, memos of understanding and letters of intent with publishers, authors and organizations representing a significant percentage of the Spanish market." (Regulations require that current members of SGAE give six months' notice before withdrawing their catalogues from the non-profit society). 

"We saw an opportunity for an alternative," Jordi Puy, CEO of Unison, tells Billboard. "We need new models; In Spain, we need more options for writers and publishers that embrace new technology and efficiency. Now that everyone knows the reality and risks of staying with or leaving SGAE they can freely choose."

Unison, which is 49 percent owned by Sound Diplomacy in partnership with attorney Eric Jordi, is not cheering CISAC's decision, Puy says. "We think our model is attractive on its own merit," he notes. "We just hope that we can compete in a healthy market with fair and healthy competition." 

Soundreef, a company that primarily collects rights for in-store music, has also recently entered the Spanish market.

Oron hopes that SGAE can fix its many problems and even eventually prosper. He cites CISAC's two-year expulsion of the Indian Performing Right Society Limited (IPRS) as an example of how the sanctions can force a turnaround. IPRS made widespread organizational changes before gaining re-admittance to CISAC at the start of this year, and royalty collections jumping from $4.7 million in 2016 to over $20 million in 2018.

"The society there is now functioning well and we hope the same results will be achieved in Spain," says Oron, who welcomes proposed reforms by SGAE's recently appointed president Jurado, but warns "we need to see meaningful progress." 

Among the issues Jurado says will be addressed are statute modifications to meet new laws on intellectual property, the creation of an Independent Supervision Commission, the introduction of electronic voting for its members and that rights payments for musical works broadcast on television in the early morning hours do not amount to more than 20% of the total income that the organization receives from TV networks.

SGAE's general assembly is scheduled for June 24. "CISAC gives us an opportunity to decide about our future," said Jurado in a statement following the society's expulsion. She appealed for all partners to back the reforms "and put this situation to rest for once and for all."