European members of parliament warned Tuesday that a "big-bang" opening-up of collective online licensing could damage music in Europe, as the market would fall into the hands of just a handful of major rights holders.

The Euro-MPs called on the European Commission to revise its plans to open up the market or risk wiping out dozens of collective rights managers (CRMs), as well as less profitable local and minority repertoires.

The European Parliament's legal affairs committee was responding to the Commission's October 2005 recommendation on collective licensing for online music services.

The controversial recommendation said artists and groups would need just one license to sell their music online in the EU's member countries, as it confirmed a policy giving right-holders and commercial users of copyright-protected material a choice of their preferred means of licensing. It aimed to create a system ensuring musical rights be cleared efficiently on an EU-wide basis so the European online market could catch up with that in the United States.

But the Committee's report, drafted by Hungarian socialist Katalin Levai, said, that instead of promoting fair competition, the Commission's plans were likely to lead to a de facto oligopoly, with market power concentrated in the hands of a few major rightsholders and a similar number of big collecting societies.

"A 'big bang'-style introduction should not be pursued because of the risk of irreversible damage to cultural diversity in Europe," the report said. "Rather, competition should be introduced in a way which ensures a level playing field at the outset so that all CRMs have the opportunity to compete on an equal footing."

The report warned that the same principles applying to online music licensing would likely apply to the offline environment, like broadcasting. "The precedents set in relation to the online environment are thus a touchstone for the future evolution of the broader market for authors' rights," it said.

The report called for an alternative compromise solution to what is "a peculiarly European problem." It said, "Fair and controlled competition must be introduced in such a way that downward pressure on authors' income is avoided whilst enabling music users to obtain pan-European licenses which are in line with the new business models that represent the future."

The best guarantee, it said, is a system in which authors' revenues are determined by the rates of the country in which the consumer buys or downloads a particular piece of music. The tariff of the "country of destination" would lead to competition based on efficiency of the services offered by the CRMs rather than competition based on squeezing the royalties paid to rightsholders, the report said.