Recommendations, communications, and directives, oh my: how the European Union isn't solving its licensing problem.

Author:Greeley, Kristen
 
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  1. INTRODUCTION II. COLLECTIVE MANAGEMENT ORGANIZATIONS A. The Purpose of Collective Management Organizations B. Policy Goals of an Ideal System of CMOs III. COLLECTIVE MANAGEMENT ORGANIZATIONS IN THE EUROPEAN UNION A. The Traditional Approach B. Recent Developments in the EU System IV. THE EU COMMISSION'S JULY 2012 DIRECTIVE A. The Licensing Options Considered and Rejected 1. The Parallel Direct Licensing Model 2. The Centralized Port Licensing Model B. Advantages and Disadvantages of the European Licensing Passport Model V. INFORMATION AGGREGATION DATABASES A. Emerging Databases 1. The Global Repertoire Database 2. Cis-net and the International Standard Name Identifier B. The International Music Registry VI. A SOLUTION A. Part I: The Modified European Licensing Passport Model B. Part II: The International Music Registry Plus VII. CONCLUSION I. INTRODUCTION

    It is no secret that the way consumers access their music has seen an enormous sea change in the last fifteen years. The "kids these days" are no longer hanging out in record stores or frequenting local clubs to discover their new favorite artists. Instead, they are hanging out online. The birth of illegal downloading sites, like Napster and Kazaa, transitioned many of today's music consumers into a generation that relies mainly on the Internet to discover music. The Internet has everything music-related that one could possibly need: whether it is a traditional music blog, like Pitchfork or Stereogum, or a marriage of social media and audio distribution platforms, like SoundCloud. Some of the most popular recent digital developments are licensed online music services, including everything from "satellite radio, digital subscription services, Internet radio, licensed video sites [to] digital download stores." (1) Some of the most successful services include Spotify, Pandora, and Rhapsody. Whether the reason for their popularity is consumer need for instant gratification, consumer reluctance regarding purchasing a song or album, or something else altogether, these services are proliferating quickly and enjoying success.

    While U.S. licensing practices have been conducive to the development of these services, (2) they are encountering serious obstacles in the European Union (EU). (3) Put simply, rights management practices in the EU were designed for distribution of the physical embodiments of a work on a territory-by-territory manner. (4) For music services that operate in a borderless online environment and look to provide the same innovative service to consumers in France as they do to consumers in Germany, this presents a problem. Online music services attempting to enter the European market have been forced to negotiate with up to 250 collection societies in order to obtain blanket licenses for the use of sufficiently broad repertoires of works. (5) As of July 2012, the Apple iTunes store was the only legitimate digital music service available in all twenty-seven EU member states. (6) While digital sales accounted for 49%

    of music industry revenue in the United States in 2010, digital sales only accounted for 19% of revenue in the EU. (7) Online music radios such as Pandora and Turntable.fm were required to block overseas access to their services as a result of the licensing practices in the EU. (8)

    This Note will examine the latest efforts in the EU to achieve a system of multi-territorial licensing and encourage the growth of the online services that are proving to be a vital component of the changing landscape of the music industry. Specifically, this Note will examine the multi-territorial licensing models suggested by the European Commission 2012 Directive and evaluate the one ultimately adopted. The Note will also examine the rights ownership databases being developed in response to the EU Commission 2010 Communication.

    Part I of this Note will introduce collective management organizations (CMOs) and their function in music licensing. It will also introduce four policy goals that an ideal system of European music licensing should address. Part II of this Note will provide an overview of the traditional operation of CMOs in the EU and explain the problems that have compelled recent developments: namely, territory and repertoire fragmentation. Part III of this Note will examine the multi-territorial licensing alternatives proposed in the most recent July 2012 Directive in light of their satisfaction of the four policy goals and evaluate the model ultimately recommended by the EU Commission. I will argue that the model adopted, the European Licensing Passport Model, effectively serves the goals of artist control and cultural preservation, but does not serve the goals of efficiency and repertoire aggregation. As a result, implementation of the European Licensing Passport Model alone will not solve the current licensing problem. Part IV of this Note will examine the various information aggregation databases developing in response to the EU Commission's suggestion in its 2010 Communication. I will argue that this necessary and essential function is best served by the database initiative known as the International Music Registry (IMR) because the developer, the World Intellectual Property Organization (WIPO), is best equipped as a neutral and experienced facilitator in the area of intellectual property fights.

    Part V of this Note will propose a solution for the creation of an ideal pan-European licensing system by incorporating the European Licens ing Passport Model and the International Music Registry into the most efficient solution for pan-European licensing. This Note will argue that the joint operation of CMOs, complying with a modified European Licensing Passport Model, and the IMR would resolve the new licensing model's problems with respect to collective management organization and repertoire aggregation. This solution adapts the European Licensing Passport Model by incorporating safe-harbors that exempt from the model's minimum requirements only those CMOs that truly preserve cultural integrity. By decreasing the number of CMOs exempt from the minimum requirements, this adaptation will otherwise allow for repertoire aggregation resulting from competition. The solution also authorizes the IMR database to track, collect, and distribute revenues generated from the use of works in online music services, in addition to serving its essential function as an information aggregator. By authorizing a database service to perform such functions, this model will improve the efficiency of CMOs by allowing them to focus on exploiting the works of their members to the fullest extent possible.

  2. COLLECTIVE MANAGEMENT ORGANIZATIONS

    CMOs hold the key to the successful operation of online music services in the EU. For an online music service to operate within the EU, current licensing practices require that user to "obtain a license from the local society in each country where their transmissions are accessible via the Internet...."(9) In order to legally operate across the entire EU, a user would need to negotiate twenty-seven separate licenses. Each license inherently requires time and money and only raises the barriers to entry for burgeoning music services. (10) According to the EU Commission, this licensing scheme is "one reason why Western Europe's 2004 online music market was 27.2[euro] million, while the United States' was 207[euro] million--almost eight times higher." (11) Nevertheless, CMOs serve an essential function for rights-holders and remain necessary.

    1. The Purpose of Collective Management Organizations

      CMOs were established in the EU as early as 1926 to act as agents for artists and composers in the exploitation of the rights afforded them by the copyright laws of their respective countries. (12) After an artist or composer authorizes a CMO to act as her agent, the CMO negotiates with potential users, such as radio stations, restaurants, bars, clubs, and arenas, to determine the terms and conditions of a license, which, once issued, authorizes use of the copyrighted work. (13) A CMO will simultaneously act as the agent for a large number of rights-holders, which allows the CMO to take advantage of economies of scale and issue blanket licenses authorizing the use of all or many of the works in its repertoire. (14) A CMO in turn receives usage data from these licensors and collects and distributes the royalties generated to its members corresponding to the use of her work. (15) CMOs are an efficient and necessary component of the exploitation of copyrighted musical works because they both relieve the burden on artists and composers to independently monitor all uses of their works and the burden on users to locate each right holder and separately negotiate for authorization to use each piece of work.

    2. Policy Goals of an Ideal System of CMOs

      The evolution of European CMOs and the licensing system for online music services has unearthed many problems and shows that a well-designed European licensing system must serve a multitude of policy concerns. This Note identifies four in particular that are most important: CMO efficiency, global repertoire aggregation, rights holder control, and preservation of cultural integrity.

      CMOs exist to serve the needs of individual creative rights holders. (16) The continued utility of these organizations, therefore, is a direct function of how well they serve their members in representing and exploiting their rights. (17) In order for each individual CMO to continue to attract and retain members, it must make its operations increasingly more efficient vis-a-vis other CMOs by providing the most accurate and timeliest tracking, reporting, collection, and distribution of royalties, among other things. (18) Efficient operation is particularly important in light of the recent changes in the music industry. (19) If a CMO cannot efficiently exploit its members' rights in an increasingly digital economy, it will...

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