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European Court of Justice and Music Royalties
November 18, 2020

European Court of Justice and Music Royalties

The European Court of Justice (ECJ) gave its ruling on the question of performance royalties for US music artists from EU countries. You’ve probably heard about this decision a few weeks back, through mitigated reactions. Reprtoir’s headquarters being located in France, we regularly interact with the global music ecosystem in the country. But we also have a more global vision of the music industry since our users are now all around the world.

The ECJ’s decision influences a major part of the actors of the music industry in Europe dealing with music and performance royalties. We wanted to take the time to stop for a minute and understand the situation. Here is what happened (and what’s to come).

What is the issue with performance royalties in the EU?

How are royalties management working between the US and EU?

Let’s start with setting up the background. Right now, European countries are following the Rome Convention from 1961 and are distributing music royalties to artists when their tracks are being broadcasted. This is how music royalties work (very basically). But, they are not dealing with all countries the same way.

If we take a look at the US-EU relationship when it comes to music royalties, it gets complicated. Based on the law, the countries that are part of the European Economic Area (EEA) —that is to say, members of the EU, plus Iceland, Liechtenstein and Norway, have to pay royalties to artists, regardless of their countries. Although, since the US are not acknowledging the Rome Convention and not having the required control as part of the sound recording copyrights, they are not paying royalties to artists from Europe that are broadcasted on radio. So, European countries stopped paying royalties to US artists and labels.

This is what we call the concept of reciprocity: the European countries stopped paying royalties to the US, since money isn’t coming from their side. This has been going on a few decades now, and the amount originally dedicated to the US artists has been an important part of labels’ financing.

How did we come to talk about the music royalties?

Even if the Recorded Artists Actors Performers (RAAP) has been active (especially through the US neighboring rights company, SoundExchange) in trying to change the concept of reciprocity set up in Europe, the topic rose up this year, when the RAAP went after the Phonographic Performance Ireland (PPI) for these royalties, retained by the organism. So the two organizations got into a legal disagreement.

The case went up to the European Court of Justice, which oversees implementation of the law in all countries members of the EU. And on the 8th of September, the ECJ ruled in favor of the RAAP. Through this decision the Court is enforcing royalties payment to all artists, from all countries and takes the reciprocity concept out of the way for Ireland and the rest of concerned countries.

What did the European Court of Justice (ECJ) ruled?

The ECJ decision

Now, it is (of course) not as simple. The ECJ came to this decision by scrupulously following the law. Studying the situation and the text, it appears that the concept of reciprocity could be applied to performance royalties, but not on label royalties. This is based on a copyright treaty from 1996, from which the EU is part of.

But the ECJ decision made it clear that the reciprocity concept was not following the European law. Countries will have to adopt the “national treatment”, meaning that all artists should receive royalties, no matter the country. SoundExchange congratulated the ECJ on their decision through a press release. The company launched a campaign earlier this year to praise the national treatment. Note: right now, the UK is not considered part of the EEA on which the European law applies.

The implications for the music copyright managing companies

In very concrete terms, for European countries, it means a large reconsideration of how financing of several structures is made. Many rights management companies are going to be impacted. Taking France as an example, many labels rely on these undistributed funds to finance their activities. Several of them expressed their concerns for creation (article in French).

Organizations in charge of rights in France are appealing the decision through the Minister of Culture. For ADAMI (dealing with performers), this means around 35% off their budget, and for SPPF (in charge of neighboring rights), this would mean 65% off their culture budget. More than demanding royalty payments directed to the US, this is a full redesign of the system in place.

Ruling on music copyright

The ECJ incredibly wrong timing

Before talking about the implications and the next steps towards the application of this ruling, let’s take a moment to realize how bad the timing is. The current pandemic has been rough for the whole music industry, a loss estimated at $3.5 billion for publishers and songwriters in 2020.

Right now, the music industry is relying on streaming revenues, rights management is dealing with great losses from live shows while livestream is being studied to find all possibilities of salary (Sacem started paying artists for livestream).

What’s next for music royalties?

Now what? The European countries need to find an agreement on the European law’s interpretation for royalties paid internationally. The main concern is that there are many grey areas. The real challenge will be to work out an international common ground to establish a way to pay artists fairly, no matter their nationality or their label’s country.

Summing up the whole process, it is pretty clear that the European Court of Justice’s decision can’t stop there. Whether it is countries appealing or just re-establish an equal ground, we have opened a recurrent issue requiring substantive work.

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