Music royalties binding under new EU rules


BRUSSELS -- Royalty rebate commitments offered by music's publishing giants and top European collecting societies were made legally binding under European Union treaty rules, the European Commission said Wednesday.

The commitments concerned a 2002 agreement by the five music majors -- BMG, EMI, Sony, Universal and Warner -- and 13 European collecting societies. They ensure that record producers can continue to receive the rebates on royalties paid through a Central Licensing Agreement (CLA).

The CLA allows record companies access to copyright licenses for the combined repertoires of all the collecting societies in the EU plus three other European neighbors.

The EC said the rebates are currently the only form of price competition among collecting societies. It had initially been worried that the agreement between the producers and the collecting societies may have violated the EU treaty's ban on cartels and restrictive business practices.

However, the new commitments alleviate these concerns. The first ensures that collecting societies can continue to offer rebates to record companies, paid out of the administration fees that they retain from the royalties that they collect on behalf of their members. The second commitment was to remove a no-competition clause, which would have prevented collecting societies from ever entering either the music publishing or the record production market.

But the EC warned that as the agreement was binding, it was now subject to the usual EU commitments. This means that if any of the parties break it, the EC could impose a fine of up to 10% of their total turnover without having to prove any violation of the EU competition rules.

The CLA was agreed under the November 2002 Cannes Extension Agreement which sets terms for the calculation of the commission for royalties distributed -- and the rebates available under central licensing and other agreements.

This, in turn, updated the 1997 Cannes Agreement aimed at simplifying licensing procedures by progressively cutting the societies' commission on the distribution of mechanical royalties -- or the right involved in the production of physical carriers of sound recordings, such as CDs.