Online Music Retailing: Towards Borderless Business?

October 28, 2009

1. Introduction

There is a widespread view that the current music licensing system and absence of multi-repertoire licensing in Europe is wasteful.  On 20 October 2009, participants in the Online Roundtable on Music signed a Joint Statement[1] setting out the general principles for the future online distribution of music, and agreed to set up a working group in order to create a common framework for rights ownership information.  

The release of this Joint Statement is the latest development in a series of communications, statements and decisions in Europe which have highlighted the need for reform of the online retailing of music in the EU. 

EU Competition Commissioner Kroes expressed her satisfaction about the outcome of the Roundtable discussions.  She stated that:  “European consumers want and deserve better online music offerings.  Today’s agreement by the Roundtable on core principles represents real progress in this direction.  It is the first time that players from various parts of the market have agreed on a common roadmap.”[2]  

However, a question remains as to whether development will be fast enough.

2. Background

2.1 Music licensing in Europe – copyright and competition

Music authors’ rights in Europe are managed by collecting societies, which draw royalty payments when songs are played live and when they are broadcast, including on the Internet.  To date, collecting societies have managed authors’ rights at national level.  As online distribution grows in importance, calls for a more flexible approach have gained momentum.

The European Commission (the “Commission”) is generally concerned that a variety of barriers prevent EU consumers from having access to and benefiting from the availability of goods and services on the Internet and, more generally, the vast opportunities of the online world.  It is often difficult for online users to identify the entities they must license from (they need to license both mechanical and performance rights, and license each share in the relevant rights).  Concerns have been raised that this situation results in difficult and inefficient licensing, and unclaimed and lost revenues for right holders.  Partial repertoire means that broadcasters and operators may even be forced to operate in partial legality or limit music use.  To cover the full repertoire, they have to engage in more transactions, not fewer.  As a result, it is claimed that innovative products are being curtailed and consumers are being denied new products.

In 2005, the Commission noted the need for pan-European licensing for online services, and issued a Recommendation to further this goal, so that online music services providers would not need to go to multiple different performing rights organisations (and also to multiple, different mechanical rights societies).  However, the 2005 Recommendation did not solve the problem, and in 2008 the Commission’s decision in the CISAC case found that a number of provisions in the CISAC model agreement infringed the prohibition on restrictive agreements in Article 81 EC Treaty and again reinforced its desire for true pan-European licensing. 

2.2 Roundtable discussions

These concerns led the Commission to initiate Roundtable discussions on the topic in September 2008, involving consumer and industry representatives.  After a second Roundtable discussion in December 2008 specifically relating to online music distribution, the Commission published a report on Online Commerce in May 2009 (“Online Commerce Report”).  Following the publication of this report, further Roundtables specifically on online music took place.  At the latest roundtable the participants agreed to the Joint Statement discussed in this briefing.  The participants at the Roundtable were Amazon, BEUC, EMI, iTunes, Nokia, PRS for Music, SACEM, STIM and Universal.

2.3 Online music issues identified in the Online Commerce Report

The Roundtable participants raised the concern that, at present, the use of territorial restrictions for the protection of intellectual property rights means that EU consumers who want to purchase products protected by such IP rights online can do so only through online stores directed to their country of residence.  These restrictions not only prevent a true internal market for online services, but also limit business opportunities and harm consumers.  These issues were evidenced by the iTunes case, in which the Commission identified that the use of territorial restrictions in relation to iTunes stores led to price differences.  The Commission also expressed concerns about the impact of the operation of music licensing practices, although in the absence of a formal infringement decision in this case the Commission’s reasoning is not fully articulated.

The participants concluded that:

·         although there are numerous opportunities for the online music business, the national structures relating to copyright licensing do not operate well in the online world;

·         a multi-territory EEA-wide licensing system is needed;

·         a rights management system must be put in place; and

·         rights information should be made available and able to be shared.

3. Joint Statement

The Roundtable participants have signed a Joint Statement, which seeks to set out the general principles of an efficient future online distribution of music in the EU. 

At the forefront of the Joint Statement, the participants reiterate the concern that barriers to online music distribution hinder consumer access to legitimate sources of music.  The piracy that results from these barriers is identified as a corrosive factor that all stakeholders should seek to eradicate.  Furthermore, the participants agree that the fragmentation of IP rights prevents an efficient and transparent music licensing system.  As a consequence, it is maintained that an open, fair and transparent licensing process that secures appropriate levels of royalties to the rights holders ought to be established.  The development of such a process would enable the deployment of efficient, multi-territorial online music services.

In order to achieve these goals, the participants identified two solutions to be explored in more detail:

·         the development of efficient licensing platforms including several collective rights managers offering multi-territorial licenses for their repertoires – such platforms would manage and, where possible, license the online rights of all right holders willing to entrust them;

·         the potential for the creation of licensing platforms which would manage the substantial bodies of repertoire and deliver pan-European, multi repertoire licenses to commercial users – such platforms should be non-exclusive and mandatory.

Recognising the challenge of ensuring the efficiency, transparency and quality of service of collective rights managers, the participants acknowledge that innovative ways in which this could be ensured need to be explored.  The holders of IP rights must be able to either license their rights directly or choose their rights managers.

3.1 Working group on a comon framework for rights ownership information

The participants voice the need that a common framework for consolidating and maintaining accurate rights ownership information is needed as soon as possible with the goal of enabling the identification, management and administration of the relevant rights, as well as promoting certainty and eliminating the risk of double payments.  In order to create such a common framework, the participants will need to work on common formats, and commit to discuss the possibilities of improving interconnection and interoperability of existing databases.  In the same vein, participants will need to try and identify an open, transparent and non-discriminatory access system to the rights identification data.  Efforts will also be required to ensure that the data are constantly accurate.

Finally, the Joint Statement reflects that it will be essential to establish objective, transparent and non-discriminatory criteria for the selection of entities which will be entrusted to license online rights on a multi-territorial basis.  Examples of such criteria are the ability to secure an appropriate level of royalties for right holders, to efficiently manage and process all elements of a licence, to accurately identify the rights, to meet certain technical standards, etc.

With the will to join forces in order to achieve these goals, PRS for Music, SACEM, STIM, EMI and Universal Music signed a distinct joint statement[3] on setting up a working group focused on a common framework for rights ownership information.  The participants agreed that the working group would endorse and implement industry standards, while seeking to enable more open and transparent access to rights ownership information.  The participants also recognised the benefit of a short-term solution in order to facilitate the interconnection between existing rights ownership information systems.

4. Conclusion

The Joint Statement is very much in the spirit of the Commission’s previous statements on the subject of pan-European licensing, including its 2005 Recommendation and the CISAC 2008 decision which emphasise the importance of removing territorial barriers.  The Joint Statement is an important step in identifying the different interests in the online music industry and outside the framework of ongoing cases.  The common framework could favour the revival of national and less known artists since their music will now be easier to download and may become more affordable.  Given that this area is constantly evolving and subject to technological change, the issuance of consolidated guidance by the Commission itself and outside the facts of decided cases would be very useful to support ongoing industry initiatives.

All the authors are part of the Antitrust Group of Hogan & Hartson LLP: Winston Maxwell is a Partner at the Paris office. Suzanne Rab of Counsel and Daphne Monnoyeur are at the London office.


[1] The Joint Statement can be found at:

[2] The European Commission’s press release announcing the Joint Statement can be found at: