Consultation on extending rights in sound recordings and performances to foreign nationals

Currently, most producers of foreign recordings are granted public performance rights (PPR) under the CDPA. For foreign performers, the right to equitable remuneration, where arising from the broadcast or public playing of their recorded performances, is granted on a much more limited basis. Royalty revenues generated from licensing the PPR of foreign tracks are therefore more likely to flow exclusively to labels, rather than labels and performers.

To align with its obligations under international treaties, the UK Government wants to award PPR to foreign producers and performers more consistently. To achieve that, the IPO has set out three policy options. Of those, the one most likely to be pursued would expand the grant of PPR to foreign performers on a near-blanket basis. The impact on the UK music industry is likely to be minimal, as the changes would affect how PPL distributes royalties to foreign labels and performers. Maintaining the status quo is another scenario discussed by the Government, which would mean continued non-compliance with international treaties on copyright.

This article provides a brief summary of the rights under scrutiny and details of the proposed policies. Section references below are to sections of the CDPA.

What are the rights under review?

Under the CDPA the PPR granted to foreign producers of sound recordings and the performers on those are different.

Owners (i.e. producers and record labels) of sound recordings control the exclusive rights to exploit them. That includes the right to control the broadcast and other communication to the public of the sound recordings (section16(1)(d)).

Performers whose performances are embodied in a foreign sound recording also enjoy limited rights under the CDPA. They are entitled to equitable remuneration for the broadcast and public exploitation of sound recordings. That means that a fraction of the royalties generated from playing music on radio, for example, should be paid to the performers on those tracks. That right is only assignable to a collecting society or on the death of a performer (section 191G(2)). The right is also not exclusive, meaning that the performers cannot control the exploitation of the sound recordings.

The role of PPL

PPL^[2] is the collecting society in the UK that collects royalties generated by the broadcast and public playing of sound recordings and the performances embodied on those. Typically, labels and performers assign their relevant rights to PPL, which then licenses the rights to music users, such as broadcasters, venues and shops.

In 2022, PPL licensed 2,625 stations and channels and generated £194.8 million domestically from its licensing activities. The organisation reported an overall cost to income ratio of 13.3%.^[3]

How do foreign tracks or performances qualify for protection under CDPA?

Sound recordings

A sound recording will be protected under the CDPA if the record was first published in a qualifying country or the producer of the track is a national or resident in a qualifying country. Most commercially released music is first published in a qualifying country and so can be licensed in the UK for public broadcast and public playing.

Qualifying countries are ones that are signed up to the relevant international agreements, which include the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations (the Rome Convention) and the WIPO (World Intellectual Property Organisation) Performances and Phonograms Treaty (WPPT).

Importantly, there is no requirement of “material reciprocity” for sound recordings to qualify for PPR under the CDPA. That means that there is no requirement for the country of nationality of a producer to grant equivalent rights to British producers.

Performances

In the UK, the right to equitable remuneration is granted on a much more limited basis. The right is only available for performances embodied in sound recordings if the country of nationality of the performer (or the country where the performance took place) awards an equivalent right to UK performances.

Proposed changes

The UK Government proposes to close the eligibility gap between foreign recordings and performances to ensure better alignment with international treaties. The IPO is also considering how changes to copyright law could reduce music costs for broadcasters and increase revenues for the UK music industry. It has set out three potential policy options and provided an Impact Assessment (to which the various page numbers cited below refer).^[4]

Policy 1 – expand rights of equitable remuneration to foreign performers

Under policy 1, the Government would grant rights to producers and performers by applying the same eligibility criteria to each. Producers of and performers in any track (a) produced by a national of; or (b) first published in a Rome Convention or WPPT country would qualify for the rights.

More foreign performers would automatically be eligible for equitable remuneration. The IPO estimates that over a ten-year period this policy would cost US record labels £230.2 million in payments to performers (p. 13). There would be no benefits to UK users of music, as this policy would only affect how royalties are distributed. In practice, many US artists will have arrangements with their labels to receive a cut of public-performance revenues. Nevertheless, the IPO estimates that, if implemented in 2022, the policy would have generated an additional £16.1 million of UK public-performance revenues for US featured and non-featured artists, in addition to their assumed contractual entitlement (p. 25).

According to the IPO, the main affected party of policy 1 would be PPL, which would need to change its distribution practices.

Policy 2 – limit PPR to foreign producers and performers using the principle of material reciprocity

Under policy 2, the UK would only grant PPR to foreign producers and performers where the country of nationality of a producer provides PPR to UK nationals (as is not currently the case in the US).

Broadcasters and those who play US music publicly would not need to pay a licence fee to do so if the policy were implemented. For context, the IPO estimates that 40% of revenues generated from broadcast and public playing of music was from US music in 2022 (p. 24). The impact of this policy could therefore be massive.

If implemented, the IPO has estimated that licence prices would decrease by half as much as any repertoire decrease. So, if PPL saw a 40% decrease in its repertoire, it should expect a 20% decrease in revenues (p. 4). As such, UK rights-holders would enjoy a much larger proportion of a reduced pool of revenues, i.e. £269.9 million between 2024 and 2033 (p. 14). This assumption is based on there being no cross-elasticity of demand between UK and US music, i.e. “they are not substitutes, so demand for UK music is unresponsive to a fall in the relative price of US music” (p. 20).

The Government accepts that, if the policy were to cause users to substitute protected UK music for non-protected US music (which seems inevitable), then that would result in even more downward pressure on licence pricing in the UK and greater administrative costs to PPL.

For music users, policy 2 would generate savings for UK broadcasters of £232.7 million over a ten-year period and £263.5 million for those that play music in public (p. 14). Those gains would mostly be at the expense of US labels, which are predicted to lose £820.1 million over a ten-year period (p. 14).

The Government predicts other knock-on effects of this policy that have not been financially modelled. Those include a reduction in popularity in UK music among listeners, damaged investor confidence in the music industry, extensive re-negotiation costs for PPL and reduced investment by US labels into UK and US artists, causing a decline in the quality and quantity of music available.

Policy 3 – expand PPR to existing foreign music and limit PPR granted to new foreign music

Policy 3 would apply policy 1 to all existing sound recordings. Policy 2 would then apply to recordings and performances made after any changes come into force.

The gains and losses for music users and US labels are forecast to be more modest than policy 2 over a ten-year period. US labels could expect losses of £514.5 million (p. 15). Of this figure, US labels would lose £119.3 million under their new statutory requirement to share UK PPR revenues over ten years. The remaining £395.3 million would be lost due to a reduction in licensing revenue.

For broadcasters and those who play music publicly, the savings are forecast at £112.2 million and £127 million respectively (p. 15). Under the policy the IPO predicts UK labels and artists would enjoy a share of an additional £130.1 million of licensing revenues (p. 15). The Government is careful to caveat that there are large uncertainties in the gains predicted for the UK music industry under this policy. The IPO concedes that rather than gains UK record labels and artists could face “significant costs” under this option (p.5).

As with policy 2, licence renegotiations between PPL and music users are likely to drive an increase in the proportion of licensing revenue retained by PPL. The IPO predicts that the same indirect (and as yet unmodelled) impacts would occur under policy 3, although their magnitude would be more limited.

Comment

All three policies would meet the Government’s ambition of treating the rights of producers and performers more consistently.

At this stage, stakeholders in the music industry will probably be relieved by the Government’s view that the less risky policy 1 “might be preferable” (p. 17). The unmodelled risks of policy 2 pose too significant a threat to be worthy of implementing. Besides, although the IPO considers the risks of policy 3 as “likely to be manageable” (p. 16), the creation of a two-track rights system seems at odds with the principle of consistency driving the consultation.

We look forward to seeing what approach the Government will take following feedback from the consultation process.

Article written for Entertainment Law Review.