Proposal for copyright reform: European Commission stands with creators and the cultural industries

Proposal for copyright reform: European Commission stands with creators and the cultural industries

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Omusicn 14 September 2016, the European Commission (EC) unleashed its proposal for a new Directive on copyright in the framework of the Digital Single Market strategy, announced by the Juncker Commission in May 2015.

KEA identifies four main novelties in the draft proposal:

  • a new intellectual property right to the benefit of news publishers;
  • measures to address the so-called ‘value gap’ between music usage on social networks and effective remuneration to artists;
  • contractual transparency in relation to digital usage and artists’ contracts;
  • and finally measures to encourage streamlining of licensing practices.

Copyright policy is cultural policy, and from a cultural policy perspective the no-nonsense approach of the European Commission should be welcomed. Copyright is no longer regarded as the culprit for bottlenecks in the Single Market; now, priority is given to improve its exercise to take into account the specifics of a market fragmented in diverse cultures and languages. Copyright is a fundamental tool that enables exchanges of cultural artefacts: it provides a mechanism to negotiate transaction terms with users, notably internet service providers, whose services depend to a large extent on the availability of attractive content such as music, video, literature, fashion or design.

The first major change introduced by the EC’s proposal is a new EU-wide ancillary right for news publishers lasting 20 years (Article 11). This right will allow news publishers to demand fees from aggregators such as Google News when they go beyond the “mere provision of physical facilities” and perform an “act of communication to the public”. The aim is thus to prevent online aggregators from copying portions of news articles and make money at the expense of the original publishers of such content.

Second, the most important innovation is arguably Article 13, which addresses the ‘value gap’ between the substantial revenues online services extract from protected content and the comparatively small revenue rightholders (authors, performers or producers) make from it. To put it simply: services like YouTube, with around 900 million users, generated 634 million dollars in 2015 for the benefit of the music industry (only 4% of the industry’s revenue that year). Conversely, subscription-based services such as Spotify, Deezer or Rhapsody-Napster, with merely 68 million estimated users, generated approximately 2 billion dollars in revenue.

Online services (or “information society service providers”, as they’re referred to in Article 13) are forced to “take measures to ensure the functioning of agreements concluded with rightholders for the use of their works […] or to prevent the availability on their services of works […] identified by rightholders through the cooperation with the service providers”. For this purpose, online services must deploy measures such as “effective content recognition technologies” and must provide rightholders with information on the recognition and use of their works. Ultimately, Member States “shall facilitate […] the cooperation between information society service providers and rightholders through stakeholder dialogues to define best practices […]”.

This provision marks a turning point for user-uploaded content sites (notably YouTube) and for the music and film industries. So far, the former rely on the hosting exception provided for in Article 14 of Directive 2000/31/EC, the E-Commerce Directive, claiming that they cannot be held responsible for copyright infringements stemming from content uploaded by the users. No doubt Article 14 exonerates hosting platforms as long as they are not aware of the illegal activity and to the extent that, upon notice, they act “expeditiously” to disable access to the unlawful content.

In this context, online service providers only feel compelled to reach ‘voluntary’ agreements with rightholders based on the use of their protected works, which results in payments way below the real value of the content. The fact that, per million plays, Spotify renders $5,210 and Deezer $7,540 to rightholders, while YouTube barely yields $1,750, is quite illustrative in this sense.

However, if Article 13 of the proposed Directive remains unaltered, user-uploaded content sites will not be able to adduce the hosting exception anymore. Although the EC does not go as far as holding them liable for the unlawful content posted by users, the proposal does impose on them the obligation to keep track of the shared content and guarantee that rightholders’ agreements are respected. Hence, the EC’s proposal represents a sort of halfway: it doesn’t declare hosting platforms liable for the infringements of others, but (clearly) doesn’t maintain the status quo either.

Article 13 reveals the success of the music industry lobby, notably the International Federation of the Phonographic Industry (IFPI), the Independent Music Companies Association (IMPALA) and organisations of artists such as GESAC. They all welcomed the EC’s proposal as “a good first step towards creating a better and fairer licensing environment in Europe”, confirming “user-uploaded content services such as YouTube, which are the largest source of on-demand music, should not be able to operate outside normal licensing rules”.

With regards to artists’ remuneration in the digital age, the proposed Directive imposes on Member States a transparency obligation to provide authors and performers with “timely, adequate and sufficient information on the exploitation of their works and performances from those to whom they have licensed or transferred their rights […]” (Article 14 of the draft proposal). Secondly, a contract-adjustment mechanism is foreseen, allowing authors and performers to request “additional, appropriate remuneration” from the party to whom they entered into a contract for the exploitation of the rights “when the remuneration originally agreed is disproportionately low compared to the subsequent relevant revenues […]” (Article 15). Lastly, Article 16 introduces a voluntary dispute-resolution mechanism that can be set up by Member States to solve the problems arising in relation to the first two issues.

On this point, the EC endorses the views of a study co-written by KEA for the European Parliaments’ Committee on Legal Affairs and published in 2014: Contractual arrangements applicable to creators: law and practice of selected Member States. The study underlines that “remuneration should be fair, which namely implies that it should not be solely based on the number of copies sold but based on the actual revenue generated by the exploitation”. Since contracts don’t usually include a corrective clause in response to dynamic and evolving commercial contexts, the study calls for the inclusion of a clause of revision (‘best-seller clause’). The adjustment mechanism envisaged in Article 15 of the EC’s proposal resembles this type of provision. Moreover, the study highlights the need to impose reporting obligations on the transferees of copyright, “detailing on a regular basis the exploitations undertaken and the revenues yielded by such exploitations”. Again, this conclusion echoes in the EC’s proposal, namely in Article 13 (use of protected content by online services) and Article 14 (transparency obligation for the benefit of authors and performers).

Finally, concerning the improvement of licensing practices, it is worth noting the negotiation mechanism outlined in Article 10 in the context of video-on-demand (VoD) services. Member States are compelled to facilitate the licensing of rights by providing the parties with the assistance of “an impartial body with relevant experience”.

Once again, the draft proposal is in line with the conclusions of a study commissioned by the EC and co-written by KEA in 2010, entitled Multi-territory licensing of audiovisual works in the European Union. The study highlights that territoriality and exclusivity do not per se prevent the licensing of works on an international basis. So rather than addressing contractual freedom, territoriality and exclusivity, the pillars of the copyright system, the emphasis should be put on easing the licensing process. Measures such as decreasing transaction costs for users through one-stop shop mechanisms and collective management (coupled with increased transparency in the calculation and allocation of royalties) should be encouraged. The EC’s proposal is in line with these recommendations.

Merlin, an EU-based digital rights licensing agency for the independent music label sector, provides a good example of how licensing practices can evolve to the benefit of small culture enterprises that want to make the most of digital services and benefit from international distribution. Set up in 2008, Merlin brings together more than 700 members representing approximately 20,000 labels and distributors across 47 countries. It holds the most commercially valuable ‘basket’ of rights outside those in hands of the three major music labels: Sony, Universal and Warner. The added value of this organisation lies in the fact that it acts as a one-stop shop for a large number of rights to online music services such as Spotify, YouTube, Google Play, Deezer and Beats Music, among others. Since new forms of consumption are based on access rather than ownership, thus increasing the use of streaming services, Merlin aims for its members to have effective access to these emerging revenue streams and fights for their rights to be appropriately valued in the digital realm.

All in all, KEA welcomes the EC’s appraisal of the existing value gap between those who create, own and invest in content and the tech giants’ free-riding. Moreover, KEA finds the easing of licensing practices and the objective of a more equitable remuneration scheme for authors and performers are important steps in the right direction.

The EC’s proposal is a powerful reminder that copyright is an essential tool in rewarding creativity and stimulating investment in content production and dissemination. Only if authors and producers are adequately remunerated will cultural diversity, one of Europe’s distinctive features, continue to flourish.

Jorge Herrera Santana and Philippe Kern

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