IMPALA attended the CISAC hearing on 16 June 2006 and was given the opportunity to express the association's view on this case. You'll find Philippe Kern's presentation below.

IMPALA is a trade association representing more than 2500 independent music companies in Europe. Indies in Europe collectively represent 20% of the European and global sound recording market. IMPALA is making a stand for diversity of supply and consumers’ choice.

Mr hearing officer, ladies and gentlemen,

Two days ago, the authors and composers reminded us of what is at stake and what the theme of this hearing is: “economic efficiency and creativity fostering”.

They reminded us of the specifics of their work and the specificities of the cultural industries.

The music industry – but also the film and book industry - is structurally organised on a territorial level. The reason for this is not to partition the market or to comfort a monopolistic position – it is because the cultural/entertainment market is essentially local.
Collecting societies or right holders are not to blame for this fragmentation – it is the result of language, local market conditions (including different tax systems), culture and consumption habits and very importantly intellectual property legislation which is territorial by nature.

Impala sympathises with the problem of RTL and it is our duty as right holders to enable users to access a licence – in particular when it is a willing licensee. RTL wants a one stop shop and is ready to pay on the basis of country of destination – right holders should be able to accommodate this reasonable request.
However we would sympathise more with RTL’s situation if the service was truly European – but its affiliates are operating on a purely national level, reflecting the local dimension of the market.

In this respect IMPALA would like to assert that there is a limited internal market in relation to cultural goods and services – this is what distinguishes this case from an aviation or transportation case.

Whether we like it or not, for linguistic and cultural reasons, the market for rights trading is very fragmented in Europe. An internal market only exists for Hollywood films and Anglo- American music (pop; rock, rap, R and B). Local music and local films circulation only on a very limited basis within Europe – there is barely an internal market, hence EU support to promote the circulation of European films for instance with the Media programme.

This may be unfortunate for those trying hard to build a single market, but it is the reality. It is important that the different DGs within the European Commission take into account these specificities which make Europe what it is – so diverse.

In fact this is actually an obligation under the EC Treaty. Indeed art 151.4 of the EC treaty provides – the community shall take cultural aspects into account in its action under other provisions of the treaty in particular in order to respect and to promote the diversity of its culture.

Unless you take this into account the EC risks creating a two tier licensing structure
- one for international artists and multinational companies
- one for local artists and SMEs with the risk of undermining Europe’s ability to compete on the entertainment market and make broadcasters even more dependant on US imports.

This will not achieve economic efficiency and will not foster creativity in Europe.

Unfortunately the two tier licensing structure seems to be the logic pursued by the EC – with a common aim – call into question the territoriality of rights.

The SO ( paragraph 54) clearly states that the new distribution platforms and the international appeal of some artists legitimise the establishment of a new paradigm promoting the emergence of a new kind of collecting society that would compete to sign up international artists ( parag 83) . For authors having an international appeal the relevant geographic market deserves to be broader. The same logic underpins the DG Market approach.

This has the effect of questioning equity and solidarity, the pillar of collective management, and ultimately undermines its function. You will understand that SMEs have a problem with this proposition.

Your quest for efficiency risks serving only the most successful international artists or corporations, without making the acquisition of a licence easier for a user.

The successful local companies and the less successful and the smaller companies (whether publishers or record companies) are left behind. Is this right? Is it how DG Competition wants to champion a pluralistic world and address oligopolistic dominance in the media sector?

Remedying the territorial fragmentation of licensing cannot be done without considering the impact that such remedies may have on the production and distribution of local culture.

The latter will never benefit from the single market in the same way and to the same extent as traditional industries with standardized products, or global entertainment companies that are vertically integrated.

DG Market and DG Competition share the view that the territoriality issue needs to be tackled – generally considered as a bottleneck to Europe’s competitivity – however their definition of efficiency is not the same.

- For DG Competition efficiency means competition on management costs and the ability of any collecting society (independently of the repertoire it manages) to provide a blanket agreement for the entire repertoire on a multi-territory basis in relation to cable, satellite and internet services.

- For DG Market efficiency means fewer societies delivering pan European licences.

The concept of efficiency differs– leading to different solutions. However, remarkably none of the DGs have carried out an assessment of the cultural impact of the proposed solutions.

Strangely this efficiency drive relates to music only whilst collective licensing is a feature of many other cultural industries. CISAC is here, but at the same time there are also 65 collecting societies in Europe managing music rights for performers and producers, in the field of music only.
But the debate is also much wider than music. It relates to the management of literary or audiovisual rights – hence the importance of this debate, because rights territoriality is at the heart of IP protection which is the main incentive for creativity in Europe.

Yes, rights management is a formidable commercial battle (opposing different business interests hence this hearing) but it is also a question of policy issues as it touches:
- on the reward of creators (600 000 in Europe alone)
- the relationship between authors and music publishers
- the governance of collecting societies
- and the circulation of national music across Europe (cultural diversity – a principle so brilliantly promoted by the same European Commission in the context of the Unesco convention or during the GATS negotiations) – the Commission must be in a schizophrenic state by now, its communication policy is in disarray – on one side promote cultural diversity with third countries, on the other destroy it within the EU!!

What is efficiency for Impala members?

It wants a competition framework that provides:

- The ability to access the new market on non discriminatory terms – for SMEs collecting societies are the only mechanism to achieve this – contrary to the majors they cannot afford individual licensing. Their bargaining power is limited with large users. The trend of individual licensing encouraged by EC Competition in the context of the MTVE dispute has weakened the position of the SME’s and the independents in the rights trading market. Hence the need to create a collective licensing body to represent independents in these negotiations.

- The need to provide a one stop shop facility for users to access repertoire and enable them to launch new services – collective licensing enhances output of services;

- The ability to count on well run collecting societies – operating with low overheads, that are business minded with strong governance principles, able to negotiate with users whatever their size to establish a level playing field, and capable of combating unauthorized use. Collective licensing can help record companies monetize illegitimate use – it is a way to stop the scandalous proposition that the creative community should subsidize the roll out of the broadband network on the back of unlicensed music and film.

- the guarantee that a Danish or a Portuguese artist gets paid when their music is offered by I tune or MTVE online. This with a view to promote consumer choice – an aim of EU competition policy

Finally the IFPI/ simulcast is hailed as a breakthrough by DG Competition as it illustrates that it is not technically necessary to set territorial restrictions to grant international licences. However the user is in a position to shop around to contract with the most efficient collecting society. The efficiency is measured by the level of management fees.

Whilst indeed such licences remain marginal impala object to this arrangement on the ground that efficiency of a society cannot be measured by the level of its management fees.

This might be efficiency for the user (as its lower its tariff) but it represents inefficiency for the right holder as it punishes society that puts emphasis on control and monitoring.
Why would the cost of managing the service be more important than the cost of managing the rights?
Why should cost efficiency be the only measure of efficiency?

Ultimately this drives societies to provide poorer services and this acts as a disincentive to fight against unauthorised use, thus affecting the level playing field amongst users. Worse it encourages societies to drop the representation of less valuable repertoire because of the cost associated with managing the latter.

A policy that obliges collecting societies to compete on price for management services is comforting business models that marginalise independents.
A policy that calls into question solidarity amongst right holders marginalises independents and therefore restricts competition.

To conclude IMPALA and the public interest call for a European competition policy that supports pluralism and solidarity. Culture should not be confined to the periphery of European competition policy. The latter should not set a competitive environment that condemns the smaller players.

The smaller player in cultural/entertainment industries are the driving force of creativity in the same way as SMEs in the technology sector are the driving force of innovation.

It may be time for the European commission to work on a cultural block exemption.

Philippe Kern