The copyright royalty is the wage of the music performer, composer and producer. Musicians earn their income after their recorded performances when it is played in a public performance or when it is mechanically copied. Like wages and services in a market economy, the remuneration for the use of their work should reflect some sort of market value. In the case of copyrighted music, this market value is a part of the added value in a service.
##CEEMID The following steps apply to collective rights management, which is most of rights management in the Central, Eastern and Southern European markets. In individual rights managements, some of these techniques can be useful, but further methods can be used, because they are usually not limited to the same extent by competition law restrictions.
CEEMID, the Central Eastern European Music Industry Database was set up after a memorandum was signed by several collective management entities and my former consulting company. Its main objective was to collect and organize data in a way that allows to calculate the economic value added of music and other relevant data for setting the price of music. CEEMID contains hundreds of indicators about music consumption, price, and related economic, sociocultural and consumption data.
The jurisprudence of the Court of the European Union has touched upon music collective royalties with increasing frequency in the last decade. I believe that currently the most applicable case law is Autortiesību un komunicēšanās konsultāciju aģentūra/Latvijas Autoru apvienība v Konkurences padome, or shortly, AKKA/LAA vs Konkurences padome. A notable precursor to this decision the one made in the Czech case between the Czech collective management organization OSA and hotels, OSA v Léčebné lázně Mariánské Lázně.
According the Court decision, significant differences between royalty prices on the European Single Market must be based on objective differences of economic, sociocultural factors and consumption habits. In the past 5 years, CEEMID has collected hundreds of economic, sociocultural consumption indicators to understand the differences of European markets in live music, recorded music, and in the important connecting markets of films, software games, restaurants, hotels, tv, radio and other big users of music.
Adding original valuation
An important problem with international comparison is that it will create a deadly vortex to the bottom if it is not applied in all territories, and no independent valuations are made. The international comparison is a benchmarking exercise at most, but it gives no direct valuation of music royalties. It is a very useful start, but it should be combined with true valuation.
The value of music, when used by business entities, such as radio stations, restaurants, or software game producers is based on the value in use, or the value added by combining music with some other service or product. A study commissioned by IFPI, the international record industry body, has enumerated several methods to value music in a study created by PWC.
Analysing ‘comparable’ market outcomes is a very powerful tool, because it uses information that is most trusted by auditors and courts: market prices. The CEEMID full market model, powered by CEEMID indicators and nationally representative special consumer surveys, is very advanced application of the comparable market outcomes model, and it can be used to measure the value gap, set the value of private copying, or price collectively managed or individually managed royalties.
Analysing the value music adds to businesses has an economic and a financial model. The financial model is not very useful in Central and Eastern Europe because of the lack of information, but the hedonic pricing economic model is a very powerful tool. We used it with CEE clients for setting restaurant and hotel tariffs.
Analysing the behaviour and preferences of consumers leads to various experimental models, such as test screenings / hearings. They are widely used in the radio, film, television industry, and generally they are a very good tool for individual royalties. However, we also used them successfully to establish royalty tariffs for restaurants and department stores.
Which model to choose? In my experience, the best is to use as many as possible, because data limitations, and limitations of competition authorities or regulators to understand the models may not be foreseen. A good international comparison following the guidelines of the CJEU and at least two independent valuations usually wins the argument.