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Navigating The Fragmented Online Music Licensing Landscape In Europe A Legislative Compass In Sight?

  1. Lucius Klobučník

Abstract

Online exploitation of musical works allows consumers in the European Union (EU) to enjoy tens of millions of musical works from a place and at a time of their choice. While the Title III of the EU Collective Rights Management (CRM) Directive contributed to re-shaping the EU multi-territorial online music licensing market, it did not adequately facilitate licensing for online use of musical works on a multi-territorial level in the EU. This article seeks to answer the question as to which legislative measures should be introduced to facilitate licensing practices and to lower transaction costs in order to enable market entry of new online music services in Europe. In order to answer this question, this article analyses relevant provisions of the Title III of the CRM Directive and problematic aspects of their application to different licensors. Furthermore, legislative and soft law documents on the EU level as well as cooperation initiatives among CMOs are evaluated in order to assess whether past initiatives can be considered by the EU legislator. Finding answers to these questions seems relevant in the light of possible re-evaluation of multi-territorial licensing practices on the legislative level in April 2021, as foreseen by the CRM Directive.

Keywords

1. Introduction*

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Part 2 seeks to analyse the legislative and market-driven initiatives to facilitate online music licensing in the EU. It concludes that territorial rights fragmentation merely turned into repertoire-based fragmentation and did not sufficiently facilitate licensing process for online music services. Part 3 provides an overview of online music licensing entities in the EU and their licensing practices in order to identify regulatory gaps and to illustrate licensing complexities online music services face. Part 4 points out that several benefits of offline licensing for users were lost in the online licensing market. It criticises the CRM Directive for not providing sufficient measures for balancing stakeholder interests with regard to online licensing. Finally, the ‘Conclusion’ part provides recommendations for the EU legislator to facilitate the licensing process and to mitigate the impact of repertoire fragmentation on online music services. These measures should ultimately lead to the emergence of new online music services in the EU and thus a greater variety and more choice for European music consumers.

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The focus of the article is limited to the EU and to the market of online music licensing of musical works. Neither EU Member States’ national online music licensing practices nor multi-territorial licensing of other than musical works is addressed.

 

 

2. Transformed Online Music Licening Market

 

2.1. New services demanding new licensing schemes

 

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Technological developments coupled with changed consumer behaviour have sparked the need for new services providing online access to musical works. The end of the 20th and the first years of the 21st century have witnessed the rise of online sharing of musical works in the form of digital downloads. However, due to increased consumer demand and technological advances (particularly the availability of high-speed Internet), these services were in a few years succeeded by streaming services offering tens of millions of musical works [1] and operating on an EU-wide or worldwide level. These services have brought considerable benefits to consumers, who are able to enjoy tens of millions of musical works from a place and at a time of their choice. The existing music licensing schemes, applicable to offline exploitation of musical works and based on territorial limitations, proved unfit for these services which would have to obtain a licence in every single EU Member State in order to operate in Europe. These services started demanding a reform of the music licensing market, which would not be based on territorial restrictions and which would facilitate the licensing process and market access.

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Although exploitation of musical works occurs in a borderless market, licensing has for a long time been confined to national borders. Efforts to reform the licensing process for multi-territorial use of musical works in the EU stemmed from both legislative and market-driven initiatives. However, online music services (particularly streaming services) offering access to musical works Europe-wide, still face a burdensome licensing process due to a fragmented online music licensing market (involving a necessity to obtain a licence from several licensors) connected with high transaction costs. These factors ultimately prevent new online music services from entering the market and from offering greater versatility of music services to consumers. Based on a study conducted before the CRM Directive entered into force [2], it can be inferred that transaction costs of music licensing are sufficiently high as to deter start-up online music services to enter the market. [3] It is noteworthy that five of the largest companies in the subscription-based online music services market (Spotify, Apple Music, Amazon, Tencent and YouTube) hold nearly 85% of the worldwide market share. [4] All these services can be considered as “all-in” or “over-the-top” mainstream providers, each offering roughly the same large catalogues and feature sets. Niche services, offering access to limited genres of works, are virtually non-existent [5]. This might be due to consumers’ attitude – unlike with audio-visual content subscriptions, when it comes to music, most subscribers opt for just one service. However, another reason for a lack of niche online music services is that rights clearance and maintenance costs for such a service are disproportionately high for their income. [6] The CRM Directive aimed at facilitating the EU-wide licensing process for online music services and at reducing the number of licences a user needs to operate a multi-territory multi-repertoire service. [7] The CRM Directive leaves these tasks to the market, by giving preference to voluntary repertoire aggregation. The Impact Assessment, preceding the CRM Directive, implies that multi-territorial online music licensing solutions should be driven by market forces and build on the current level of market aggregation and market trends. [8] The CRM Directive further assumes that “[voluntary] aggregation of repertoires should facilitate the development of new online services and should result in a reduction of transaction costs being passed on to consumers”. [9] However, the CRM Directive does not reflect on online music services’ preferences. Neither do market developments sufficiently respond to their needs – they lead to the creation of new licensing entities, thus questioning the CRM Directive’s goal of reducing the number of licences and lowering transaction costs. The upcoming review of the CRM Directive in Spring 2021 provides an opportunity to balance the interest of stakeholders in the multi-territorial online music licensing market.

 

 

2.2. From territorial to repertoire-based fragmentation

 

2.2.1. Soft-law measures to prevent territorial fragmentation and improve online licensing

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Responses to these demands have comprised a form of top-down as well as bottom-up initiatives. When it comes to the former, the European Commission initially adopted a soft-law approach. Already in 1995, when online music services were still in inception, the EU Commission’s Green Paper (referring to a Green Paper from 1988 [10]) recognized that new technologies have entailed the de facto abolition of national frontiers and make territorial application of copyright law obsolete [11]. After the turn of the century, the EU Commission and the EU Parliament have published several soft law documents (recommendations, studies) emphasising the necessity to reform the collective rights management framework (especially regarding transparency of collective management organisations – CMOs) and issuance of multi-territorial licences [12]. These initiatives aimed at reforming licensing practices rather than substantive copyright law. The most impactful and the most controversial soft law document was the so-called Online Music Recommendation 2005 [13] (Recommendation 2005), which emphasised the right of rightholders to withdraw their online rights [14] from CMOs and entrust a CMO in other EU Member States with administration and licensing of online rights, while at the same time being able to determine the territorial scope of licences. Despite its non-binding nature, the Recommendation 2005 led to sweeping changes in the online music licensing market, since major Anglo-American publishers withdrew their mechanical online rights from the system of reciprocal representation agreements (RRAs) and resorted to direct licensing or entrusted their online rights to other licensing entities. The Recommendation 2005 changed the traditional structure of international rights management forever. Prior to that, major Anglo-American publishers operated through a network of sub-publishers, who were members of national CMOs in Europe. However, the Recommendation 2005 effectively removed the need for a sub-publisher network, allowing major publishers to become direct members of any CMO in Europe and authorise that CMO to provide multi-territorial licences for their repertoire. It should be noted that the right to withdraw rights from CMOs had existed prior to the Recommendation 2005 in several EU Member States and had been confirmed by the European Commission Daft Punk case, where rightholders demanded withdrawal of online rights while keeping other (offline) rights under the CMO’s control [15]. The Recommendation 2005 thus only confirmed the existing legal status quo regarding rights’ withdrawals. However, it also led to the establishment of new licensing entities different from CMOs [16]. The European Parliament heavily criticised the Recommendation 2005 in its Report [17]. Although it did not dispute the right to withdraw online rights, it criticised the EU Commission for not consulting the EU Parliament and called for a legislative action which would inter alia harmonise rules governing activities of CMOs in the EU.

 

2.2.2. (Unintended) proliferation of individual licensing

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The Recommendation 2005 had an objective to facilitate online music licensing. It has, however, made it even more complex by introducing an extra layer of intermediaries. [18] Recommendation 2005 resulted in the establishment of new licensing entities, through which rightholders license and administer their rights individually. It can be questioned whether the Recommendation 2005’s goal was to promote individual licensing and to weaken collective licensing. The Recommendation 2005 contains only a brief reference to individual rights management, when it states that online rights may be managed by collective rights managers or by individual rightholders themselves [19]. Although the Recommendation 2005 aims at abolishing reciprocal representation agreements in online music licensing, it still seems to prefer collective licensing over individual licensing. This is clear particularly from Article 5 of the Recommendation 2005 which provides that “rightholders should be able to determine the online rights to be entrusted for collective management…to determine the territorial scope of the mandate of collective managers” and “to withdraw any of the online rights and transfer the multi-territorial management of those rights to another collective rights manager” [20]. The same can be observed in the stakeholder consultation, conducted shortly before the publication of the Recommendation 2005. [21] The consultation concluded that the so-called ‘option 3’ offers the most effective long-term model for cross-border licensing of copyright-protected content in the online environment. Option-3 was to ‘give rightholders the choice to authorise one single CMO to license and monitor all the different uses made of their works across the entire EU’. The EU Commission also assumed that rightholders would conclude agreements directly with a CMO of their choice and transfer the mandate to license and administer their rights to a single rights’ manager of their choice. [22] The Recommendation 2005 envisaged multi-territorial licensing by a single CMO rather than by an individual licensor [23]. As was confirmed 10 years after the Recommendation 2005’s publication, major Anglo-American music publishers (referred to also as ‘option-3-publishers’) withdrew mechanical rights related to their repertoire from CMOs and license these rights directly to users. They only rely on CMOs for administrative services. [24] Proliferation of individual licensing might have been an unintended consequence of the Recommendation 2005.

 

 

 

2.2.3. Licensing passport as a facilitation of online music licensing in the CRM Directive

 

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Title III the CRM Directive drew up a specific legal regime applicable only to multi-territorial licensing of online rights in musical works [25]. It determined that not every national CMO will be able to issue multi-territorial licences for the use of musical works, only those complying with several conditions set out in Title III – those having the ability to accurately identify musical works; to identify rightholders and rights to (shares of) musical works with respect to relevant territories; to use unique identifiers and to resolve inconsistencies in data [26]. This set of conditions is referred to as the ‘European licensing passport’, although the notion of ‘passport’ only appears in documents leading to the adoption of the CRM Directive, including the Proposal for the CRM Directive [27]; it is not present in the Directive itself. The CRM Directive foresees that not every single European CMO will be able to meet these criteria and introduces the so-called “tag-on regime” under which CMOs which do not grant or offer to grant multi-territorial licences for the online rights in musical works in its own repertoire can request another European CMO to represent these rights. The requested CMO is under a “must carry” obligation, i.e. it cannot refuse such a request, however, only if it is granting multi-territorial licences for the same category of rights for another CMO. It is clarified in Recital 46 of the CRM Directive that this representation agreement does not extend to CMOs that provide multi-territorial licences only for their own repertoire. All CMOs could theoretically comply with the provisions of Title III, just by offering their own repertoire on a multi-territorial basis.

 

2.2.4. CMO-driven efforts to prevent territorial fragmentation

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Attempts to reform online music licensing in order to provide multi-territorial licences came also from CMOs. CMOs drafted 2 agreements which would establish a so-called “one-stop shop” for online music services seeking one licence covering multiple territories (multi-territorial multi-repertoire licence). The first agreement, Santiago Agreement, concerns the right to license making available rights (public performance rights) in musical works. The second agreement, BIEM agreement concerns reproduction rights (mechanical rights) [28]. Both the Santiago and BIEM Agreements contained a clause providing that CMO with authority to grant a multi – territorial multi – repertoire licence is the CMO of the country where the service provider (user) has its actual and economic location [29] or where the user is incorporated or uses the URL (uniform resource locator) of that country [30]. Although this “economic residence” (or “customer – allocation”) clause was received very well by European CMOs [31], the EU Commission’s view was not favourable. The Commission argued that the economic residency clause restricts competition pursuant to article 101 (1) c) TFEU since each national CMO is given absolute exclusivity to grant a multi – territorial multi – repertoire licence in its territory [32] to users based in its territory Although the parties to the Santiago and BIEM Agreements were invited by the European Commission to exclude the economic residence clause, they were not willing to do so. Thus, neither of the agreements ever materialised. It has to be noted that a similar agreement – IFPI Simulcasting Agreement - was entered into among CMO members of the IFPI [33] with regard to record producers’ rights (neighbouring rights). While this agreement had originally also included an economic residency clause [34], it was removed after the EU Commission’s request. However, despite the IFPI Simulcasting Agreement receiving exemption from the EU Commission and entering into force in 2003, the participating CMOs did not extend its duration beyond the 31st December 2004. It can be speculated that CMOs did not wish to provide multi-territorial licences under the “reviewed” conditions by the EU Commission. The EU Commission did not oppose solutions aimed at improving licensing [35] per se but only particular provisions in these agreements.

 

 

2.3. Impact of the reformed licensing landscape on online music services

 

2.3.1. Voluntary aggregation of repertoire and a broad withdrawal right of the CRM Directive

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In light of the withdrawn online mechanical rights to the Anglo-American repertoire of major publishers, the European legislator had to make a choice between introducing mandatory or voluntary re-aggregation of rights. A distinction must be made between the re-aggregation of mechanical rights that have been withdrawn from collective management after the Recommendation 2005 and aggregation of repertoire of different CMOs. The CRM Directive does not focus on compulsory repertoire aggregation but sets incentives for voluntary aggregation by way of the abovementioned European licensing passport model. The Commission considered that the passport model would encourage the aggregation of repertoire for online use of musical works at the EU level as well as licensing of rights through effective and responsive multi-territory infrastructure. In the EU Commission’s view, the passport model would build upon the current level of aggregation and market trends [36]. Although the CRM Directive seems to seek the aggregation of repertoire from different CMOs in passport entities, the Commission seemed to have anticipated that the re-aggregation of the withdrawn mechanical rights would be an indirect consequence of better regulation on governance and transparency of CMOs. [37] The EU Commission seemed to believe that higher standards for passport entities might actually motivate major music publishers to bring back their mechanical rights to collective management. [38] The practice for granting mono-repertoire licences for multi-territorial use of music online is beneficial for publishers that can now set the prices for the licences by themselves and seem to be able to extract more value from their rights than under collective management. [39]

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One of the main CRM Directive’s measures to encourage aggregation of repertoire is by a broad withdrawal right of rightholders. Art. 5 (2) of the CRM Directive gives rightholders the right to authorise a CMO of their choice to manage the rights, categories of rights or types of works or other subject matter of their choice, for the territories of their choice, irrespective of the Member State of nationality, residence or establishment of either the CMO or the right holder. [40] This article reflects the principles from the Recommendation 2005 and makes them binding. However, the withdrawal right in the CRM Directive is even broader, because it does not only apply to online rights necessary to operate legitimate online music services but to rights and rightholders in the broadest sense. [41] Art. 5 (6) provides that rigthholders should not be restricted to entrust withdrawn rights to another CMO. [42] Another initiative in support of voluntary aggregation is reflected in Article 31 of the CRM Directive. Rightholders can withdraw their online rights in musical works from a CMO, if this CMO does not itself offer multi-territorial licences or does not use the tag-on regime. Subsequently, rightholders can grant multi-territorial licences for their online rights in musical works themselves or through any other party or CMO complying with the Title III. [43] According to the withdrawal right in Article 5, rightholders would in any case have a right to authorise a CMO of their choice. Article 31 refers to a specific situation in which a rightholder is able to withdraw relevant online rights for the purpose of multi-territorial licensing, while keeping the same rights for mono-territorial licensing in the CMO. However, this seems to be confirmed in Art. 5 and in the Daft Punk case. [44] Perhaps the only novelty of Art. 31 is that it expressly refers to the possibility of individual rights’ management - Art. 5 of the CRM Directive and the Recommendation 2005 only include an implicit reference to individual rights’ management. [45] It is noteworthy though, that Recital 19 (2) of the CRM Directive does provide for individual management. Only when a Member State provides for mandatory collective management, rightholder’s choice would be limited to other CMOs. [46] This provision might be important in countries with mandatory collective management for online music rights. [47] Another reading of Art. 31 could be that rightholders have a right to withdraw online rights or categories of online rights for multi-territorial licensing, even if such an online right is neither determined in a Member State’s law nor recognised in a CMO’s internal regulations.

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Individual rights’ management might be beneficial for rightholders but might become more burdensome for users. From a user perspective, a fully individualised management is most likely to create prohibitive transaction costs. [48] The more rightholders withdraw their rights from CMOs and opt for individual licensing, the more licences online music services will have to clear.

 

 

2.3.2. Lowering the Number of Licensors?

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It has been reported that the current European market for online music services lacks versatility [49] and services present in the market struggle to be profitable [50]. The CRM Directive pursues the goal of repertoire aggregation for the purpose of pan-European licensing by reducing the number of CMOs that online music services have to contact in order to clear authors’ rights from 27 (equal to the number of Member States) to perhaps between three and ten [51]. However, in addition to CMOs, online music services will have to clear authors’ rights for the Anglo-American repertoire of major publishers. Legislative and CMO-driven initiatives provided only very partial answers to problems of online music services seeking EU-wide rights clearance. Although the CRM Directive [52] as well as the Impact Assessment [53] aim to ‘substantially lower’ the number of licences for multi-territorial online music services and simplify the licensing process, this goal has not been achieved. Developments in the licensing market show contrary results – the number of licences required has not been lowered and online music services are faced with a higher legal uncertainty [54]. The current developments run counter to the regulatory goal of a reasonable number of licensors. [55] Major publishers have not brought their mechanical rights back to collective management and it seems unlikely that it will happen as a result of the CRM Directive. [56]

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The recent legislative and CMO-driven changes in the European online music licensing market turned territorial fragmentation into repertoire-based fragmentation. The former legislative changes were prevalently rightholder-oriented and omitted interests of online music services. The most attractive features of collective management from the users’ point of view – blanket licences and tariffs – providing legal security to users regarding the cost of the use of works belonging to the repertoire, were not addressed by the CRM Directive [57].

 

 

 

3. Various Groups Of Licensing Entities

 

3.1. Classification of new online licensing models

 

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The abovementioned changes in the music licensing market led to the clear separation of a multi-territorial online music licensing market from other music licensing markets, such as licensing for offline use or mono-territorial licensing for online use. These changes also caused a rise in the number of licensing entities in this market. Online music services have to interact not only with national CMOs (those complying with the passport conditions of the CRM Directive), but also with other licensing entities. Online licensing entities can be classified based on who takes the leading role – whether national CMOs or publishers [58]. After the CRM Directive adoption, a third category – independent management entities – can be added to the equation. Online licensing entities can also be grouped together based on other criteria, such as the level of institutionalisation [59] and whether they issue or merely facilitate licences. For clarity reasons, this article refers to the first division.

 

3.2. Licensing hubs run by CMOs

 

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Licensing hubs resulted from cooperation between national CMOs. Although such cooperation was foreseen by the CRM Directive, the history of these hubs predates the CRM Directive and results from the market development. Provision and subsequent administration of multi-territorial licences are connected to substantial technological challenges. Online exploitation of musical works, particularly by way of streaming generates vast amounts of music metadata, which must be received, administered and connected to information on rightholders by CMOs. Even the largest and best equipped CMOs face difficulties in coping with this challenge [60]. The CRM Directive applies to CMO hubs if they are owned and controlled by CMOs and carry out an activity of a CMO [61]. Currently, there are several CMO hubs in Europe. This article focuses on the two largest ones – International Copyright Enterprise (ICE) and Armonia Online. Although both of these initiatives have a common goal – to provide a one-stop-shop for online music services – they also exhibit significant differences.

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International Copyright Enterprise (ICE) is a joint venture of three European CMOs – British PRS for Music, Swedish STIM and German GEMA. The roots of ICE can be traced back to 2008, when PRS and STIM created a common database of rights. GEMA joined the initiative in 2012, and in 2015 ICE started offering multi-territorial licences for the repertoire of the three CMOs. [62] Before ICE started offering its services, it had to notify the merger to the European Commission, since a threat existed that ICE would hold a monopoly to offer multi-territorial licences. The merger was however declared compatible with the internal market [63]. Offering front, middle and back office services, ICE consists of two separate limited liability companies, ZETA and DELTA. Back office administers a database of copyright protected works. The task of middle office is mainly to issue invoices and resolve invoice claim disputes. Front office deals with the negotiation and the conclusion of licensing deals as well as monitoring online usage and detecting unauthorised use. Front office issues the so-called “Zeta Core Licence”, which is a multi-territorial transactional licence [64] present only in the online rights’ market [65]. Online music services purchasing the Zeta Core Licence will automatically have access to the entire repertoire within the Zeta Core Licence and will not be able to licence only parts of the repertoire covered by it [66]. When it comes to licence negotiations, two scenarios are possible. In the first one, a third party (typically a CMO from outside ICE) agrees to its repertoire being licenced by ICE as part of the Zeta Core Licence. In the second one, ICE only provides support in negotiation of a licensing deal with an online music service and the third party CMO licenses its repertoire separately from the Zeta Core Licence [67]. In the case of the latter, online music services will have to enter into separate licences with different licensors but can benefit from the fact that a licence is negotiated in one place. ICE disposes of its own negotiation team, which is separate from CMOs forming ICE.

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Armonia Online is currently an alliance of 9 national CMOs [68], a single point of contact representing 13 million musical works [69]. Although Armonia offers technology as well as a licensing structure to other CMOs [70] (and other licensing entities) it is different from ICE in several aspects. Firstly, while ICE consists of 2 limited liability companies, Armonia is not a separate legal entity. Secondly, ICE provides one unique licence, ZETA Core Licence to DSPs, which means that ICE licenses all mechanical and performing rights of GEMA, PRSfM, STIM and publishers which are members of ICE under one licence in its own name. Armonia has not developed its own licence and although it provides for a “single agreement” [71], this does not necessarily mean that online music services enter only into one licensing agreement. As opposed to ICE, Armonia does not have its own negotiation team and licence negotiations are typically taken up by one of the CMOs forming Armonia (in most cases SACEM). Unlike ICE, which has a mandate for licensing, Armonia serves as a licence facilitator and can be viewed as a “single contact point”, rather than a one-stop-shop.

 

3.3. Independent management entities

 

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Independent management entities (IMEs) are new licensing entities introduced by the CRM Directive [72]. Recital 15 of the CRM Directive emphasises that rightholders should be free to entrust the management of their rights to IMEs. The main difference compared to CMOs is that IMEs are not owned or controlled by rightholders (their members) and are organised on a for profit basis. IMEs are subject to information duties and excluded from several provisions of the CRM Directive. Other regulatory questions, such as registration, oversight and transparency are left to Member States [73]. IMEs can potentially offer easy access, higher tariffs and quick royalty distribution to rightholders. On the other hand, rightholders will not be able to take part in IMEs’ decision-making. So far, IMEs have not been proliferating in the online music licensing market. One of the biggest European IMEs, Soundreef, is registered in Italy, the United Kingdom, Spain and Czechia [74] and represents 39000 rightholders [75]. One of the reasons for such a scarce presence of IMEs in Europe might be connected to the legal hurdles that IMEs have to overcome. The Italian CMO SIAE was preventing its members from withdrawing rights and mandating Soundreef with rights administration. Subsequently, the Italian competition authority ruled in favour of Soundreef and labelled SIAE’s behaviour as anti-competitive [76]. Other obstacles for IMEs might include difficulties with withdrawals of rights in different EU Member States (since disputes on withdrawals are brought before courts of the state of CMO’s seat) and unclarities concerning membership in international CMO groupings.

 

3.4. Mono-repertoire multi - territorial licensors

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Mono-repertoire multi- territorial licensors were created as a reaction to Recommendation 2005 when major publishers of Anglo-American repertoires (Sony/EMI, Warner/Chappel, Universal Music Publishing and BMG) decided to withdraw online mechanical rights from national CMOs in Europe. These publishers, also referred to as “option-3-publishers” [77], set up their own licensing entities, connected to varying extent to national CMOs. These entities license mono-repertoire on multi-territorial basis.

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The legal position and functioning of these entities raises several questions. Can these entities be considered CMOs and be subject to similar rules? This question was dealt with in Germany with regard to one of these entities, SOLAR, which is registered as a limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) and owned by German and British CMOs GEMA and PRS for Music [78]. According to German law, this entity can be considered a “dependent management entity” and should thus be subject to the same rules as CMOs (although it is not clear whether this applies to all rules). However, this interpretation is limited only to Germany and only to licensing entities having an ownership link with CMOs. The CRM Directive has entirely repealed Article 31 of the of the CRM Directive Proposal, under the heading “Multi-territorial licensing by subsidiaries of collecting societies”, which expressly held that the provisions contained in Title III (regarding multi-territorial licensing) applied to “entities owned, in whole or in part, by a collecting society and which offer or grant multi-territorial licences for online rights in musical works.” [79] In favour of these entities being outside of the CRM Directive’s application also speaks the fact that these entities represent only one rightholder. The CRM Directive clearly states that the CMO must represent more than one rightholder and that publishers cannot be considered CMOs [80]. They would thus not satisfy the condition of representing more than one rightholder to qualify as either a CMO or an IME. [81] The CRM Directive would apply to option-3 licensing entities, provided they are owned or controlled by a CMO and carry out an activity which, if carried out by a CMO, would be subject to the provisions of the CRM Directive. [82] These licensing entities (at least some of them) appear to be owned or controlled by CMOs and they seem to perform some of the central activities of CMOs. However, they perform only licensing activities and rely on CMOs for administrative services. [83] They do not offer the full bundle of services as CMOs do. [84] This at the same time means, that licensing and administration of the same rights is done by two different entities, which might compromise the CMO’s ability to manage rights effectively. [85] It is odd that neither the CRM Directive nor preparatory documents mention option-3 licensing entities. [86] Calls from academia [87] as well as different stakeholders [88] to clarify in the CRM Directive whether option-3 licensing entities are subject to definition of CMOs fell on deaf ears. The EU Commission clearly did not envisage having every possible licensing entity fall under the CRM Directive. Instead, it assumed that the passport entities would be competing against other licensing entities, which fall outside the CRM Directive’s application, for attracting repertoire with the passport entities. [89] This would, however, only be true if option-3 licensing entities would fall under the scope of the CRM Directive. Otherwise, rightholders would have no guarantee that option-3 licensing entities accept their rights for licensing and management. The legal status of these entities could hypothetically requalify if they accepted to represent the repertoire of another rightholder or CMO, thereby effectively becoming collective managers. However, if they are not subject to the CRM Directive, neither are they subject to an obligation to accept such a request [90]. Moreover, if the CRM Directive’s rules do not apply to option-3 licensing entities, publishers might be incentivised to form licensing entities which are not subsidiaries of CMOs. Option-3 licensing entities, operating under a lower regulatory burden, might incentivise CMOs to create workarounds to escape the application of the CRM Directive (e. g. changing a relation from a CMO subsidiary to an agency agreement). [91] It appears that option-3 licensing entities are left outside of the scope of the CRM Directive. It is up to the discretion of national legislators to clarify the scope of the application (as was done in the German implementation), and the interpretation by the courts. [92] Mono-repertoire direct licensors not being subject to the same or similar rules as CMOs is one of the lost benefits of online music services and authors in the online music licensing market.

 

 

4. Lost Benefits

4.1. Imbalance of stakeholder interests

 

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Some benefits which both users and rightholders enjoyed in the offline music licensing market (including cross-border use of works) were not reflected in the online licensing market. There are several reasons for this. European soft law instruments, the CRM Directive (but to a large extent also the CDSM Directive [93]) were strongly oriented towards rightholders, ultimately benefiting large publishers. A closer look at stakeholder interests in the Impact Assessment of the CRM Directive suggests that major music publishers were not in favour of bringing their rights back to collective management. They supported the emergence of various licensing entities, a broad withdrawal right, and ‘bespoke’ licences with online music services. [94] Music service providers advocated a limited number of licensing entities, creation of a Global Repertoire Database (to facilitate identification of repertoire and avoid ‘double invoicing’) and ‘full-scope licencing’ (where mechanical and public performance rights would not be licensed separately). [95] Some stakeholders [96] even asked for rules on CMOs to be extended to option-3 licensing entities [97], while others [98] asked to clarify whether the definition of CMOs also applies to option-3 licensing entities [99]. The final version of the CRM Directive thus corresponded to the demands of large publishers. When it comes to online music services, not only the CRM Directives largely ignored their needs, but also market-driven developments proved unfavourable to them – repertoire withdrawn due to Recommendation 2005 was not re-aggregated in the system of collective licensing and the Global Repertoire Database, originally initiated by CMOs, was abandoned. [100] The CRM Directive review in April 2021 provides another chance for the EU legislator to balance stakeholder interests and also to factor in market developments in the legislative solution.

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Thus far, the EU legislator did very little to address a licensing framework of online music rights, especially information on rights’ ownership, access to data, interoperability of data, and tariffs for online use. Moreover, phenomena such as split copyrights and metadata administration existed also in the online realm but did not cause any frictions. This is no longer true in the online environment, due to market developments and technical challenges connected to online rights administration.

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Recent developments, particularly proliferation of licensing entities (as illustrated above) provided responses only to some issues faced by online music services. The need for a new approach is underlined by the fact that the CDSM Directive subjected a large group of online services – online content sharing service providers – to the need to obtain a licence.

 

4.2. Lack of blanket licences for online use of music

24

A typical feature of the offline music licensing market was issuance of blanket licences covering the world-wide repertoire for users, albeit only for the territory of one Member State. Blanket licences bring several advantages for users - the certainty that all musical works they use are covered by the blanket licence [101], the security regarding the cost of use and reduced risk of conflict and litigation [102]. Blanket licences also benefit rightholders in facilitating proof of infringement. It sufficed to show the unauthorised use of a single work to presume infringement of all the others contained in the same repertoire and simultaneously licensed by a CMO [103]. Currently, rightholders have to demonstrate infringement analytically, i.e. by giving evidence one-by-one, of which works within the repertoire have been used without authorisation [104]. Despite the benefits for users, the CRM Directive failed to sufficiently address the lack of blanket licences in the online environment [105].

25

Blanket licences are weakened not only due to the withdrawn rights of option-3-publishers, rendering CMOs unable to represent the world repertoire, but also due to the so-called “carve-outs”. After the European Commission’s decision in the CISAC case [106], CMOs started renegotiating their mutual reciprocal representation agreements and many CMOs have introduced “carve-out provisions” in relation to the licensing of repertoire for those online services which mandating CMOs have decided to license directly on a multi-territorial basis [107]. Once a CMO has decided to “carve-out” their rights, it will give notice to other CMOs. However, some local CMOs may not adhere to limitations of their mandate and purport to grant a license to the “carved-out rights”. Currently, there is no legal mechanism compelling CMOs to update their databases in a timely manner and exclude the carved-out rights. Consequently, due to the lost benefit of blanket licences, online music services are not only unsure whether they have actually obtained all necessary licences, but might end up paying multiple times for the use of the same works due to CMOs’ practices connected to carve-outs. Avoidance of double-invoicing was one of the main requests of online music services before the adoption of the CRM Directive. [108]

 

4.3. The problem of ‘split copyright’ transferred from licensors to users

 

26

Unlike other IP rights, copyright law allows for almost limitless divisibility of ownership, contributing thus significantly to increasing complexity in licensing and collective management [109]. Musical work (a song) is typically a result of a creative effort of a multitude of authors. An analysis of top 10 hit songs shows an increasing amount of rightholders being involved in one song over past decades [110], reaching the average number of four writers and six publishers. The phenomenon of each rightholder owning a share in a work is known as ”split copyright“. Users must licence 100% of rights before offering their service. In many cases there will be more than one rightholder owning rights in one song. These rights might be transferred to different publishers and/ or administered by different CMOs. Thus, clearing rights to a single song might require an involvement of several licensing entities. Rights might be registered within different CMOs and in different databases. An additional level of complexity might arise if rightholders cannot agree on the percentage of shares they own and on entities representing these shares [111]. Challenges connected to split copyright are not per se legal but relate to repertoire identification and are particularly pressing in the digital world [112]. Difficulties connected to split copyright were irrelevant in connection to licensing for offline use because the system of reciprocal representation agreements in connection to blanket licences covered the world repertoire [113], albeit only in one territory. Users had a certainty that they licenced 100% of rights in all songs in the repertoire offered by a CMO on a national basis (typically the world repertoire). However, in the online licensing world, users must make sure they licensed 100% of each work. Thus, the burden of split copyright is not borne by CMOs, which can benefit from databases and an established international network, but by online music services.

 

 

4.4. Unclarities connected to tariff-setting for multi-territorial use of musical works

 

27

Another element providing legal certainty for users – tariff setting – remains obscure in connection to multi-territorial licences [114]. The problem is essentially twofold. Firstly, online music services have to obtain licences from a multitude of licensing entities, as illustrated in part 3 It has to be noted that before the online music licensing transformation, licences had to be obtained from national CMOs, which are typically subject to statutory regulation, including pricing of licences [115]. Currently, online music services have to contact licensors which are subject to uneven regulation. These licensing entities include mono-repertoire direct licensors, CMO hubs, IMEs and national CMOs. Tariffs used by national CMOs are frequently regulated by national laws of EU Member States. However, tariff-setting of mono-repertoire direct licensors is far more dubious since the CRM Directive does not apply to them. Although some indication on their tariff-setting was available in the past, currently it is almost impossible to know how these licensing entities set their tariffs [116]. It has been observed that one of these entities, SOLAR (formerly CELAS), used up to 60 times higher tariffs than the German collective management organisation, GEMA [117]. Tariffs and licensing conditions are negotiated on a case-by-case basis between users and licensors. Moreover, since these entities are not subject to the obligation of non-discriminatory treatment of users, tariff rates and licensing conditions might vary substantially with regard to similar services. For users, negotiation on licence terms with CMOs is easier and more transparent than with mono-repertoire multi-territorial direct licensors [118].

28

According to the CRM Directive, both parties must negotiate licences in good faith and provide each other with necessary and relevant information. Tariffs must be reasonable to, inter alia, the economic value of the use of the rights in trade, taking into account the nature and scope of the use as well as in relation to the economic value of the service provided by the CMO. [119] Pursuant to the CRM Directive, there are no differences in criteria for tariff-setting for online and offline use, but the application of those criteria should lead to different results since the repertoires in online and offline use are completely different. While in online licensing the repertoire is strictly limited, in traditional licensing the monopolistic territorial CMOs represent the global repertoire. Thus, ‘the economic value of the use of the rights in trade’ and the ‘economic value of the service provided by the CMO’ are certainly different for the world-wide repertoire on the one side, and the limited repertoire on the other side. [120] Special provision concerning tariff-setting in online licensing is contained in Article 16 (2), which provides that in case of ‘new type[s]’ of online services, which have been available in the EU for less than three years, CMOs are allowed to use licensing terms without these terms becoming a precedent for other licences. Recital 32 clarifies what can be understood ‘a new type of online service’ by referring to ‘totally new forms of exploitation and business models’. The CRM Directive, however, does not explain what should be understood as ‘innovative services’. It seems to be up to a CMO to construe in individual cases whether a certain online music service is a ‘new type’. If a ‘totally new form of exploitation’ is to be understood as a kind of service that has not been previously offered, only a very limited number of online music services could benefit from this provision. Moreover, the granting of an individual licence as a derogation from the non-discrimination principle is a mere possibility for a CMO, not an obligation. CMOs would thus have a substantial level of discretion in determining whether a specific online music service can benefit from an individualised licence.

29

Licensing hubs negotiate tariffs with online music services on a case-by-case basis and enjoy a substantial degree of pricing autonomy from CMOs participating in a CMO hub [121]. Although they are obliged to treat users in a non-discriminatory manner [122], sometimes it might not be clear under which category of users a specific online music service falls and online services might call for application of different rates than their competitors [123]. This decision would most likely be made solely by CMO hubs. Moreover, smaller online music services would lack the negotiating power of big services, such as YouTube and Spotify, to avail themselves of favourable licensing terms.

 

 

4.5. Metadata processing challenges and a multitude of databases

 

30

Online use of musical works via streaming platforms generates vast amounts of metadata.  [124] Streaming platforms provide usage reports to licensors, which they have to process and connect to rightholder information for the purpose of royalty distribution. According to existing reports, the largest CMOs have to process billions of metadata [125]. This results in a substantial technological and financial strain on CMOs [126]. Metadata regarding information of ownership of rights and respective shares is recorded in databases operated by CMOs or other licensors. Every month, CMOs receive usage reports from online music services, but they struggle to process and pay revenues to authors in a timely manner. Consequently, more than 20% of performing rights’ royalties remains unmatched and unattributed [127]. Although unclaimed royalties are typically due to smaller writers and publishers, they are distributed on a market share basis, thus benefiting larger rightholders [128].

31

It has to be noted that while some databases result from cooperation among CMOs (such as ICE’s database), other licensors might typically have their own databases. This results in multiple databases being present in the European online music licensing market. Although data discrepancies are solved within one database, they still persist between databases and there is currently no legal measure to solve inter-database inaccuracies. A multitude of databases only amounts to a higher possibility of conflicts among different databases [129]. Existence of multiple databases increases administrative and other transaction costs for rightholders. [130] A market-driven initiative to solve this problem has appeared. The Global Repertoire Database (GRD) aimed to be a single, authoritative source of multi-territory information about the ownership or control of the global repertoire of musical works. As mentioned above, it was a preferred option for users in the CRM Directive Impact Assessment. However, this initiative never materialised, most probably due to disputes between CMOs over control of the global database [131]. A similar legislative suggestion considering establishment of a centralised licensing portal was also discarded (mainly due to competition concerns) [132]. Time will tell whether there is still space for a unified EU-wide or worldwide database. It rather seems from the current developments, that a network of ‘decentralised databases’ is taking shape in Europe. [133]

 

 

4.6. Declining role of CMOs in the European online music licensing

 

32

Metadata processing challenges coupled with legal changes favouring individual licensing [134] have questioned CMOs’ role in online multi-territorial licensing. CMOs as intermediaries are not an essential part of the copyright infrastructure [135]. It has been argued that the importance of CMOs in online licensing will decline and their role will be limited merely to offline licensing [136]. On the other hand, it has been argued that CMOs will not be obsolete in the online music licensing market [137] and even calls to legislatively anchor their role in the online world to provide legal certainty to users have appeared [138]. It has been observed that although mechanical rights have been withdrawn from the CMOs’ repertoire they are still managed in practice by large CMOs that were selected by publishers as their agents. This shows that CMOs might be indispensable in the online licensing. [139] Disappearance or substantial decrease of CMOs’ role in the online world will have a negative impact on cultural diversity [140]. CMOs willing to cope with metadata processing challenges adopt different ways to do so. They either pool resources together with other CMOs and form a CMO hub (such as ICE) or outsource metadata administration and processing services to other CMOs based on the “tag-on” regime of the CRM Directive.

33

CMOs may issue multi-territorial licences themselves and outsource metadata processing services to technology companies. However, a careful consideration should be given to the fact that IT driven companies may in time become dominant players in the music industry. It has been pointed out that they do not only have capabilities to handle collections from online music services, but also an inclination to extend vertically and handle licence negotiations [141]. Subsequently, as they accumulate repertoire under their control, they will have a strong position in negotiations with users and at the same time find themselves outside of the application of rules on collective licensing. Furthermore, it has been reported that IT companies also develop their own standards for metadata, which might lead to further fragmentation and potential conflict between datasets [142].

 

5. Conclusion

34

Recent legislative and market-driven changes to the multi-territorial online music licensing market have clearly separated this market from offline as well as the mono-territorial online licensing market. However, these changes have neither facilitated market entry nor contributed to significantly lowering transaction costs for online music services, which face several challenges when navigating the fragmented online music licensing market. Rights clearance for multi-territorial online music services has become increasingly complex due to the rise of individual licencing and the presence of various groups of licensors subject to differing (and sometimes vague) levels of regulation. The role of CMOs has declined. Due to withdrawn rights, they are no longer able to offer the world repertoire. On the other hand, although withdrawn mechanical rights of major music publishers are licensed directly, these rights are still managed by large CMOs. This shows that not all licensors are able to meet challenges connected with online rights administration and that CMOs still have an important role regarding the logistics of management of mass repertoires. [143]

35

The CRM Directive did not provide for a proper balance of interests of stakeholders involved in online music exploitation. Developments of the European online music licensing market were rather unfavourable to online music services and their interests were neglected also by the CRM Directive. The next possibility to properly balance stakeholder interests presents itself in the potential review of the CRM Directive in April 2021. The EU legislator ought to take into account the current rights clearance complexities online music services face and provide a legislative ’compass’ to navigate the European online music licensing market. The CRM Directive was not able to bring withdrawn rights back to the system of collective licensing and a prospective legislative amendment might neither be able to do so, unless it introduces substantial changes to substantive copyright law (e.g. redefinition of online rights) or limits the rightholder’s withdrawal right. However, it can increase transparency of all licensors towards users. For instance, the prospective legislative amendment can still subject all licensors to the same rules as CMOs or at least clarify their legal status. It has to be noted that the CRM Directive introduced rules applying specifically to multi-territorial online music licensing, but it did not define licensors for the purposes of this market. In order to avoid regulatory grey areas, the potential CRM Directive revision can reconsider the definition of licensors (providing multi-territorial licences for online use), based not on how many rightholders they represent but rather on how many musical works they license.

36

Another potential measure can be a reformulation of Art. 16 (2) (1) of the CRM Directive. It has to be noted that pursuant to the CRM Directive Art. 16, CMOs can, but are not obliged to, provide lower licensing rates to new online music services [144]. Moreover, these provisions only apply to some licensing entities in the online music licensing market (arguably only to national CMOs as opposed to other licensors) and present a mere appeal as opposed to an obligation. Only a ‘new type’ of online service can avail itself of this provision, while it is up to CMOs to evaluate if a service can be considered a ‘new type’. Thus, the provision on individual licences in Art. 16 (2) (1) of the CRM Directive in its current form might not bring any benefits to multi-territorial online music services. The potential legislative amendment can give Art. 16 (2) (1) an obligatory character. One of the future potential examples for multi-territorial online licensing can be found in Germany, where the local CMO GEMA provides in its royalty rates schedule for ad funded streaming services which are offered in Germany for the first time, the possibility to choose a flat-rate tariff (based on estimated number of streams) instead of a statutory minimum per-stream rate in the first and second year of its operation. The new online music services licence is thus not based on a per-stream rate but on a flat rate based on interactivity and projected amount of streams. In the second year of operation of a new music service, the flat rates are 50% higher compared to the first year [145]. Converted to the per-stream rate (and depending on the number of streams), the licence rate in the first year of a new service’s operation can be up to four times lower compared to the tariff rate charged to online music services operating in the market for more than two years. New services are obliged to present to GEMA an estimated and expected number of streams, supported with documents such as business plans and market analysis. If the service already operates outside Germany, it also has to supply appropriate reference data and take into account distinctive features of the national market. Interestingly, this regime applies not only to a ‘new type’ of service, but to all new online music services. The presented option is available only to new online music services operating in a single EU Member State’s territory (Germany). Online music services operating in multiple European countries are not able to avail themselves of this option. Moreover, national per-stream statutory tariff rates do not apply to online music services seeking a multi-territorial licence. Currently, there is no ‘one-stop tariff’ or a rate-setting regime for multi-territorial exploitation of musical works in Europe. The rate setting process should be open, fair and easy to implement. [146]

 

*by Lucius Klobučník, PhD Candidate, Queen Mary University, London

 

 

 



[1] ‘Apple Music vs. Spotify | Which Service Is the Streaming King? | Digital Trends’ <https://www.digitaltrends.com/music/apple-music-vs-spotify/> accessed 25 September 2020.

[2] Vrije Universiteit Brussel KEA European Affairs, ‘Licensing Music Works and Transaction Costs in Europe’, September 2012.

[3] Towse, Ruth, Economics of Copyright Collecting Societies and Digital Rights: Is There a Case for a Centralised Digital Copyright Exchange? (December 12, 2012). Review of Economic Research on Copyright Issues, 2012, 9(2), 3-30, Available at SSRN: https://ssrn.com/abstract=2216165.

[4] Statista, ‘Share of Music Streaming Subscribers Worldwide, by Company’ <https://www.statista.com/statistics/653926/music-streaming-service-subscriber-share/>.

[5] DJ-oriented music service Beatport or classical-music focused Primephonic are some rare examples of niche services.

[6] Camilla Kling, Gebietsübergreifende Vergabe von Online-Rechten an Musikwerken: Probleme einer effizienten Lizenzierungspraxis unter Geltung des VGG (Walter de Gruyter GmbH & Co KG 2017) 26.

[7] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Recital 40.

[8] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ 162.

[9] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Recital 44.

[10] Commission of the European Communities, “Green Paper on Copyright and the Challenge of Technology – Copyright Issues Requiring Immediate Action”, COM (88), 172.

[11] Commission of the European Communities, ‘Green Paper Copyright and Related Rights in the Information Society COM (95) 382 Final’ Art 29.

[12] European Parliament, European Parliament Resolution on a Community Framework for Collective Management Societies in the Field of Copyright and Neighbouring Rights (2002/2274(INI)); European Commission, Study on a Community Initiative on the Cross-Border Collective Management of Copyright.

[13] European Commission, ‘European Commission Recommendation of 18 October 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Music Services (2005/737/EC), OJ L 276/ 54’.

[14] Pursuant to Article 1 (f) of Recommendation 2005, online rights include the right of reproduction, right of communication to the public and right of making available. This understanding is in line with the Directive 2001/29/EU (InfoSoc) and Directive 2014/26/EU (CRM Directive).

[15] Commission Decision of 06. 08. 2002 in case COMP/C2/37219 Banghalter / Homem Christo (Daft Punk) v SACEM.

[16] As is shown in chapter 3 of this paper.

[17] European Parliament and Rapporteur: Katarin Lévai, ‘Report on the Commission Recommendation of 18 October 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Music Services (2005/737/EC) (2006/2008(INI))’ <http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A6-2007-0053&language=EN#title2>.

[18] Emilie Anthonis, ‘Will the CRM-Directive Succeed in Re-Aggregating the Mechanical Reproduction Rights in the Anglo-American Music Repertoire?’ (2014) 7 151, 151.

[19] European Commission, ‘European Commission Recommendation of 18 October 2005 on Collective Cross-Border Management of Copyright and Related Rights for Legitimate Online Music Services (2005/737/EC), OJ L 276/ 54’ (n 14) Recital 6.

[20] ibid Art. 5 a), b0, c).

[21] European Commission, ‘Frequently Asked Questions on Central Copyright Clearance for Online Use across the EU, MEMO/05/241, 7 July 2005’ <https://ec.europa.eu/commission/presscorner/detail/de/MEMO_05_241>.

[22] ibid 3.

[23] Emanuela Arezzo, ‘Competition and Intellectual Property Protection in the Market for the Provision of Multi-Territorial Licensing of Online Rights in Musical Works – Lights and Shadows of the New European Directive 2014/26/EU’ [2015] Max Planck Institute for Innovation and Competition 534; Sebastian Felix Schwemer, Licensing and Access to Content in the European Union: Regulation between Copyright and Competition Law (Cambridge University Press 2019) 156; Anthonis (n 18); Bob Kohn, Kohn on Music Licensing (5th edn, Wolters Kluwer 2018) 202, 203.

[24] European Commission, ‘Press Release - Mergers: Commission Approves Joint Venture for Cross-Border Licensing of Online Music between PRSfM, STIM and GEMA, Subject to Commitments Brussels, 16 June 2015’ 1.

[25] Which means this regime does not apply to mono-repertoire licensing, offline licensing (whether multi- or mono-territorial) and licensing of works other than musical works.

[26] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art. 24 (2).

[27] European Commission, ‘Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market COM/2012/0372 Final - 2012/0180 (COD)’.

[28] As explained above, “online rights” include both public performance and mechanical rights;

[29] European Commission, ‘Notice Published Pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Cases COMP/ C2/39152 — BUMA and COMP/C2/39151 SABAM (Santiago Agreement — COMP/C2/38126)’ (n 19) (2004) para 6.

[30] ‘Notification of Cooperation Agreements (Case COMP/C-2/38.377 — BIEM Barcelona Agreements) (2002/C 132/10).

[31] Giuseppe Mazziotti, ‘New Licensing Models for Online Music Services in the European Union: From Collective To Customized Management’ 34 Columbia Journal of Law & the Arts 757, 763.

[32] European Commission, ‘Notice Published Pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Cases COMP/ C2/39152 — BUMA and COMP/C2/39151 SABAM (Santiago Agreement — COMP/C2/38126)’ (n 30) para 6.

[33] International Federation of Phonograhpic Producers is a not-for-profit international trade association registered in Switzerland whose members comprise over 1300 music and video producers: < http://www.ifpi.org/about.php >, accessed 12. 02. 2020.

[34] Case No COMP/C2/38014 — IFPI ‘Simulcasting [2003] European Commission COMP/C2/38.014.

[35] Intellectual Property Office of the United Kingdom, ‘Music 2025: The Music Data Dilemma: Issues Facing the Music Industry in Improving Data Management’ 164, 30.

[36] Some CMOs entrusted their rights to other CMOs for the purpose of multi-territorial licensing of online services. For instance, the Irish CMO IMRO chose the British PRS and the Portuguese CMO SPA chose the Spanish CMO SGAE to license their rights on a multi-territory basis. Also, CMO hubs, such as Armonia and ICE started their collaboration before the CRM Directive’s adoption (as shown below).

[37] Anthonis (n 18) 158.

[38] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) 28.

[39] Anthonis (n 18) 160.

[40] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art. 5 (2).

[41] Emanuela Arezzo (n 23) 540.

[42] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art. 5 (6).

[43] ibid Art. 31.

[44] Commission Decision of 06.08.2002 in case COMP/C2/37.219 Banghalter / Homem Christo (Daft Punk) v SACEM (n 16).

[45] Emanuela Arezzo (n 23) 543.

[46] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Recital 2 (2).

[47] Schwemer (n 23) 156.

[48] Emanuela Arezzo (n 23) 545.

[49] Mark Savage, ‘Music Streaming Market “Needs More Choice”’ BBC News (20 November 2019) <https://www.bbc.com/news/entertainment-arts-50472906> accessed 12 December 2019.

[50] Johanna Nicholson, ‘If Spotify Is so Huge, Why Is It Losing Money?’ (ABC News, 6 September 2017) <http://www.abc.net.au/news/2017-09-06/digital-music-streaming-rising-but-spotify-losing-money/8875188> accessed 17 September 2020; Anna Nicolaou, ‘Spotify Looks beyond Music in Search of a Profit’ <https://www.ft.com/content/7f689608-4471-11ea-a43a-c4b328d9061c> accessed 12 September 2020; ‘The French Music Streaming Service Taking on Spotify, Apple and Amazon’ (The Independent, 20 September 2017) <http://www.independent.co.uk/news/business/analysis-and-features/deezer-music-streaming-spotify-amazon-apple-subscritpiton-hans-holger-albrecht-len-blavatnik-a7940896.html> accessed 12 September 2020.

[51] Nikita Malevanny, Online Music Distribution - How Much Exclusivity Is Needed?, vol 12 (2019) 205.

[52] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Recital 40.

[53] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) 162.

[54] Jörn Radloff and others, ‘Das Rechtsverhältnis Der GEMA Zu Den Nutzern - Lizenzierung’ in Harald Heker and Karl Riesenhuber (eds), Recht und Praxis der GEMA: Handbuch und Kommentar, vol 3 (2018) 756; Bernd Justin Jütte, Reconstructing European Copyright Law for the Digital Single Market, vol 10 (Hart Publishing 2017) 482; R Kerremans, K Janssen and P Valcke, ‘Collective Solutions for Cultural Collections Online: Search and Select!’ (2011) 6 Journal of Intellectual Property Law & Practice 638, 643; Bob Kohn (n 24) 840; João Pedro Quintais, ‘Empire Strikes Back: CISAC Beats Commission in General Court’ (2013) 8 Journal of Intellectual Law and Practice 680, 682.

[55] Schwemer (n 23) 157.

[56] Anthonis (n 18) 160.

[57] Sylvie Nérisson, ‘Remaining Scope for Collective Management of Copyright in the Online World’, Remuneration of Copyright Owners - Regulatory Challenges of New Business Models, vol 27 (Springer-Verlag GmbH 2017) 75; Romana Matanovac Vučković, ‘The Role of Collective Management Organisations in New Business Models - Challenges for the Legislature and Courts’, Remuneration for the Use of Works, Exclusivity vs Other Approaches (Walter de Gruyter GmbH 2015) 416.

[58] Johann Heyde, Die grenzüberschreitende Lizenzierung von Online-Musikrechten in Europa, vol 54 (Nomos Verlagsgesellschaft 2011) 135.

[59] Kling (n 6) 143.

[60] ‘“Collecting Societies Are Struggling to Keep up with the Influx of Millions of Lines of Data.”’ (Music Business Worldwide, 13 May 2018) <https://www.musicbusinessworldwide.com/the-future-of-digital-performance-rights-management/> accessed 25 September 2020; ‘Streaming Generates Vast Amounts of Royalty Data, and Not All Collecting Societies Are Coping | Complete Music Update’ <https://completemusicupdate.com/article/streaming-generates-vast-amounts-of-royalty-data-and-not-all-collecting-societies-are-coping/> accessed 8 September 2020.

[61] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art 2 (3).

[62] < https://www.iceservices.com/company/about/ > accessed 15 September 2020.

[63] CASE M6800-PRSfM/ STIM/ GEMA/ JV, Merger Procedure Regulation, C(2015) 4061 final (European Commission).

[64] Transactional licences can be understood as licences under which royalties (licence fees) are calculated at work-share level based on reported music usage data, i.e. according to the actual usage of copyright-protected works (based on actual number of downloads/ streams of individual works), whereas under “blanket licences”, the royalties are typically (although not necessarily) charged as a lump sum calculated on the actual or potential audience reached by a certain service. Under “transactional licences”, the usage report provided by a user will be the basis for the calculation of royalties owed by the user (and thus the invoicing to the user). Under lump sum blanket licences that are priced on a lump sum basis, usage reports are not relevant for the invoicing to the licensee, but only for the distribution of the collected royalties to members and rightholders.

[65] If online music services operate only in one EU Member State, they acquire a licence from a national CMO.

[66] CASE M.6800-PRSfM/ STIM/ GEMA/ JV, Merger Procedure Regulation, C(2015) 4061 final (n 64) Para 19.

[67] ibid para 41-44.

[68] French SACEM, Spanish SGAE, Italian SIAE, Hungarian Artisius, Belgian SABAM, Swiss SUISA, Portuguese SPA and Austrian AKM.

[69] ‘Armonia Online - Licensing musical works for digital services’ (Armonia Online) <https://www.armoniaonline.com/> accessed 19 August 2020.

[70] ‘Benefits’ (Armonia Online) <https://www.armoniaonline.com/benefits/> accessed 19 August 2020.

[71] ibid.

[72] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art 3 (b).

[73] Lucie Straková, ‘Nové instituty kolektivní správy: nezávislý správce práv’ (Iurium, 4 September 2020) <https://www.iurium.cz/2019/04/04/nove-instituty-kolektivni-spravy-nezavisly-spravce-prav/> accessed 10 September 2020.

[74] Interestingly, there are 4 IMEs registered in Czechia: https://www.mkcr.cz/seznam-nezavislych-spravcu-prav-1640.html .

[75] ‘About Us - Soundreef’ <http://www.soundreef.com/en/about-us/> accessed 16 August 2020.

[76] ‘Soundreef: Italian Antitrust Authority (AGCM) Rules in Favor of Songwriters’ Rights.Pdf | Powered by Box’ <https://soundreef.app.box.com/s/rnrrkca4f0rjcplqbwbb0rgkiy5n7ljb> accessed 10 September 2020.

[77] This name comes from a consultation issued by the European Commission, which included three options for improving online licensing. The third option included giving publishers a choice to appoint a single society to administer all the online uses of their musical works across the entire EU. The consultation is available at: https://europa.eu/rapid/press-release_MEMO-05-241_en.htm?locale=fr .

[79] Emanuela Arezzo (n 23) 547.

[80] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art. 3 b) and recital 16.

[81] An organisation can be understood as a CMO or IME even if it represents as few as two rightholders: Mihály Fiscor, ‘Collective Management and Multi-Territorial Licensing: Key Aspects of the Transposition of Directive 2014/26/EU’ in Irini Stamatoudi (ed), New Developments in EU & International Copyright Law (Wolters Kluwer 2016) 234.

[82] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art. 2 (3).

[83] European Commission, ‘Press Release - Mergers: Commission Approves Joint Venture for Cross-Border Licensing of Online Music between PRSfM, STIM and GEMA, Subject to Commitments Brussels, 16 June 2015’ (n 25) 1.

[84] Towse (n 3) 25.

[85] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Recital 19 (2).

[86] Schwemer (n 23) 142.

[87] Josef Drexl and others, ‘Comments of the Max Planck Institute for Intellectual Property and Competition Law on the Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market COM (2012)372’ 44(3) IIC (2013) 322, para 29. 

[88] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) 63.

[89] ibid 162.

[90] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art 30.

[91] Anthonis (n 18) 159.

[92] Schwemer (n 23) 144.

[93] Directive (EU) 2019/790 of the European Parliament and of the Council of 17 April 2019 on copyright and related rights in the Digital Single Market and amending Directives 96/9/EC and 2001/29/EC, OJ L 130/92 2019.

[94] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) 60.

[95] ibid 62.

[96] Smaller publishers represented by IMPALA – Independent Music Companies Association.

[97] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) 61.

[98] Private broadcasters.

[99] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) 63.

[100] ‘PRS Confirms Global Repertoire Database “Cannot” Move Forward, Pledges to Find “Alternative Ways” | Complete Music Update’ <http://www.completemusicupdate.com/article/prs-confirms-global-repertoire-database-cannot-move-forward-pledges-to-find-alternative-ways/> accessed 28 February 2018.

[101] Mihály Ficsor, Collective Management of Copyright and Related Rights (WIPO 2002) 139.

[102] Christian Handke, ‘Collective Administration’ in Richard Watt (ed), Handbook on the Economics of Copyright: A Guide for Students and Teachers (Edgar Elgar 2014) 184.

[103] Ariel Katz, ‘The Potential Demise of Another Natural Monopoly: Rethinking the Collective Admininstration of Performing Rights’ (2005) 1 Journal of Competition Law & Economics 541, 556.

[104] Emanuela Arezzo (n 23) 557.

[105] Sylvie Nérisson (n 57) 75; Romana Matanovac Vučković (n 57) 415.

[106] Commission Decision of 16072008 relating to the proceeding under Article 81 of the EC Treaty and Article and Article 53 of the EEA Agreement (Case COMP/C2/38698 - CISAC) [2008] European Commission C(2008), 3435 final.

[107] Carve-out essentially means that a mandating CMO unilaterally limits the scope of the mandate granted to a mandated CMO in order to reserve an “exclusive customer group“ for the purpose of directly licensing its repertoire.

[108] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) 62.

[109] Daniel Gervais, ‘The Changing Role of Copyright Collectives’ in Daniel Gervais (ed), Collective Management of copyright and related rights (Second Editions, Kluwer Law International 2012) 12. Daniel Gervais, ‘The Changing Role of Copyright Collectives’ in Daniel Gervais (ed), Collective Management of copyright and related rights (Second Editions, Kluwer Law International 2012) 12.

[110] ‘Music Reports’ Songdex® Analysis Shows Trend toward More Songwriters and Publishers for Top Hits since 1960s’ (4 August 2017) <https://www.businesswire.com/news/home/20170804005339/en/Music-Reports%E2%80%99-Songdex%C2%AE-Analysis-Shows-Trend-Songwriters> accessed 21 August 2020. ‘Music Reports’ Songdex® Analysis Shows Trend toward More Songwriters and Publishers for Top Hits since 1960s’ (4 August 2017) <https://www.businesswire.com/news/home/20170804005339/en/Music-Reports%E2%80%99-Songdex%C2%AE-Analysis-Shows-Trend-Songwriters> accessed 21 August 2020.

[111] Ben McEwan and Paul Dilorito, ‘Interview with ICE Services & PRSfM - Integrated Licensing and Processing Hub’ in Paul Kempton and Massimo Travostino (eds), Finding the Value in the Gap (FRUKT 2018) 309.

[112] Johann Heyde (n 58) 296.

[113] Users were thus certain that they obtained 100% of each work they use.

[114] Sylvie Nérisson (n 57) 75; Romana Matanovac Vučković, ‘Implementation of Directive 2014/26/EU on Collective Management and Multi-Territorial Licensing of Musical Rights in Regulating the Tariff – Setting Systems in Central and Eastern Europe’ (2016) IIC Max Planck Institute for Innovation and Competition 45.

[115] Christian Handke (n 51) 184; Daniel Gervais, ‘Collective Management of Copyright: Theory and Practice in the Digital Age’, in Daniel Gervais (ed), Collective Management of Copyright and Related Rights (3rd edn, Kluwer Law International 2016) 10.

[116] Romana Matanovac Vučković (n 114) 46.

[117] Nikita Malevanny (n 51) 218.

[118] ‘CELAS Auch in Berufung Gegen MyVideo.de Gescheitert | Informiert Bleiben | K&L Gates’ <http://www.klgates.com/de-DE/celas-auch-in-berufung-gegen-myvideode-gescheitert-06-02-2010/> accessed 2 September 2020.

[119] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art. 16 (2), Recital 31.

[120] Romana Matanovac Vučković, ‘Implementation of Directive 2014/26/EU on Collective Management and Multi-Territorial Licensing of Musical Rights in Regulating the Tariff-Setting Systems in Central and Eastern Europe’ (2016) 47 IIC - International Review of Intellectual Property and Competition Law 28, 50.

[121] CASE M.6800-PRSfM/ STIM/ GEMA/ JV, Merger Procedure Regulation, C(2015) 4061 final (n 64) para 61.

[122] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Recital 31, Art. 16.

[123] Christopher S. Reed, The Unrealized Promise of the Next Great Copyright Act, U.S. Copyright Policy for the the 21st Century (Edward Elgar Publishing 2019) 169.

[124] Musical metadata can be described as information required to identify an audio file (such as name of author, title, other rightholders, money splits etc). Available at: Creative Europe AB music working group, The AB Music Working Report. (Office for official publications of the European communities 2016) 2, accessed 12 September 2020.

[125] Leanne de Souza, ‘Broken, Leaky Revenue Pipes — the Global Music Industry’s Data Mess.’ (Medium, 21 September 2019) <https://medium.com/@rebelbuzz/broken-leaky-revenue-pipes-the-global-music-industrys-data-mess-9b8a25528732> accessed 16 August 2020.

[126] “Collecting Societies Are Struggling to Keep up with the Influx of Millions of Lines of Data.”’ (n 31); ‘Streaming Generates Vast Amounts of Royalty Data, and Not All Collecting Societies Are Coping | Complete Music Update’ (n 31).

[127] ‘Where Are the Missing Song Royalties?’ (Music Business Worldwide, 16 July 2019) <https://www.musicbusinessworldwide.com/where-are-the-missing-song-royalties-2/> accessed 20 September 2019. ‘Where Are the Missing Song Royalties?’ (Music Business Worldwide, 16 July 2019) <https://www.musicbusinessworldwide.com/where-are-the-missing-song-royalties-2/> accessed 20 September 2020.

[128] ibid. ibid.

[129] < ‘Why Building More Rights Databases Won’t Solve The Music Industry Metadata Problem’ (Hypebot, 30 January 2018) <https://www.hypebot.com/hypebot/2018/01/why-building-more-rights-databases-wont-solve-the-music-industry-metadata-problem.html> accessed 12 August 2020.

[130] Towse (n 3) 14.

[131] ‘PRS Confirms Global Repertoire Database “Cannot” Move Forward, Pledges to Find “Alternative Ways” | Complete Music Update’ (n 102).

[132] European Commission, ‘Commission Staff Working Document, Impact Assessment Accompanying the Document Proposal for a Directive of the European Parliament and of the Council on Collective Management of Copyright and Related Rights and Multi-Territorial Licensing of Rights in Musical Works for Online Uses in the Internal Market’ (n 9) para 6. 5.

[133] Lex Keukens and Hans Bousie, ‘“Big Data” and Online Music Databases Roles in Digital Exploitation’ in Paul Kempton and Massimo Travostino (eds), Finding the Value in the Gap (FRUKT) 279.

[134] Raquel Xalabarder, ‘2. 1 Role of Collective Administration in Such Business Models? - Introduction’, Remuneration for the Use of Works, Exclusivity vs Other Approaches (Walter de Gruyter GmbH 2015) 404.

[135] Daniel Gervais, ‘The Internet Taxi: Collective Management of Copyright and the Making Available Right, After the Pentalogy’ in Michael Geist (ed), The Copyright Pentalogy How the Supreme Court of Canada Shook the Foundations of Canadian Copyright Law (University of Ottawa Press 2013) 394.

[136] Yee Wah Chin, ‘Copyright Collective Management in the Twenty-First Century from a Competition Law Perspective’ in Susy Frankel and Daniel Gervais (eds), The Evolution and Equilibrium of Copyright in the Digital Age (2014) 283; Katz (n 105).

[137] Emanuela Arezzo (n 23) 556.

[138] Sylvie Nérisson (n 57) 82.

[139] Anthonis (n 18) 154.

[140] Christoph B Graber, ‘Collective Rights Management, Competition Policy and Cultural Diversity: EU Lawmaking at a Crossroads’ 4 The WIPO Journal 35, 12; Josef Drexl and others (n 80) 54.

[141] ‘“Collecting Societies Are Struggling to Keep up with the Influx of Millions of Lines of Data.”’ (Music Business Worldwide, 13 May 2018) <https://www.musicbusinessworldwide.com/the-future-of-digital-performance-rights-management/> accessed 15 August 2020.

[142] Intellectual Property Office of the United Kingdom (n 35) 60.

[143] Anthonis (n 18) 154.

[144] Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ L 84/72 Art. 16 (2).

[145] GEMA, ‘GEMA Music & Video Streaming, GEMA Royalty Rates Schedule for the Use of Works from GEMA’s Repertoire within the Scope of So-called Ad-Funded Streaming Offers, Tariff VR-OD 9’, point 4, available at: https://www.gema.de/fileadmin/user_upload/Musiknutzer/Tarife/Tarife_VRA/tarif_vr_od9_e.pdf .

[146] Bob Kohn (n 24) 215.

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