Moving towards a European digital single market for music

The European legislative framework governing creative content is in a state of flux.

November 2012

Rights holders complain they do not have sufficient tools and support to tackle mass infringement and that they receive inadequate compensation for use of their copyrights. Businesses exploiting creative content complain that it is hard to acquire multi territory copyright licences to support scalable and international business models so as to meet demand for that content.

growth The European institutions are quite clear about what they want: a digital single market. They take the view that in these recessionary times, the focus must be our economy. We cannot afford to miss out on opportunity for growth at the behest of copyright: digital products need to be available to as wide an audience as possible.

Bars to a digital single market in the music industry

These are a few of the many issues the EU bodies are preparing to tackle:

One of the biggest barriers is the degree of variance between the copyright laws of the 27 different Member States of the EU. The European Copyright Directive gives a great deal of latitude to Member States as to how it is implemented into national law. For example, we have no private copying defence to copyright infringement in the UK. However, this defence does exist in other European countries, some of which impose a levy on the sale of blank media to compensate rights holders. Not all of the defences permitted by the Directive are actually adopted by the various Member States. This lack of harmonisation can make it difficult for businesses to have a unified business model for the whole of the European Union.
Businesses complain of problems with rights clearance systems that make effective copyright clearance and pan EU licensing difficult. There is a real preference for a one-stop shop for rights clearance. This can be particularly so in relation to music (where the rights in the music, lyrics, sound recordings and performances have to be cleared), sometimes with the need to approach different entities to acquire appropriate licences, and often in different jurisdictions.
The difficulty of buying electronic products across borders e.g. a UK consumer might not necessarily be able to download music from an online supplier based in another European Member State and roaming charges may make this very expensive when on the move.
There are differing VAT rates in the various Member States. In relation to audiovisual works, the European Parliament has recognised the need to adapt the current arrangements for taxing "cultural goods and services" to suit the digital age.¹

How things might look in 10 years’ time

One thing is for sure, Europe is likely to be much closer to a digital single market. The ever increasing gap between the legislative framework and consumer behaviour (e.g. format shifting, a form of private copying) will hopefully be largely reconciled. The aim should be to ensure legitimate supply of content in an environment of healthy competition while effectively tackling piracy and adequately compensating rights holders and creators. This shift has already started:

The European Commission has recently adopted a proposal for a Directive on collective rights management and cross-border online music licensing. The Directive envisages that rights holders and licensees could choose which of the European collecting societies to join or to obtain pan-EU licences from. Read more analysis here. The opportunity for the major and best-run collecting societies is obvious.
The Copyright Directive may well be reshaped. The Commission is going to look at whether and how the Directive needs to be adapted². We may well see a revised Directive which is more prescriptive than the current one, in terms of how it should be implemented into national law. The various defences may be more clearly defined and become mandatory. This would create a more level playing field across the European Union. Any changes are likely to be heavily debated and take many years to implement.
While we wait for the Directive to be revisited, European judicial interventions are likely to move things further towards a single market. In the last 12 months, we have seen two major European Court of Justice (ECJ) decisions considering how the European single market should treat the distribution of copyright works in digital form³ . In both those cases, the ECJ made it very clear that rights holders cannot rely on territorial restrictions in their licences or on their copyrights to receive additional compensation when their content is consumed across borders.

While changes to the European position are thrashed out, the UK has been busy trying to deal with these concerns, within the confines of European law:

Following the Hargreaves Review⁴ , the government is looking at introducing a limited private copying defence into UK law.
In July 2012, Richard Hooper recommended to the government that it create a not-for-profit, industry-led Copyright Hub⁵ based in the UK that would serve in the UK and beyond a wide range of copyright licensors (rights holders, creators and rights owners in both commercial and cultural worlds) on the supply side and a wide range of copyright licensees/users on the demand side. It would be the place where (a) any copyright owner could choose to register works, the associated rights to those works, permitted uses and licences granted; and (b) the place for potential licensees to go for easy to use, transparent, low transaction cost copyright licensing, acting effectively as a marketplace for rights.
It is anticipated that Ofcom's Initial Obligations Code will come into force in January 2013, pursuant to the Digital Economy Act 2010. The Code is a measure aimed at reducing online infringement and will require ISPs to notify their subscribers if their subscribers' IP addresses have been used to commit copyright infringement, with penalties for those subscribers where there is repeated infringement. Read more about the Initial Obligations Code.
PRS for Music and Google recently released a study⁶ which demonstrates that copyright infringing sites rely heavily on advertising revenue and on payment and card processes. The conclusion of that report is that the best way to target infringing activity is to follow the money by targeting those advertisers and payment providers. This theory is likely to be further investigated, with resulting measures to reflect these findings.