For many years, the biggest-earning artists have benefited from moving their residence to countries with more-favorable tax rates. The Rolling Stones famously became tax exiles in France in the early 1970s and subsequently released the album “Exile on Main Street” soon after. Are tax rates in the big five music markets still driving the highest-earning artists into exile?

In 2010, a remastered version of Exile on Main Street, arguably the most revered album by the rock band the Rolling Stones, was released by UMG. A previously remastered version was released by Virgin Records in 1994, 22 years after the original recording went on sale. The album was famous for being the first by the band after their relocation from London to the south of France in 1971 for tax purposes.

Although the Rolling Stones are widely regarded as the first musicians to take advantage of overseas tax rates, musical inspiration drawn from the discomfort with UK tax rates by other famous bands preceded the Rolling Stones’ album. For example, Taxman by the Beatles, a track written by George Harrison in 1966, was about the high levels of tax levied by the UK government at the time. Since then, an almost endless list of artists has taken advantage of lower tax rates offered by “tax havens.” Among the most famous include Rod Stewart, who moved to the US in 1975, and David Bowie, who moved to Switzerland a year later. The Irish band U2 have arguably been criticized the most in recent years after they relocated to the Netherlands in 2006. At last year’s Glastonbury festival, a number of attendees inflated a large balloon with the slogan “U Pay Your Tax 2.” The protest was organized by the UK activist group Art Uncut, which said its aim was to raise concerns about the “irresponsible way U2 arrange their tax affairs.”

Tax rates in the big five music markets
For companies, the arrival of the global economy means that, subject to exit taxes, capital movement is relatively straightforward. Therefore, governments are actively looking to attract companies with various incentives – principally through lower rates of corporate tax.

Comparing the big five music markets of the US, Japan, Germany, the UK and France highlights a big degree of difference between their corporate tax rates. The UK has the lowest effective corporate tax rate of the five countries, at 26%, and it is scheduled to fall to 23% by 2014. According to the OECD, of its 34 members, the UK is ranked 19th and, at today’s rates, will move to 13th once the rate is reduced. The UK, the US and France all have “small company profits regimes,” which can reduce the corporate rate to 20%, 15% and 15%, respectively, though the profit limits to earn the lower rates are small for both France and the US. All of this demonstrates the sizable gap when compared with Japan’s 41%, putting the country last according to the OECD.

For individuals, the five leading music markets have similar residency and taxable-income rules: If you are a permanent resident, you are taxed on worldwide income; if you are a nonresident, you are taxed only on income earned in the country you are in. Rules for determining tax residence are broadly similar, though with some subtle differences. The UK rules, in particular, are more detailed and potentially less certain than others. In addition, some tax systems have special rules. For example, the UK’s rules for nondomiciled persons can mean that a large part of an individual’s non-UK income can avoid UK tax (though non-UK taxes may apply).

The US is an exception when determining tax residency, because it also taxes US citizens who are nonresidents. In Japan, in most cases, anyone who is domiciled or has a residence in Japan for more than a year will be deemed a resident and liable to income tax on his worldwide income. Japan also imposes an Inhabitants Tax, which is regulated by each prefecture and municipality, and an Enterprise Tax (based on taxable profits, share capital and the “value-added factor” – e.g. personnel costs, net interest and net rent).

The residency test in Germany is straightforward: Broadly, if you are there for over six months, you are deemed a permanent resident and all your worldwide income is taxable. The income-tax rates are progressive, from 15% to 45%. The upper limit is charged on income over €250,731. In France, the residency test is not time-dependent as it is in other countries. Instead, it is set by meeting certain criteria, such as primary residence. There is also a tax shield that caps all taxes on income at 50%. The lowest-tax OECD members include Mexico, Chile, South Korea and Switzerland.

To be a tax exile or not to be a tax exile
Some artists, of course, choose not to become tax exiles. For example, late last year the singer Paolo Nutini told the Scottish newspaper The Daily Record that he would never become a tax exile on the grounds that he considered it his duty to pay tax in the country he grew up in. This attitude is similar to views held by Art Uncut, which has often stated that good citizenship “is more than just sticking to the exact letter of the law.” The activist movement equates becoming a tax exile to the undermining of democracy. Fewer in number are those artists that have returned from tax exile. For example, a few years ago the French singer Johnny Hallyday was widely reported to have agreed to return to France from tax exile in Switzerland after the election as president of Nicolas Sarkozy. Our research suggests Hallyday is still a resident of Switzerland.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

Assistance for this blog was provided by Colin Aylott, director of international tax, and Mark Wingate, director of private client tax services, both with the accounting and investment-management group Smith & Williamson.

With the organization and promotion of live events differing from country to country, comparisons of how one country’s live music sector is performing against another are not always easy to make. However, the live industry has, in recent years, seen the emergence of a small number of global players, such as Live Nation and CTS Eventim, and their financial details have provided an insight into current and possible future trends.

For 3Q11, Live Nation reported a fall in revenues for its concert business of 7.3%, to US$1.28 billion, from US$1.38 billion in the same period last year. The number of concerts promoted in North America increased from 3,801 to 4,135, while the number of concerts promoted abroad by the company’s international department remained almost unchanged, at 1,136. For the first nine months of this year, a slightly different picture was evident. Live Nation said the number of concerts in the US was up to 11,418, from 10,511 in the same period last year. But the number of concerts abroad dropped from 4,606 to 4,248.

Although Live Nation is the world’s biggest concert promoter, CTS Eventim is the biggest ticketing company in Europe. CTS Eventim also promotes concert and festivals, mainly in Germany and to a certain extent in Austria. For the first nine months of 2011, CTS Eventim’s live-entertainment sector suffered a sharp drop in revenues, falling 21.6% to €198.8 million, from €253.7 million in the same period of 2010. CTS Eventim said the decline was due to the lower number of attractive live events compared with last year and the deconsolidation of the FKP Scorpio Group. To avoid difficulties with the German cartel office, CTS Eventim lowered its stake in FKP Scorpio from 50.2% to 45% when it acquired the German branch of See Tickets.

The revenue decline in the concert divisions of both companies is an indication that the market for concerts is under pressure. Annual reports issued by a number of collection societies and concert associations back that position up. For example, PRS for Music reported a decline of 6.7% in live collections for last year, and Dutch promoters association VNPF reported a decline in revenues of 2%.

Touring schedules
Live-concert revenues have also been affected by changes in the touring schedules of big-name artists, and artist availability will become a bigger issue for the sector. The development of the concert markets in Eastern Europe, and to a certain extent Latin America and Asia, is partly to blame for world tours lasting considerably longer than in previous years. In the past, a big-name artist could complete a world tour in a year. But tours today can take up to two years to complete.

The European and US concert markets have seen big increases in fees for leading artists, and ticket prices have risen to cover these higher costs. However, these concert markets have also become fragmented, mirroring a rising demand for a number of music genres, such as metal and dance music. This increased interest in genre-specific live performance has been reflected by a rise in the number of festivals devoted to specific genres.

Headline acts remain the big draw for festival-goers, but festivals have also become especially important for midsize artists, who can now play a complete festival season in the summer, a season that until a few years ago had traditionally been quiet for touring artists. But despite the continued popularity, the festival sector is also coming under pressure. A number of notable festivals in Europe, such as Rock Am Ring in Germany and the Reading and Leeds festivals in the UK, experienced slowdowns in ticket sales this year compared with the 2010 events. Competition in the festival sector itself could be partly to blame. Recently, “boutique” festivals have become popular, and there has also been a significant increase in festival tourism. For example, events such as the Exit-Festival in Serbia, Sziget in Hungary and Benecassim in Spain have benefited from increased accessibility facilitated by low-cost airlines, such as EasyJet and Ryan Air.

Economic problems, particularly in Europe, will cause difficulties for promoters staging concerts by new artists because of fewer guarantees regarding ticket sales. However, the turmoil caused by the uncertainty in the eurozone is also already causing schedule changes for big-name acts. Metallica’s manager, Cliff Burnstein, revealed in an interview with The Wall Street Journal recently that festival dates for the band have been brought forward. Instead of playing festivals in 2013, the band will now appear at some festivals next year. Other big-name acts are expected to reschedule dates because of the crisis.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

But in comparison with previous years, which offered a degree of subtlety in the way viewers were duped into thinking they were just being entertained, this year’s show was explicit in its very blatant advertising of all things X Factor-related. As has been widely reported, the UK broadcasting regulator OFCOM has received complaints that the “established artists” that performed alongside the contestants were signed to Simon Cowell’s record company Syco, which is part of Syco Entertainment, a global joint venture between Cowell and Sony Music Entertainment. Syco TV co-produced the X Factor show.

It is fair to say that in previous years, earlier winners of the X Factor and runners up appeared on the latest show to promote new releases. Last year’s winner Matt Cardle was the guest star in one of the knock-out rounds as was Rebecca Ferguson, who came second. Both artists have new albums out and an appearance on the show is a simple way of promoting their releases to the audience that made them famous. Third placed in 2010, One Direction also appeared in a knock-out round as well as the final alongside JLS, who were runners-up in the 2008 series, coming second to Alexandra Burke. She replaced Kelly Rowland for one week earlier this year as a judge and mentor when the US star was ill. The runner-up in the 2009 series Olly Murs, who has a new album out, was the roving reporter interviewing the family and friends in the Wembley audience.

Harmless publicity? Maybe. But if you look a bit deeper, the level of promotion and back scratching on show becomes a little less palatable. Matt Cardle’s performance earlier in the series promoted a new single. But who was the single’s writer?, none other than Gary Barlow. Kelly Rowland performed on the show her new release, guaranteeing maximum publicity in the same way Cheryl Cole did during the 2009 series when she was a mentor and judge.

Girl power
At the beginning of each program when the judges were announced, Tulisa Contostavlos did her trademark signature gesture, raising her arm to show a tattoo with the words “The Female Boss”. This just happens to be the name of her new perfume. OFCOM received a number of complaints and are investigating if the gesture broke any product placement rules. The complaints were made in November but the gesture was there for all to see in the final.

Criticisms of Leona Lewis (winner in 2007) appearing in this year’s final are justified as she is not promoting any album release. Similarly Westlife’s appearance drew similar criticism. It isn’t a coincidence that the group was originally co-managed by the X Factor judge and mentor Louis Walsh.

Supporters of the X Factor have pointed to the fact that a number of big name artists that appeared on the show were not signed to Syco or any other Sony imprint. Michael Buble, for example, was one. He is signed to Warner Music. However, on the same UK TV channel later this month is a Michael Buble Christmas special featuring a number of guest stars. Two of the names set to appear may be familiar to X Factor viewers – Gary Barlow and Kelly Rowland ring any bells?

It might be a little naïve not to expect cross promotion on a TV show with as much exposure as the X Factor. Producers will claim that it makes sense to choose artists to appear alongside the contestants that are well-known to X Factor viewers. But the level of nepotism on show this year turned what is a great entertainment format into something really quite ugly. All of the “extra” advertising will probably have washed over younger viewers that were caught up in the excitement of the program. In a way that makes the whole experience all the more unpleasant. Talent shows have been around for a long time and will continue to be popular for years to come. Let’s just hope that next year’s winner won’t be the marketing department at Syco Entertainment.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

But while EC legislators are busy putting together new legislation that would open up Pan-European licensing, the consolidation in the music publishing sector is shifting the balance of power in cross-border digital-music licensing in favor of a select few. Smaller collection societies have already expressed concern that legislative moves by the EC to open up the licensing process would result in their having to compete with larger collection societies for authors’ and publishers’ business. A large collection society will be able to charge less to administer rights because of greater economies of scale, and it is no coincidence that the major publishers have chosen Europe’s largest collection societies to administer their rights in the region.

CELAS, which was formed by PRS for Music (UK) and GEMA (Germany), administers the digital Pan-European rights to EMI MP’s Anglo-American repertoire, and Sony/ATV created PAECOL with GEMA to administer the Pan-European licensing of the major’s Anglo-American repertoire. Sony/ATV also created the PEL initiative with SGAE (Spain) for the authors’ society to administer the Pan-European licensing of the major publisher’s Latin American repertoire. UMPG and SACEM (France) operate the licensing initiative DEAL to administer UMPG’s Anglo-American and French repertoire in the digital market, and Warner Chappell operates the Pan-European initiative PEDL and has concluded representation agreements with a number of European collection societies.

But the agreement announced earlier this month for Sony to acquire EMI MP from Citigroup could result in a consolidation of two of the major publishers’ licensing hubs and further isolation for the smaller collection societies. Sony said after the EMI deal was announced that Sony/ATV would eventually oversee the running of EMI MP. Although the acquisition must pass a number of regulatory investigations, should the deal go through there would almost certainly be a review of the dual functions provided by PAECOL and CELAS. GEMA’s involvement with PAECOL and with the licensing of EMI MP repertoire through CELAS would suggest that the German collection society is ideally placed to take over the sole Pan-European licensing of both major publishers’ Anglo-American repertoire. As a result, GEMA could wind up with exclusive Pan-European licensing rights to the repertoire of the world’s biggest music publisher. With SACEM holding the digital-licensing rights to UMPG’s Anglo-American repertoire and being involved nonexclusively in PEDL, the licensing rights to all of the major publishers’ Anglo-American repertoire could end up in the hands of just two collection societies.

Independent consolidation
Pan-European licensing initiatives have not been limited to the majors. Peermusic has a Pan-European representation deal with PRS for its Anglo-American repertoire and with SGAE for its Spanish/Latin repertoire. PRS also operates the Independent Music Publishers European Licensing (IMPEL), which administers Pan-European licensing of IMPEL members’ repertoire. PRS, along with BUMA/STEMRA, was appointed earlier this year to license and administer the Pan-European online rights of publisher IMAGEM.

Chrysalis also has a Pan-European representation deal with PRS. However, Chrysalis’ owner, BMG Rights Management, has not concluded a multiterritory deal. Music & Copyright understands that BMG is reviewing its approach for the rest of its repertoire, including that of Cherry Lane, Bug Music and Stage Three, and might conclude an overall BMG deal. PRS would seem to be the favorite should BMG follow the direction taken by Chrysalis.

With openness and competition at its heart, the forthcoming EC legislation is widely expected to put in place structures that will result in wider access to multiterritory licensing. There are, of course, Pan-European initiatives involving other collection societies in Europe aside from the big three of PRS, GEMA and SACEM. But music publishers that have concluded Pan-European licensing-administration deals seem to have decided that the bigger the collection society the better placed it is to handle their rights on a regionwide basis. There is little evidence to suggest that any new legislation will change the situation, and so for smaller collection societies, the EC might be about to signal the start of a difficult future.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

Pirate-music sites offering free music downloads are being indirectly funded by a wide range of blue-chip companies. A survey conducted by Music & Copyright in the UK has found that all of the companies whose advertising appeared on a selection of pirate sites were unaware of the ads’ presence. Should these companies know where their ads are going?

Internet advertising takes many forms, ranging from simple banner ads placed on websites to more-complex targeted advertising systems, which track Internet users’ preferences and tailor online advertising on websites specifically to the unique visitor.

Earlier this month Music & Copyright monitored advertising in the UK on a few randomly selected illegal-music sites. All of the sites operate a simple advertising system including banners that rotate among company ads when the page is refreshed. Music & Copyright contacted several of the companies whose advertising was displayed, and all that replied said the placement of the advertising was either a mistake or an oversight and that they would endeavor to have the advertising removed as quickly as possible. Most of the companies also offered an explanation of how their advertising process worked and why their advertising found its way to the sites.

British Telecom (BT), which is at odds with the music industry at the moment over the Digital Economy Act, acted quick to remove its ads when notified. In fact their ad disappeared within the hour. BT explained that it has an extensive list of terms and conditions and a blacklist of sites on which it tells media owners its ads must not be placed. Included on the list are sites showing adult content, violence, pornography, weaponry or any other content considered inappropriate, such as those offering illegal downloads. But BT did say that although it was adding to its blacklist on a daily basis, new sites can appear and cannot be blacklisted until they have been identified or spotted.

A similar explanation was given by a representative of Centrica, owner of energy company British Gas (BG), who said that BG was unaware that its ad was on a pirate music site. The company confirmed to Music & Copyright that the wheels were in motion to take the ads down. BG did say that it was common practice to buy advertising space across blind networks, meaning that the company cannot identify all of the websites on which its advertising appears.

A number of other companies contacted also said they maintained a blacklist of sites that had been brought to their attention. For example, British Airways said it was unaware that its advertising was featured on the pirate music site monitored by Music & Copyright. A representative for the airline described the presence of its ad as an oversight and it was subsequently withdrawn. The latest issue of the Music & Copyright has more comment from several other companies.

Rights-holder responsibility
Combating recorded-music piracy online has largely become a process whereby rights holders must first seek out where their content is being illegally hosted or distributed and then take the necessary legal action to close down the offending site. But should rights holders really be forced to monitor advertising activity on pirate music sites and notify companies that have advertising on them?

There is little doubt that the companies contacted by Music & Copyright were genuinely unaware that their services were being advertised on the pirate music sites. But should this absolve them from blame? Music & Copyright understands that none of the companies contacted have a dedicated team that scours the Internet looking for misplaced advertising. But rights holders make the point that all of the companies benefit from click-throughs via their ads on the pirate music sites and in doing so indirectly help keep the pirate websites going. Rights holders argue that each time an illegally acquired track is added to any of the these pirate sites, the companies that advertise on the sites benefit at the expense of the track’s rights holders. Sadly, the only party in the advertising chain not to benefit is the rights holder, whose content the entire website is based on.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

In our annual survey of the performance-rights sector, Music & Copyright can reveal that total performance-rights distributions were up 8.9% in 2010, to US$1.59 billion, a big increase on the 0.6% growth in 2009 (see table below). Excluding the effects of exchange-rate fluctuations last year compared with 2009, total distributions were up 9.1%.

Music & Copyright can also reveal that performance-rights distributions to record companies totaled US$868 million, up 9.2% compared with US$794.6 million in 2009. At constant currency-exchange rates, distributions to record companies last year increased 9.4%. For performers, total distributions last year stood at US$721.5 million, up 8.5% compared with US$664.9 million in 2009. At constant currency-exchange rates, total distributions to performers rose 8.8%.

Rapid growth in the US despite no AM/FM agreement
The position and status in the world of the US regarding performance rights can only be described as unique. There remains no resolution to the dispute over the country’s copyright legislation, which exempts AM/FM radio broadcasters from paying this type of right. But this has not stopped the US from becoming the biggest country for performance-rights payments and SoundExchange taking the crown for the biggest single performance-rights collection society. Total distributions made by SoundExchange last year stood at US$249.2 million, up from US$155.5 million in 2009. SoundExchange’s position as the global leader is unlikely to be challenged this year, since collections were up 94% in 1H11 compared with 1H10.

As always when we assess the performance-rights sector on a global level, we like to point out that comparing one performance-rights society against another is a little unreliable because of the many territorial and operational differences. Also, a number of collection societies registered strong growth in collections and distributions last year compared with 2009, whereas others have been affected by circumstances related to developments confined to their country of operation only.

A dominant Europe
UK performance-rights body PPL has firmly put the Copyright Tribunal decision regarding rates charged to the hospitality sector behind it. Distributions by PPL last year totaled £133.7 million (US$206.7 million), up from £102.2 million in 2009. The sharp rise in PPL’s distributions saw it overtake GVL of Germany to become the largest performance-rights society in Europe.

Of the top 10 performance rights societies, six were European. This contributed to Europe accounting for 62.1% of the global distribution total last year with North America second with an 18.1% share.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

Nielsen SoundScan figures are clearly different from the annual trade figures published by the global trade association the IFPI and so should be used as a guide only. But included in the IFPI figures are performance-rights revenues. Although these are paid only by digital-music services in the US, US performance-rights collection society SoundExchange has reported impressive growth for the first half of this year, with collections up 94% compared with 1H10. Total trade revenues from recorded-music sales might not return to growth this year, but the inclusion of performance-rights collections could result in the first increase in total US trade revenues in six years.

Earlier this month the trade association in Japan the RIAJ said the production of physical recorded music in the first eight months of this year was unchanged compared with the same period of 2010. Although the volume and value of audio units produced was down 6%, for music DVDs the volume of units produced was up 26% and the value of those units up 24%. For digital sales, the position was not so good, with total trade revenues in the first six months of 2011 down 13% year-on-year and digital unit sales were down 12%.

The next big three
Earlier this month the German trade association BVMI reported that total sales of physical recorded-music formats were down 5% in 1H11. CD sales decreased 4.2%. Although vinyl sales rose 17.4%, the format accounted for less than 1% of total recorded-music trade revenues. For digital the position is much more promising. BVMI said revenues from online subscription services, such Napster, Simfy Premium and Musicload Nonstop, increased 21.4% in 1H11 compared with 1H10. Even more impressive was the rise in revenues from advertising-supported streaming services, such as MyVideo and Clipfish, which were up 64.8%. However, the largest share of digital revenues still comes from downloads, which BVMI said accounted for 83.8% of the digital total in 1H11.

The UK, which was overtaken by Germany last year, had a reasonably good first half of this year. According to estimates provided to Music & Copyright by the Entertainment Retailers Association (ERA), total recorded-music unit sales were down just 1.7% compared with 1H10. The rate of decrease in physical-album sales in the first six months of this year was, at 8.8%, almost identical to the same period in 2010. Although the rise in digital-album sales slowed from 36.3% to 25.4%, the total rate of decline in album sales slowed to 2.4%. ERA said retail sales of recorded music have performed better this year than both video and games.

New figures published by the French music-trade association SNEP show that trade revenues from recorded-music sales fell 5.7% in the first six months of this year. The rate of decline, which was slightly higher than the full-year 2010 figure of 5.1%, may well be a disappointment to the local industry, but the sharp rise in subscription revenues provides some cause for optimism. The steady demise of physical sales continued unabated, with total physical trade revenues down 12%. A big fall in trade revenues from music videos, especially in the second quarter of this year, exaggerated the overall physical decline, with album sales in the six-month period down 7%. Digital sales continued to rise and the 22.7% increase meant that digital accounted for 23.5% of total trade revenues in the six-month period. Of the total digital trade revenues, Internet downloads accounted for 51.3%. The star of the six month period was online subscriptions. According to SNEP, trade revenues from online subscriptions increased 237%. Online-streaming revenues also experienced a good six months, with trade revenues in the period up almost 50%.

A mixed performance elsewhere
Italy has not yet reported midyear sales figures, and the Dutch, Belgian and Australian trade associations are not reporting half-year figures at all. Spain’s Promusicae said in late July that the trade value of Spanish recorded-music sales was down 18.7% in 1H11. Although trade revenues from streaming increased more than 300%, the value of Internet-download sales was down 19.7% year-on-year, and mobile download sales fell more than 50%. Trade revenues from physical recorded-music sales dropped 30.5%.

In Sweden, trade association GLF said the value of recorded-music sales fell to SEK342.9 million (US$53.9 million) in the first six months of this year. Although trade revenues from physical sales fell by a third, the strength of digital sales, particularly streaming, lessened the overall decrease to just 6%. For the first time, trade revenues from digital sales overtook physical, and the continued growth in the popularity of streaming in Sweden meant that streaming revenues accounted for 41.1% of the total, just behind physical albums, which took a 45.9% share.

The dream of global growth
The markets that have announced sales details or provided some guidance accounted for 70% of global recorded-music sales last year, and their performance therefore has a large bearing on the performance of recorded-music sales globally. Of course, a good number of countries have provided no midyear figures, and therefore making any assumptions on the global position is highly speculative. Moreover, an assessment of the global trade-revenue picture must also take into account performance-rights collections, and few collection societies are in a position to offer any guidance on their financial position for this year. However, Music & Copyright has calculated that if the performance in the markets that have published midyear sales figures continues through the end of the year, trade revenues from recorded-music sales for the top 10 markets as a whole will decrease only around 1-2%.

Forecasting the performance of global sales has become much more difficult, because there is little uniformity in developed markets. In the 1990s, favorable economic times often resulted in rising music sales. Of course, the 1990s benefited from the transition from analog formats to the CD, but there were much fewer influencing factors and less unpredictability for music companies to account for when planning release schedules. But with digital now dominant in a number of markets and nearing dominance in several others, greater stability in the recorded-music sector might not be that far off, and the chaos of the past 10 years just might be nearing an end.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

The word “partnership” can be used to describe a whole range of relationships in varying settings. In the area of brand endorsements, the word is commonly used to define the nature of the relationship between the brand and the artist chosen to endorse certain goods and services under that brand. Both parties entering into a media partnership have their own interests to serve. The hope and the intention is of course that a mutually beneficial and fruitful alliance will unfold.

Initial negotiations
Usually, the first stage of the collaboration will include the negotiation of the terms that govern the relationship and the putting in place of a contract which incorporates those terms. Everyone wants to keep contract negotiations to a minimum. A well thought-out contract which captures the needs of the brand, without overreaching, simplifies the contractual process and helps the brand to achieve its objectives. If the terms are too onerous, an artist can be left feeling hard done by before the partnership has even truly begun. An artist can even be scared off if the brand is seen to be demanding too much. Taking a reasonable approach when setting the parameters within which the parties are expected to conduct themselves should pave the way for a fair balance and expedite the signing of the contract.

The length and breadth of the arrangement is of course key. The “rights package” required by the brand needs to be clearly identified and should be shared with the artist in full upfront. The rights package comprises the services which the artist is required to undertake, the usage and exploitation rights that the brand requires, where and how those rights can be exercised and for how long. Along with financials, the rights package is the most fundamental aspect of the contract. Before the commencement of negotiations with an artist, the rights package should be thoroughly researched internally, so that the rights actually needed are precisely identified and only those rights are put to the artist. An exhaustive list of rights with reasonable limitations (e.g. time limits) offers more transparency and shows good faith, compared with the “kitchen sink” approach.

In a commercial arrangement, it is of course reasonable for a brand to seek to impose restrictions such as exclusivity provisions on the artist. However, unless these provisions are reasonable in terms of sector, duration and area, they will not be welcomed and can be problematic – sometimes even unenforceable. The artist’s representatives will carefully consider whether the brand is paying enough to take the artist out of the relevant market altogether for the life of the campaign.

Good behavior
“Good behavior” clauses are often controversial. Every brand needs to protect the reputation of their goods or services which will have taken considerable time and resources to build. As a chosen ambassador for the brand, understandably there is an expectation that the artist will uphold, and not tarnish, the reputation of the relevant goods or services. “Good behavior” restrictions can therefore be expected, but within reason. Balanced against the brand’s need for protection, is the reality of the world in which today’s celebrities live. The artist is bound to have an immense public profile which involves a huge amount of day to day publicity and scrutiny of the artist’s every act.

It is reasonable to impose penalties for a situation where an artist intentionally does something in public during the life of the campaign which has a direct and serious negative impact on the brand. The criteria for deciding whether an artist has behaved “inappropriately” is then not wholly subjective. However if the legal framework exposes the artist to being sued over behavior which not everybody would consider damaging, the artist may find themselves questioning whether the partnership is in fact “worth it”. There is therefore a careful balancing act to be undertaken when drafting “good behavior” clauses. A brand also needs to consider whether the act of suing an artist would create even more publicity and draw attention to the very issue that the brand would prefer to be buried. So an appropriate remedy for intentional wrongdoing by the artist would be termination of the agreement and, possibly, reimbursement of part of the fees depending on what value the brand has received prior to the termination.

No-one has a crystal ball to enable them to predict the headlines of the future, so the partnership will always be a leap of faith to some extent. However, there are also practical considerations which should offer brands some comfort outside the legal framework. Brands will select artists who want to work with them and contribute positively to their promotion. That is inherent in the arrangement. As well as the brand’s reputation, the artist will be keen to protect their own career and their own reputation both within the industry and publicly. It is not in the artist’s interest to jeopardise the reputation of their chosen media partner.

An artist will be accustomed to being at the forefront of the creative process in all aspects of their career. When it comes to endorsement partnerships, an artist will expect to be treated in the same way. Whilst materials which go into the public domain are of course promoting and endorsing the brand, they are still using the artist’s image and public profile. Usually, the artist will want to contribute to the process by way of approvals over materials using the artist’s name, image or performance. Whilst the artist does deserve some input, it would not be fair for the brand to be put in a position where they are left high and dry with no campaign materials because of a stalemate over approvals. Again, a fair balance needs to be struck when drafting and agreeing the approval process. A practical solution is for the contract to offer reasonable approvals to the artist (which can include short turnaround times for example).

Brands are well advised to conduct sufficient due diligence when collating the rights package. The artist will usually have other contractual commitments, restrictions and obligations already in place which will need to be taken account of. Often, a third party partner such as the artist’s record company and/or publisher will need to be approached for permission alongside negotiations with the artist, depending on the nature of the rights being granted to the brand. Those third party rights need to be either addressed at the outset or carved out from the contract between the brand and the artist.

In our experience, on the whole, endorsement partnerships can be very successful for both parties. The contract documenting the arrangement is, of course, a necessary evil. But, the process can be expedited and simplified if a pragmatic approach is taken from the beginning. An onerous legal contract may offer a high level of protection for the brand in one sense, but a more balanced approach will shorten the negotiations and help to nurture a long-lasting and healthy partnership.

This post was written by Ailish McKenna, Solicitor at Bray & Krais Solicitors.

Ailish McKenna
Ailish graduated in Law at Queen’s University, Belfast in 2000 and obtained a Masters in Law from the University of London in 2001. Joined Bray & Krais as a paralegal in 2001 and also trained with Bray & Krais, including a secondment to Olswang practising intellectual property in the Media Communications and Technology Department. Advises and assists primarily on recording, publishing, management, endorsement, live work and high-profile events.

Bray & Krais
Bray & Krais Solicitors is a niche entertainment law firm, specialising in live events, music, theatre and production. For more details of Bray & Krais click here.

Music & Copyright
If you like this blog then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.

Will it have been worth it? The US is absolutely crucial to Spotify’s long-term plans. There’s no escaping from the fact that the amount of money artists receive per stream from music-streaming sites is incredibly low. This is a particular concern in the US, where labels generate much of their global revenue. But the only way Spotify can grow into a viable financial model, and move towards placating labels and rights-holders, is by amassing a huge number of users. Music streaming will always be a low-margin, high-volume business, and the US helps Spotify towards achieving the latter. With one set of negotiations – no matter how protracted – the service now has access to a population the equivalent size of the EU.

The P Word
The US is a very different beast from Europe, of course, and, in a sense, Spotify’s success in Europe counts for little in its latest territory. Outside tech circles, the site has limited brand awareness. And in Europe no other music on-demand service, with the notable exception of Deezer in France, has built up an audience close to Spotify. In the US, Rhapsody and Napster have been plugging away at the paid-subscription game for years, while Mog and Rdio are other notable new entrants. And this is without even mentioning Pandora, which just announced its 100 millionth user and for many US consumers, along with iTunes, is digital music.

Yet no music on-demand service has broken through a million paying users yet. In fact, Informa Telecoms & Media, publisher of Music & Copyright, estimates that there were only 2.5 million paying music subscribers in the US in 2010, including paying users of Pandora (customized radio) and eMusic (MP3 bundles), both very different offerings to Spotify. So despite the competition, there is a definite gap in the market for Spotify, and an opportunity for it to grow said market. If all it manages to do is poach a few users from its competitors, the launch must be deemed a failure.

When not to change a winning formula
It’s also worth remembering that, more so than in Europe, the US is a market where consumers are willing to pay to subscribe to content. A top-end triple-play package can easily cost US$150/month in the US, compared with under US$100 in Europe. 23 million users subscribe to Netflix, while over half of all users of Microsoft’s Xbox Live subscription service come from the US. And, to top it all, at US$10/month – the benchmark stand-alone cost for music streaming including mobile access in the US –Spotify is much cheaper than in Europe. That cost will drop even further if it is able to strike the kinds of subsidized deals in the US that it has with Telia in Sweden.

With this all being so, why have others not succeeded already with music subscriptions in the US, and what can Spotify do differently? In a sense, it must simply repeat the formula that has served it so well in Europe: A clean, intuitive user interface, deep links with properties like Facebook and Last.fm (a Pandora deal is not out of the question) and high penetration across mobile handsets and other devices.

Yet what will really determine whether Spotify will thrive or merely survive is the free element, which is currently available via invite only and is capped at 20 hours listening per month before dropping further. None of the music on-demand services in the US have a free element beyond limited trials. And Pandora’s rabid success is built on the back of most elements of the service being free. While none of this may appease (understandably) cautious label execs, the fact remains that Spotify would not have got one million plus paying subscribers in Europe without being able to introduce users via the free service. It may not get that many, even across the vast swathes of the US, if it is forced to cap its free offer too quickly.

This blog was written by Giles Cottle, Principal Analyst at Informa Telecoms & Media.

NCB is a Nordic collection society owned by authors’ societies KODA (Denmark), STEF (Iceland), STIM (Sweden), TEOSTO (Finland) and TONO (Norway). It also has cooperation agreements with Baltic authors’ societies LATGA-A (Lithuania), AKKA/LAA (Latvia) and EAU (Estonia). It collects mechanical-rights income for the Nordic and Baltic countries and distributes it to each society, which in turn distributes it to their members.

As NCB collects mechanical rights, the fall in recorded-music sales has ultimately led to a fall in collections. NCB’s revenue was down 5.4% last year, to DKK367.7 million (US$65.6 million), from DKK388.5 million in 2009. NCB reported a fall in revenue in every country it covers except Lithuania.

With mechanical royalties likely to decline for a few more years, some of NCB’s owner societies have questioned what role NCB should play in the future. STIM and TEOSTO had previously issued notice that they would withdraw their rights from NCB, but the termination notices were retracted last spring. In its annual report, NCB said that the owner societies’ decisions to retract the notices enabled “the continued transfer of rights from these two societies to NCB and removed some of the uncertainty that had affected the relations between NCB’s owners during a period of more than three years.” NCB added that the move increased stability and enabled NCB to “realize its vision through increased collaboration with other European societies.”

Big success in multi-territory licensing
The European Commission is expected to unveil legislation later this year to advance its goal of streamlining Pan-European licensing, but NCB and its owner societies have already made significant progress with regards to multiterritory licensing. The moves seem to have gone unnoticed at the European level but could be presented as a positive example of how multiterritory licensing could be made to work.

Since early 2009, the eight Nordic and Baltic collection societies, with NCB acting as a facilitator, have offered the Joint Nordic/Baltic Online License (JOL), which combines NCB’s mechanical rights with the local societies’ performance rights. Digital-music companies that are looking to enter two or more Nordic/Baltic territories have the option of taking a single license that covers all eight countries. Tariffs contained in the JOL are based on the “territory of destination” principle, which means local national tariffs are applied. This guarantees there is no price difference or advantage gained should a digital-music service choose to pursue individual national licenses.

NCB acts as the facilitator in licensing negotiations, and taking a JOL is voluntary. Digital-music services can, if they choose, negotiate with one or more local societies. Local collection societies also have the choice to opt out of negotiations. One or more local agreements plus a “residual” JOL is also an option. But according to NCB, of the nine JOLs already in place and the nine that are under negotiation, no digital-music service or local society has opted out.

In its annual report, NCB describes 2010 as “a year of change” and one where its vision of becoming a European hub for mechanical licensing moved a few steps closer. It added that the most significant event in 2010 was the collaboration with the UK mechanical society MCPS, which is part of PRS for Music, to establish a joint venture for processing recorded-media royalties. Under the arrangement, MCPS will move its recorded-media-royalty-processing functions to an NCB system that – based on NCB’s “Bifrost” system – will be developed to cater to MCPS’ requirements. The system is expected to be ready ahead of schedule in the final quarter of this year. A board of representatives from NCB and MCPS is in place to oversee delivery of the program, which is expected to become operational before the end of this year.

Both NCB and MCPS expect that once the collaboration up and running, other societies will be invited to join. This joint venture, like PRS for Music’s and STIM’s International Copyright Enterprise partnership, is an excellent example of how future European consolidation of society activities can be structured. It is also good to see that collection societies, which have come in for criticism recently for holding back the digital music sector, can put in place the infrastructure required for digital growth without the need for legislation.

Music & Copyright
If you like this article then Music & Copyright might be just what you are looking for. It is a fortnightly research service covering global copyright and legal issues affecting the music industry. It is unrivalled in its coverage of this complex and fascinating area of the music industry. It is also why our extensive client list includes companies and organizations from all sectors of the music industry operating all around the world. But don’t take our word for it, please get in touch and we will send you the latest issue.

Music & Copyright is published by Informa Telecoms & Media.