Music royalties deal breaks competition law, says Commission

The agreement, known as the Santiago Agreement, was signed in October 2000 by five organisations – including the Performing Rights Society (PRS) from the UK and Broadcast Music Inc from the US – that collect royalties on behalf of music authors.

The Agreement is designed to tackle the problems that traditional copyright licensing schemes face in light of the growth of new technologies and internet use. The most obvious of these is territoriality, or lack of it, for once uploaded to the internet, copyrighted music is accessible from almost anywhere in the world.

The traditional licensing framework requires a commercial user wishing to offer such music to obtain a copyright license from every single relevant national society. The Santiago Agreement sought to adapt the traditional framework to the on-line world by allowing each of the participating societies to grant "one-stop shop" copyright licences which included the music repertoires of all member societies and which were valid in all their territories.

The Agreement was notified to the Commission in April 2001 by the collecting societies of the UK, France (SACEM), Germany (GEMA) and the Netherlands (BUMA). These were subsequently joined by all societies in the European Economic Area (except for the Portuguese society (SPA) and the Swiss society (SUISA)).

Yesterday the Commission announced that, while it strongly supports the "one-stop shop" principle for on-line licensing, it also considers that such crucial developments in on-line-related activities must be accompanied by an increasing freedom of choice for EU consumers and commercial users as regards their service providers.

According to the Commission, the structure put in place by the parties to the Santiago Agreement results in commercial users being able to apply for the licence from only the collecting society established in their own Member State. This, says the Commission, could be in breach of competition rules.

The Commission points to recent events in other areas relating to the collective management of copyrights, which show that a more relaxed structure will work.

In particular, in 2002 the Commission exempted a Simulcasting agreement that established pan-European licensing without imposing territorial exclusivity. Under this agreement, TV and radio broadcasters can obtain a licence from any of the collecting societies located in the EEA in order to simultaneously transmit their music broadcasts via the internet. This freedom of choice means that broadcasters can choose the most efficient society in Europe for the delivery of the licence.

In addition, the record producers' collecting societies announced in 2003 that they had concluded a standard agreement for the purposes of Webcasting licensing, under which commercial users enjoy a similar freedom of choice as regards the licensor society in Europe.

The Commission considers that the territorial exclusivity afforded by the Santiago Agreement is not justified by technical reasons and is irreconcilable with the worldwide reach of the internet.

It considers that the lack of competition between national collecting societies in Europe hampers the achievement of a genuine single market in the field of copyright management services and may result in unjustified inefficiencies as regards the offer of on-line music services, to the ultimate detriment of consumers.

The Commission has therefore sent a "Statement of Objections" to each of the EU collecting societies party to the Agreement. This does not prejudge the final outcome of the investigation.

The collecting societies have two-and-a-half months to reply to the Commission's objections. They can also request a hearing at which they would be able to submit their arguments directly to the representatives of the national competition authorities.