Swedish Music Industry Views: Part Two

Danielsson: They include redeveloping corporate direction. I'm quite involved with the strategic partnerships STIM has with [music performing rights societies] PRS in the UK and GEMA in Germany through which we've developed ICE, a music licensing hub but also a back-office service for musical works documentation and for processing digital music services reports.

Q: What revenue streams does STIM track?

Danielsson: Public performance and mechanical royalties [the latter for songs used in recordings]. And if you look at YouTube and the use of audiovisual content, there's an element of music synchronization, or micro-synchronization, song rights. It's become a more common solution for music publishers to mandate on some level the clearance of synchronization rights for user-generated content. But rather than having to clear the synchronization with the publisher for that song, it can be done, for example, through YouTube's license with ICE for the performance, mechanical and synchronization rights.

Q: In 2014, the European Union passed the "Collective Rights Management Directive," with its emphasis on the administration of copyright incomes, the multi-territorial licensing of music and transparency for society members. In 2019, the EU passed its "Directive on Copyright and Related Rights in the Digital Single Market." Has the way these have been drafted reflect the day-to-day reality of what you do?

Danielsson: The answer can depend a lot on whom you're talking to in the industry. For STIM, to a large extent, it's a codification of how we've been operating, though a fair number of collecting societies around Europe have had a bigger adjustment to do. But in our view, it's been a welcome codification and clarification for our operations. There are clearer expectations on the issue of transparency, by spelling out what it is you're supposed to do and what kind of information and reporting you're responsible for providing to your stakeholders. We also gain from the increased level of transparency that it requires from other organizations like us. For instance, [the CMOS] are obligated to produce a transparency report as an appendix to their annual organization reports. That's one way that we [at STIM] have more insight into what's going on in different parts of Europe.

The quality of the reporting varies somewhat among different organizations in European different countries. In part, it's because an EU directive is implemented by local legislation in each territory and there can be differences in how they interpret a directive. But I also think that different organizations around Europe have different capabilities. Some of them have a harder time in providing transparency or they are less inclined do it by the book. We feel sometimes that we are not quite getting all the information we would expect from some territories. This reflects a concern that has been in our business for many years, that there is a range of how efficiency and transparency. Hopefully, STIM is considered a trusted and reliable organization with a high level of transparency.

Q: What direction is there from the EU on required components for an annual transparency report?

Danielsson: The core pieces are to make very clear your collections from different categories of usage, your administrative deductions, any deductions you're taking for cultural or political purposes, how you treat revenues receipts from organizations in other countries and how the collected revenues are distributed. There's also how undistributed "black box" royalties are treated. The latter is certainly something we report on, though it's one area where all organizations are struggling. Depending on the usage area, we sometimes have challenges to find the right rights holders to pay them.

Look at Italy and how much black box money is sitting there. Is there anything STIM can do as an organization to verify that it's not our money that's there or who can I provide data to to help them release black box funds. Within certain limits, though, organizations have some liberty to decide what to do with that black box money after they've jumped through the hoops of trying to research who is the rightful owner of that money. For example, a CMO can choose to distribute black box money to the collective's rights holders based on some sort of methodology or choose to fund other activities.

Q: How else has the EU mandates impacted the Swedish music industry?

Danielsson: We never had a formal government body looking into what we're doing. We operated by membership-based scrutiny. But we now have a governing body, the Swedish Patent Office, which monitors and follows up on our directive compliance. Previously, we didn't have anything like the U.S. Copyright Office. Presumably our Patent Office was the government agency closest to the issue. It hasn't forced us to do things that differently, but it means that a [CMO] member with a complaint can direct that to the government body, which can start an investigation.

Q: ICE is a major, multi-country European music rights entity. How did its member organizations — from the UK, Sweden and Germany — join together to form ICE?

Danielsson: At the start, a few years ago, it was STIM in Sweden and PRS in the UK. One motivation was the realization that we were doing a lot of processing in societies around Europe that essentially duplicated effort. It was logical to do it once in one place. So STIM and PRS established a joint database and a joint back-office service for music works documentation. ICE also came about because of the early developments in the growth of digital music consumption resulting in the fragmentation of rights and with the landscape that would follow, as well as from then-pending enforcement activities at the EU level essentially prohibiting local monopolies by the different societies in EU countries. It also became clear that we needed a much better database, with much more granular information capable of handling bigger volumes, to have a chance at processing and administering digital music services in the future. It turned out to be a very foresighted decision.

Q: How did GEMA become part of ICE?

Danielsson: As the fragmentation of digital music rights took off, a business model was established in which an established music publisher would team up with a society to form a special purpose vehicle (SPV) in which the society provided the administration for the processing of the Anglo-American rights for that publisher. The SPV would also secure the matching performing rights for that repertoire, typically from the Anglo-American performing rights society. And you had STIM and PRS with very internationally success repertoires, and GEMA representing a very big local market in Germany. It just made sense to have these three organizations join forces. ICE became a very natural context to do that. Starting out with a works documentation database, ICE evolved into a service for processing the music usage from digital services, then establishing a joint front-office for the licensing of STIM, PRS and GEMA rights to the relevant players in streaming, downloads as well as some audiovisual services.

Even so, in Europe you still have rights societies with different technical capabilities that are using different databases and duplicating processes. This can result, for example, in [music-streaming service] Spotify receiving invoices from 30 or so licensors that should add up to 100 percent of the royalty value, but there's over-invoicing because a lot of these players aren't able to figure out exactly which royalties to invoice for. So it's the right move to have more non-national-monopoly hubs like ICE established to re-aggregate the rights market. ICE is re-aggregating for Swedish, UK and German writers and publishers, so that Spotify has one party to deal with instead of three. This is the way forward. To get further, standardization of processes, data formats, invoicing principles and such, has to continue, with a few hubs that can make joint investments in acquiring the technology that can actually handle all the data volumes and complexity.

Q: What impact do you think the UK's Brexit will have on all of this?

Danielsson: I think what most people in the music industry are relying on to some extent is that the basic regulation of copyright is not based on the EU, but on international conventions and treaties (like the Berne Convention). There potentially could be royalty-flow tax-regulation complications, but tax is not a key area for EU regulations; most of the tax treaties are bilateral. More border barriers do create a risk, but it was already an issue because you don't have perfect implementation of the EU's laws.

Editor's Note: This article was developed and conducted in part under grants from the U.S. Department of Education through its Centers for International Business Education and Research at the University of Colorado Denver. The article does not necessarily represent the policies of the U.S. Department of Education.

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Stan Soocher is Editor-in-Chief of Entertainment Law & Finance and Professor of Music & Entertainment Studies at the University of Colorado's Denver Campus. For more information: www.stansoocher.com. Special thanks to Elisabet Widlund Fornelius, Managing Director of the Swedish music publishers' organization Musikförläggarna from 2016 through 2019, for her valuable input into this article.