29 August 2008

Music licensing: key issues for not-for-profit organisations


An individual or organisation wishing to arrange an event or use music (live or recorded) to be performed at a venue which it controls or manages or on websites etc, needs to be aware of certain issues which govern use made of live or recorded music. There are also proposals for change which have an effect on the charitable sector particularly and which any charity needs to consider responding to.

The background

An organisation must obtain licences for the right to use music which it wishes to play at its premises, at an event or on a website for example. Creators and performers of music and songs have certain rights which are protected by copyright. Playing a recording involves use of the copyright in the recording as well as in the music and lyrics. Performing a song involves use of copyright in the music and lyrics. So a single recorded track may have separate copyright in the sound recording, the music and the words (lyrics) all owned by separate people (each one being a rights holder). A music video may well also introduce rights in dramatic work as well as films.

Payment for the use of any (and all) of these rights is required for the playing of a record / radio or the performance of a song. Fortunately, there is usually no need to track down each of these rights holders. Payments are collected by a number of different organisations, who collect on behalf of the rights holders and then distribute the royalty fee paid amongst the individual rights holders:

Phonographic Performance Limited (PPL) enforces rights relating to (i) sound recordings and performance; and (ii) public performance and broadcasting of music videos1; and

Performing Right Society (PRS) manages rights in music and lyrics. It is therefore usually necessary to obtain a licence from both organisations to play recorded music in public, unless there is a reason why use made of the recorded music is exempt.

The current position

Currently, charitable organisations do not need to obtain a licence from PPL to play CDs or other recorded music or to play radios or TVs which include recorded music at venues where the audience are not charged entry. However, there may still be a need to obtain a PRS licence, as there are no corresponding exemptions from the PRS licensing requirements at present.

It is not copyright infringement for a club, society or other organisation to play a sound recording where (i) the organisation is not-for-profit, and its main objectives are charitable or otherwise concerned with charitable objectives of education, social welfare or the advancement of religion; (ii) the organiser is not acting with a view to gain; and (iii) any proceeds of any admission charge are applied for the purposes of the organisation. A not-for-profit organisation can also show a broadcast2 free of charge to audience members without infringing copyright in the broadcast.

Proposals for change

The UK Intellectual Property Office (‘UKIPO') has launched a consultation, with responses due by 31 October 2008, focusing on the scope of the exemption applicable to not-for-profit organisations for their use of sound recordings. This has in part been prompted by PPL's concerns that the current UK legislation is not in conformity with the requirements of European legislation which set out a test for assessing whether the right holder's rights should be subject to any limitations. The European Rental and Lending Directive 92/100/EEC aims to ensure that the legitimate interests of the right holder are not unreasonably prejudiced by enforced licensing / remuneration provisions found in national legislation. The requirements of this directive could mean that some organisations which are currently exempt from paying fees to the PPL under the UK legislation should in fact be making payment to PPL.

UKIPO has proposed 3 options:

(i) Option 1 – the exemption should be repealed, giving the rights holders exclusive rights over the public playing of sound recordings in all the circumstances which are currently exempt;

(ii) Option 2 – the exemption should be narrowed so that only smaller charities can benefit from it, but extending it so it applies to both the PPL and the PRS licence, allowing smaller charities to avoid the need to acquire either licence;

(iii) Option 3 – the exemption should be repealed but rights holders should only be able to charge royalties at a rate which is considered fair to the rights holders and the users, (such amount being referred to as ‘equitable remuneration').

UKIPO is inviting feedback on the options outlined above and is conducting an impact assessment into the likely effect of each of the three options. Further details of each option are set out in Appendix 1.

What action should you take?

Options 1 and 3 set out above would remove the blanket exemption available to charities and not-for-profit organisations and open up the issue of pricing and charges for the use of music in a way which increase the administrative burden on a charity and would mean that charities would have to negotiate individual terms of use of a licence to enable the organisation to play music from both PPL and PRS. UKIPO has proposed a £20,000 turnover threshold before ‘small charitable groups' can benefit from the Option 2 exemption. This will mean that numerous organisations will no longer qualify for the PPL exemption, whilst educational establishments are to be excluded entirely from the definition of ‘small charitable groups'.

Concerned charitable groups and not-for-profit organisations should therefore prepare responses to the consultation paper, setting out details of the likely impact of the proposed changes on budgets, administration and employees, and which of the proposed changes are likely to be most significant.

Interested parties should therefore prepare a consultation response document setting out:

- details of the likely costs of acquiring the additional PPL licence;

- details of any administrative difficulties encountered in acquiring either licence;

- whether you would benefit from the Option 2 exemption;

- any concerns about current costs of licences, for example whether you would consider making a reference to the Copyright Tribunal to challenge the cost of a licence;

- whether the changes would mean your organisation would stop using broadcast or recorded music rather than obtain a licence.

The consultation paper available from UKIPO includes a draft response template: www.ipo.gov.uk/consult-musiclicensing.pdf

Local government entertainment licensing regime

As well as copyright licence, local government legislation requires that premises be licensed for the sale or consumption of alcoholic drinks and the provision of entertainment including the performance of live music and the playing of recorded music. Certain activities are excluded from the definition of “regulated entertainment” which may mean that the premises in question do not require a licence for certain activities they undertake.

The main exceptions are:

- The right to provide entertainment consisting of the performance of live music or the playing of recorded music where it is incidental to some other activity which is not in itself a form of regulated entertainment (e.g. background music in a shop); and

- The right to provide entertainment for purposes relating to a religious meeting or service.

Charities are not exempt from these provisions and therefore need to bear this regime in mind and ensure that they are properly licensed.  

Previously this was handled by Video Performance Limited.  

Being an electronic transmission of visual images, sounds or other information which is transmitted for simultaneous reception by members of the public.

Appendix 1

Background to the UKIPO consultation

Option 1 – Right holders' exclusive rights to licence

Option 1 would give rights holders the exclusive right to collect royalties from all users, including those who were previously exempt. The performers of the music would also have the right to obtain equitable remuneration in respect of the recording performed, which would be collected via PPL. This option would expose all organisations to a significantly increased administrative burden to account to both collecting societies in respect of all music played. This argument is based on the premise that not-for-profit organisations / charities should not receive exemptions in respect of the broadcast / performance of music, music being just another commodity (such as electricity) used by such organisations. However, music rights holders operate from a monopoly position, and without a licence, use of the music will constitute copyright infringement, which places rights holders in a strong bargaining position.

Whilst it is likely that certain rights holders will want to make their copyright work available to charities at a discount or for free, it will not be possible to predict this and therefore accurately gauge the likely cost of the necessary music licences.

Option 2 – ‘Small charitable group' exemption

This option would ensure that the exemption for certain organisations from the need to obtain a PPL licence would also be extended to the need to obtain a PRS licence. However, it is proposed to recast the exemption so that a more limited range of not-for-profit organisations benefit from this dual exemption. This would have the effect that both sets of rights holders (i.e. the owners of the copyright in sound recordings and the owners of the musical copyright) are treated in a consistent fashion. UKIPO is proposing to extend the exemption to ‘small charitable groups' (excluding schools or other educational establishments). The exemption would also be extended to benefit the NHS.

Those users no longer exempt would have to agree royalties with the relevant collecting societies. If a royalty charge was believed to be excessive, there is a possibility of making a reference to the Copyright Tribunal for the Tribunal to establish whether the terms of the licence are reasonable.

Option 3 – ‘Equitable remuneration'

The introduction of this requirement would result in the current exemptions for charities remaining in place, but equitable remuneration would be payable by non-exempt users. Users would still have to obtain a PRS licence in respect of the musical copyright. There is currently little guidance on what constitutes ‘equitable remuneration' which would expose organisations to significant amounts of uncertainty in assessing how much is payable for the licence granted. UKIPO suggests that the size and nature of the audience, the commercial benefit likely to be obtained from playing the recording and the size and turnover of the organisation using the work should all determine what constitutes equitable remuneration.

UKIPO acknowledges that as the concept of equitable remuneration is quite new, it may cause rights holders and users difficulty assessing what constitutes an equitable level of remuneration. It may also be more difficult for collecting societies to apply licensing schemes across a whole category of users, as they do currently.

Category: Article