Rebalancing the Economy: Trade and Investment

Written evidence from PRS for Music

Executive Summary

1. PRS for Music welcomes the opportunity to comment on how best to deliver international export advantages as the Government seeks to rebalance the economy. A comprehensive strategy for increased growth through trade requires positive approach es to intellectual property rights (IPR) as a successful world trading system depends on a robust framework and adequate enforcement regimes . Policy should support a system in which the UK has export advantage but also allow for recognition of the importance of IPR to all countries for foreign direct investment purposes and for the success of their own creative and manufacturing industries. [1]

2. The UK music industry (in which PRS for Music represents composers, songwriters and music publishers) has enjoyed considerable success abroad – the UK is the second export nation after the US. In 2009, the total net value of (performing and mechanical) rights collected for the use of our members’ works by our partner collecting societies was in the region of £415m. PRS for Music currently seeks to grow revenues from British music use abroad by another 40 per cent over the next five years.

3. In this submission we outline our key markets today and the key potential markets for growth. Through the network of reciprocal contracts with similar societies overseas supported by a sub-publishing network, we have access to over 150 markets and have appointed societies to license our members’ rights. For PRS for Music, the key to growth is appropriate legal and operational infrastructure which supports the licensing of music rights in those countries, and to ensure that there is value for IP in those markets.

4. Maintaining today’s inward income flows and securing our commercial potential in new markets will be assisted by Government acting to both reduce regulatory barriers and strengthen the international copyright system to protect the rights and royalties which can be paid to British writers. Key obstacles to enhanced growth include the following factors:

o Legal issues – c opyright exceptions reducing income to rights owners , l ow tariff rates being set which significantly limits the potential for revenue returns; or out of date copyright laws;

o Double taxation - the impact of withholding tax (income tax withheld at source) , especially where no bi-lateral treaty with the UK is in place;

o Weak Governmental support or infrastructure in place for collective rights management;

o Piracy (both physical goods and digital music);

o Low c opyright awareness and compliance;

o Access to market restrictions imposed by foreign Governments .

5. PRS for Music proposes several recommendations with respect to how Government can provide support for our export agenda:

o Greater policy coordination across Government departments with respect to trade policy and a specific need for greater cross-departmental input across IPO, FCO, HM Treasury, BIS, and DCMS;

o Government (BIS , FCO and the IPO) to liaise with its equivalent Ministries to actively play a leading role in highlighting the importance of retaining the value of a robust IP framework for trade purposes and for local cultural and creative industries;

o Greater scope for industry to contribute input into the BIS Trade Team and engage officials via clearer channels of communications and notice of outbound Ministerial trade delegations, as appropriate;

o For UKTI to be continu ally f unded at an appropriate level (with due support for the creative / digital sectors in particular ) ;

o The creation of a network of ‘IP attachés’ located within embassies in nations throughout the world, who would assist in championing IP rights in the territories for which they held responsibility, as advocated by the Publisher Association;

o Government to give much greater consider regarding how copyright and intellectual property provisions might feature more prominently in bi-lateral and regional trade framework agreements and discussions. Furthermore, additional intellectual property action plans could be developed in key markets ;

o Government to support our case for redress in relation to persistent U.S non-compliance with the WTO ruling on the "Bars and Grills" exception;

o Reform of the onerous withholding tax rules to r educe compliance costs and delay in processing and administration , which may include developing bi-lateral treaties double taxation agreements where they do not currently exist, a reduction to zero of any retention even where such Treaties do exist , and specific fiscal policy measures which support the competitiveness of the UK as a conducive business environment for the provision of multi-territory licensing services .

Introduction to PRS for Music

6. PRS for Music is a collecting society with 7 5 ,000 songwriter, composer and music publisher members (including 5,000 non-UK resident members), including some of the world's best known writers. The membership of PRS for Music has grown significantly in the last 5-10 years, up from 34,000 in 2003 which is indicative of significant growth in activity and interest in writing music and in awareness of licensing as a route to monetising that creativity. Similarly PRS for Music has seen the emergence of several significant new independent publishing companies in the market. Our membership continues to expand.

7. PRS for Music is one of the world’s most efficient music licensing operations, offering its members more money, more often, at less cost and its customers the most efficient means by which they can use music. PRS for Music has played a pivotal role in provided legal solutions for music online for over a decade. The first ever Joint Online Licence was issued in 2002, long before the launch of iTunes or the Pirate Bay [2] . Since then, PRS for Music has been at the heart of enabling the legal online music marketplace through our licensing deals. To date, we have issued online licences to 40 major music services and in total to 1,400 online services using music in 2010 (up from only 400 in 2006). Through our licensing contacts with businesses we also educate new entrants to the market about copyright and music licensing solutions.

8. In March 2010 PRS for Music announced its 2009 financial results. Total income collected for distribution was £623m - a significant part of the UK music industry. Collective management of rights (business-to-business licensing) forms a growing percentage of the total value of the music industry in the UK.

Comparative Advantage of the UK

9. The UK’s musical talent has dominated the world stage for decades and is truly an enduring global success story in every genre. UK talent represents a highly valuable and exportable economic asset for the UK, which, in value terms, has the largest music market in Europe, and the third largest in the world. [3] PRS for Music and its members make a positive contribution towards UK growth. The UK is one of only three net exporters of musical repertoire in the world, the others being USA and Sweden. This achievement highlights important points – music copyright is a highly valued good in the UK, and that UK Music is highly valued overseas.

10 . T he UK’s international export advantage lies in the ability to exploit our creative capital as the Government seeks to rebalance the economy. With respect to the relative performance of creative industries exports, it is notable that royalty and license fees feature particularly strongly, which reflects the strength of the UK as a source of ideas. [4] Furthermore, not only is UK music a distinctive international brand, the underlying musical rights in TV, film, video games and advertising greatly contribute to the success of other creative sectors and provide significant spill-over benefits, as indicated in a recent Work Foundation report. [5] PRS for Music’s composer, songwriters and music publishers lie at the heart of this success.

11 . The call for evidence in the Government’s Trade White Paper consultation acknowledges that "the best possible regulatory infrastructure, such as effective and flexible Intellectual Property Rights (IPR) systems are necessary, as supported by effective enforcement mechanisms, relevant to our digital and technological age". The music sector and the wider creative industries are underpinned by copyright both domestically and in global valuation. For money to flow back into the UK, it is vital that the copyright system in those countries protects the rights and that royalties can be paid to British writers. Despite our continued overseas growth there remain even further opportunities for revenues to come back into the UK and Government policy has a key role to play, as we have indicated in our response.

1 2 . British composers and songwriters have access to all global markets through the international infrastructure of music rights collecting societies, which PRS for Music is part of . In many of these markets, their creative industries and access to technology are growing substantially and our composers will benefit from that growth. The international infrastructure is made up of a network of reciprocal representati o n contracts and PRS for Music actively manages relations with a network of collecting societies in over 100 countries.

13. PRS for Music undertakes direct licensing where no collecting society is established or where a collecting society is not able to license the market (such as in Malta, Cyprus, and the Bahamas). We also license on a multi-territorial basis for online rights, to assist music users seeking access to multiple markets.

14. In 2009 there was a significant increase in PRS for Music revenues from British music use abroad (up 19.4% to £166.9m ) which were buoyed by both exchange rate gains and by increased activity in key markets. For historical context, the total income (performing rights) collected in 2008 was £139.7m; in 2003 it was £92.1m; and in 1998 it stood at £62.5m.

16. However, in the wider context, in 2009 , the total net value of (performing and mechanical) rights collected for the use of our members’ works by our partner collecting societies was in the region of £415m. Royalty payments are made by our collecting society partners to the local sub-publisher of the musical work, so approximately 50% of the income stays overseas or is brought back to the UK through the sub-publishing network rather than through PRS for Music , so is not measured by us.

17. The most significant demand comes from the US, France, Germany, Japan and Holland, although there is a growing appetite from emerging markets, including both Central and Eastern Europe and Latin (South) America. PRS for Music recently responded to a UKTI request regarding our key market priority markets, which highlights that there is significant potential to grow our international revenues , partly due to high potential growth in emerging and developing markets.

1 8 . PRS for Music currently projects to grow revenues from British music use abroad by another 40 per cent in the next five years to just short of £250m. If Government continues to develop the reciprocal IPR dialogue with all the UK’s trading partners, and to reduce the barriers and obstacles referenced below, this will have a significant boost to PRS for Music being able to increase the export value of music created by Britain’s writers, the result of which would be to bring additional taxable revenue back into the UK.

The Role of Government – reducing barriers to growth in key markets

19 . PRS for Music faces significant challenges in securing existing and potential global revenues for the UK. S tanding in the path of further growth are a range of regulatory obstacles as well as existing barriers and challenges which exist to prevent PRS for Music from securing further overseas income. Typically these problems include:

o Legal issues – c opyright exceptions reducing income to rights owners , l ow tariff rates being set which significantly limits the potential for revenue returns; or out of date copyright laws;

o Double taxation - the impact of withholding tax (income tax withheld at source) , especially where no treaty with the UK is in place ;

o Piracy (both physical goods and digital music);

o Low c opyright awareness and compliance;

o Access to market restrictions imposed by foreign Governments.

Recommendations for Government support

20. Accordingly, we suggest that further efforts are required by Government to help ensure that intellectual property rights are substantively protected and that they are valued appropriately (and not lowered unnecessarily) in an international context to strengthen UK competitiveness.

21. There is an ever increasing need for greater policy coordination across Government departments with respect to trade policy and a specific need for greater cross-departmental input across IPO, FCO, HM Treasury, BIS, and DCMS. The recently issued BIS / HM Treasury Growth Review has aims to "improve international competitiveness and greater opportunities for exports as well as encouraging inward investment, particularly in digital content, which is an ongoing area of strength for the UK".

22. The Government recently commissioned Professor Ian Hargreaves to conduct an "Intellectual Property and Growth Review", which is currently considering questions regarding what short and medium term measures can be taken now within the international framework to give the UK a competitive advantage. We believe that the UK already has a competitive advantage in the creative sector so instead the focus should be on how to maintain our export strength and work with other Governments to ensure the value of intellectual property rights is both enhanced and protected.

2 3 . A number of key countries are in the process of amending their copyright laws – Brazil, India and Canada - being the most notable . We encourage Government (BIS , FCO, and the IPO) to liaise with its equivalent Ministries to actively play a leading role in highlighting the importance of retaining the value of a robust IP framework for trade purposes and for local cultural and creative industries .

24. The Government must be able to adequately reflect the priorities of industry in trade discussions. PRS for Music believes there is greater scope for industry to contribute input into the BIS Trade Team and engage officials via:

· Clearer channels of communications being made available to feed into the BIS trade officials regarding the UK Government negotiating position; and related to this, it would be helpful to have much further advanced notice of bi-lateral / regional trade negotiations with specific countries and opportunities to input accordingly;

· Notice of outbound Ministerial trade delegations, as appropriate.

25. Where industry has experienced barriers to trade, issues around compliance with international IP rights obligations or other concerns affecting the trade within a specific territory, these issues need to be fed into any bilateral and multilateral negotiations being undertaken. By making the process more open and transparent, trade policy will more accurately reflect the needs of UK businesses and which is adaptable to the local trading conditions within overseas markets.

The Role of UKTI

26. PRS for Music recognises the important role that UKTI plays in providing support for companies looking to develop their international business through offering business advice and introducing companies to new markets. It is vital that UKTI continue s to be appropriately funded by Government in light of the decisions made in the October Comprehensive Spending Review.

27. We also propose that additional UKTI Creative Industries / Digital Experts are sought, especially in key emerging market territories, in order to support further growth potential in these sector areas;

2 8 . We also support the proposal from the Publishers Association for a creation of a network of ‘IP attachés’ located within embassies in nations throughout the world, who would assist in championing IP rights in the territories for which they held responsibility. This would seem highly valuable and consistent with the establishment of a new FCO Commercial and Economic Diplomacy Group. IP attachés could be able to act on the ground with the capacity to liaise with both industry and officials on a regular basis. This would include facilitating meetings for visiting industry professionals from the UK, enabling high-level talks between industry and overseas officials, and representing the interests of UK IP owners to the government of the country in which they were posted. A system such as this would significantly enhance the UK trade function overseas and provide embassies and trade officials with the expertise and capacity to fulfil this very important role.

29. PRS for Music welcomes the changing role of the Foreign Office and Embassies towards trade promotion so far as they will link more closely with the existing UKTI teams, as a driver of economic recovery. Our international team are now in the process of developing their relationships with UKTI offices and embassies in various territories; and we are incorporating such engagement into our licensing strategy to open up partnership opportunities in specific markets to facilitate trade and bring more revenue back to the UK. It is crucial that the BIS Trade White Paper aligns appropriately with UKTI strategy, which according to the BIS Structural Reform Plan, will be published early in 2011.

30. As it stands, the Creative Export Group (and Music Export Group), which are currently run by UKTI, have operational focus. We would like to see them link to the wider public policy agenda. Both groups could consider how to work much closer with BIS Trade Policy team and the IPO. We also believe that the Creative Export Group could further develop its role of cross-promoting and marketing each of the UK’s creative industries.

31. The direct benefit of promoting access can be demonstrated. The PRS for Music Foundation works to raise the profile of new music in the UK and abroad and does this in part through f the British Music Abroad mission. As an example, 51 emerging acts went to 8 international showcases in 2008. We have supported numerous ‘up and coming’ acts – including Bat for Lashes, who attended SXSW in 2007 which led to success including ASCAP award, Mercury and Brit award nominations and supporting Radiohead on tour; and Rap act Sway who was supported to attend SXSW in 2008, which enabled him to break into the US market leading a distribution deal for North America with Akon's label KLD. Our grants support international income, as indicated by the increase in overseas writer royalties following funding for acts at one US trade event, SXSW.

Global Priorities

3 2 . The multi-lateral system for intellectual property rights and norms is governed by as the World Intellectual Property Organisation (WIPO) and the World Trade Organisation (WTO). Other bodies have relevant roles such as the World Customs Organisation (WCO), and the Organisation for Economic Co-operation and Development (OECD) . As an example of international best practice, we point to the U.S. Government , which places great emphasis on strengthening international intellectual property enforcement efforts and increasing cross-border diplomatic and law enforcement co-opera tion - i t is now exploring opportunities for joint training, sharing of best practices and lessons learned and coordinated law enforcement action. It would be encouraging to see the UK Government learn from this experience and aspire to put in place appropriate mechanisms and resources which reflect a similarly high level of commitment.

3 3 . We believe that UK Government c ould give much greater consider regarding how copyright and intellectual property provisions might feature more prominently in bi-lateral and regional trade framework agreements and discussions.

3 4 . We applaud the recent Memorandum of Understanding signed by the IPO and the equivalent Chinese Ministry in September 2010 and the subsequent BIS action plan, reference by the Secretary of State during his most recent visit to China in November. Further consideration should be given to developing additional intellectual property action plans in key markets , as guided appropriately by input from industry.

35. The WTO rules based system is supposed to provide for global standards and compliance. We would like to draw attention to the persistent US non-compliance with the WTO ruling on the "Bars and Grills" exception which not only deprives European (as well as U.S) music creators and publishers of the remuneration they are due. As a result of Section 110(5)b of the US Copyright Act, there is an exemption which allows more than 70% of bars, restaurants and other retail outlets to escape paying royalties for broadcasting copyright works. A WTO ruling held that Section 110(5) was illegal and should be amended. The relevance of the bars and grills case highlight is the precedent offered by a key WTO proponent ignoring a decision against it. We believe this decision can only have long-term negative implications for the entire system and therefore needs to be addressed.

36. Whilst that there is ongoing dialogue between the European Commission and U.S Trade Representative to resolve this matter unfortunately the issue remains blocked. We encourage UK Government to support our case for redress and put pressure on the US via bi-lateral discussions to help resolve this case at the earliest opportunity.

Withholding Tax

3 7 . The call for evidence takes into account how the UK will work with the rest of the EU to ensure a fully functioning single market in light of the EC consultation, "Towards a Single Market Act – for a highly competitive social market economy". W e would like to briefly draw attention to the issue of withholding tax ( income tax withheld at source ) and this has implications for the UK’s international competitiveness as a location to provide services.

3 8 . The Monti Strategy for the Single Market identified the tax system as a barrier to the success and speed of delivering the single market, and specifically highlighted this in connection with the digital agenda. Withholding taxes (tax withheld at source) present a major obstacle to cross border licensing, which we can identify as resulting from shifts to multi-territory licensing, from structural changes in the collective management of rights and lastly from divergence of the interpretation and application of tax rules by different member states.

39. Songwriters, composers, music publishers deal everyday with the processes of dealing with income tax withheld at source on royalties earned overseas and the administration of managing taxes for accounting purposes. The music business is heavily made up of individuals and SME’s who cannot benefit from the cross border transfer exemptions of the Royalties Directive. Tax policy remains a national competence. Income tax withheld at source in another country can be claimed back but that incurs compliance costs and delays, complex administration to deal with multiple different systems across the EU and, if appropriate taxation treaties are not in place, exposure to double taxation. There is also a further complexity for collective licensing of rights on a multi-territory basis. National tax systems are impeding or interfering with the design of the best and most effective cross border licensing models. The international success of British music industry and its strength as an export means that these problems are more acute for them in Europe than perhaps for residents of other countries. The number of individuals and SMEs all exposed to the issue also means the issue is widespread.

40 . Specifically, we seek improvements to the system that can reduce compliance costs and delay in processing and administration for agents managing rights, including collecting societies. Our objective s in this area are ultimately to:

· R educe the exposure to irrecoverable losses;

· R emove the barriers that the current systems poses to the speed and flow of royalties into the UK for resident and national songwriters and composers;

· C onsider how changes in the operation or transparency of the cross border tax rules could assist with the development of improved copyright licensing solutions for digital services;

· Level the playing field for individual rightsholders, SMEs and their agents with larger companies who needs have been addressed through directives at the European level

41 . Given PRS for Music seeks to become a key hub for rights to be located in a competitive European market, we believe that onerous withholding tax rates, processes and rules do not support such a future ambition; rather they impede the development of models for collective multi-territorial licensing of music rights and subsequently increase their cost.

4 2 . We have requested to HM Treasury that their recent "Taxation of Innovation and Intellectual Property’ review consider the effect of withholding tax when applied to cross border licensing and distribution of copyright royalties, to focus on compliance costs and their impact on the success and growth of the creative industries and of the competitiveness of the UK as a location for IP businesses. In terms of specific solutions, we propose that:

· Government put in place appropriate bi-lateral double taxation agreements where they do not currently exist and a reduction to zero of any retention even where such Treaties do exist.

· Government facilitate greater coordination with Member States regarding the application of tax rules , including further transparency, support for streamlined process ing , and guidelines which are appropriate to assist cross-border rights and royalty flows both in and out of the UK within the EU and also between the UK and non EU countries.

Other Developing Countries and Emerging Economies

4 3 . The UNCTAD Creative Economy Report 2010 notes how the creative economy offers developing countries a feasible option to leapfrog into emerging high-growth areas of the world economy. [6] The report ‘Nashville in Africa: Culture, Institutions, Entrepreneurship and Development’ by the International Policy Network [7] highlights how several developing countries have many lessons to learn from the success of Nashville, Tennessee, once one of the poorest regions in the United States. Specifically, it suggests that creative clusters, such the country music sector, can be powerful drivers of development for several reasons because:

· They play to local strengths, taking advantage of knowledge, skills and forms of expression that arise from local culture, and are thus, by definition, largely unique and non-duplicable;

· For the most part they do not require cutting-edge technology, large capital investments, or a robust infrastructure;

· Although creative work often requires a significant personal investment in training and development, it typically does not require the sort of extensive formal educational system that still remains unavailable to the poor in many less developed countries.

44. As a result of Nashville’s success, the music industry has engendered a substantial tourism industry, with the additional transportation and lodging infrastructure that come with it. In order to ensure strong and credible institutions that support the emergence of local creative industries, the authors of the report recommend that Governments should:

· Enact, implement and enforce effective copyright laws;

· Reduce government intervention in royalty collection to create appropriate incentives and remove the problem that royalties being collected are often diverted by political interests;

· Reduce taxes and regulatory burdens.

4 5 . One of the sugge stions within this report is that by increasing the private sector’s responsibility to collect royalties this would serve to free up scarce resources for the local government and, crucially, improve the accountability between competitive CROs and local artists.

46. PRS for Music recognises its need to play a leadership role in terms of international best practice and we have an obligation and a direct interest in helping foreign collecting societies to make their operations both effective and efficient. A few illustrations of how that educational and training experience is rolled out have been highlighted below:

o Our International Department has been hosting three Open Training Seminars for foreign societies over the past three years. These two-day seminars aimed at developing collecting societies. Our experts give presentations on their areas of expertise, answer questions and give advice through Q & A sessions. The seminars have been attended by senior management (up to CEO level). Over the course of the last three years, we’ve had 83 representatives from 16 collecting societies attend our seminars.

o PRS for Music sponsors and supports the British Copyright Council training course in copyright and related rights, which is intended mainly for government officials from developing countries. This two week training course is organised on behalf of the WIPO Worldwide Academy and in association with the IPO. Through educating sister societies, our objective is to improve a much greater understanding of the benefits and processes related to collective rights management overseas.

o PRS for Music supports WIPO’s training and education programmes for collecting societies in developing countries through the provision of executive expertise and training.

31 January 2011