HC 743 Support for the creative economy

Written evidence submitted by PPL [SCE 089]

INTRODUCTION

1. PPL welcomes the Committee’s inquiry into support for the creative economy (the "Inquiry") and the opportunity to make a submission in response to the Committee’s call for evidence.

2. We note from the Inquiry’s terms of reference that the music sector is one of the creative industries from which the Committee is especially seeking views. We also note that other music industry organisations, including the BPI and Musicians’ Union (each of which has many members in common with PPL) and UK Music (of which PPL is itself a member) have submitted written evidence to the Committee in relation to the Inquiry.

3. Mindful of those other submissions, and with the hope that it is of some further assistance to the Committee, PPL’s own written evidence for the Inquiry therefore focuses primarily on facts, data and experiences arising from PPL’s role and remit as a UK licensing body for certain uses of recorded music-acting on behalf of many thousands of record companies and performers across the UK, for all of whom PPL licensing income is a key revenue stream. More information about PPL and its members is set out below (see paragraphs 8 -1 4 below ) .

4. Of the issues identified by the Committee in its terms of reference for the Inquiry, PPL’s written evidence relates primarily to the following:

· Barriers to growth in the creative industries; whether lack of co-ordination between government departments inhibits this sector.

· The importance of "clusters" and "hubs" in facilitating innovation and growth in the creative sector.

· The impact on the creative industries of the independent Hargreaves Review of Intellectual Property and Growth, and the Government’s Response to it.

· The impact of proposals to change copyright law without recourse to primary legislation (under the Enterprise and Regulatory Reform Bill currently before Parliament).

EXECUTIVE SUMMARY

5. Far from being a barrier to growth, copyright is the foundation on which a vibrant UK music industry has been built, adding real value to the UK economy. In the context of PPL licensing, there can be significant commercial benefits to businesses and broadcasters from using recorded music; collective copyright licensing simplifies this process and generates a vital source of income for UK rightsholders (many of whom are small businesses or sole traders themselves).

6. The Digital Copyright Exchange feasibility study has been a positive process, rightly focused on voluntary, industry-led solutions. As noted in Richard Hooper’s "Copyright Works" report, PPL is playing its part through continued joint licensing with PRS for Music and ongoing work towards a global recordings database.

7. The Hargreaves Review and subsequent Government policy-making process has been a much less positive experience, with a skewed starting point and weak evidence base leading to some flawed conclusions. This unfortunately appears to be a continuing trend, following other experiences of copyright policy-making affecting the music sector, with the net effect being to demonstrate that the IPO is not the champion of copyright that it could and should be.

ABOUT PPL

8. PPL is the UK-based music licensing company which licenses recorded music to be played in public or broadcast (including online). Established in 1934, PPL carries out this role on behalf of its tens of thousands of record company and performer members.

9. PPL licenses hundreds of thousands of businesses and organisations from all sectors across the UK, Channel Islands and Isle of Man who play recorded music to their staff or customers (often referred to as "public performance") and who therefore in most circumstance require a copyright licence by law. These can range from pubs, bars, nightclubs and hotels to shops, offices, factories, gyms, schools, universities and local authorities. PPL also licenses music service providers to copy recorded music for services such as in-store music systems, jukeboxes, fitness compilations and in-flight entertainment systems. An annual public performance licence from PPL can cost as little as 19 pence per day.

10. PPL’s broadcast and online licensing covers the use of recorded music on the BBC’s television, radio and iPlayer services and by hundreds of commercial television and radio broadcasters. These licences often cover a modest range of new media uses of recorded music in addition to "traditional" broadcasts. PPL also licenses some dedicated online services such as the radio services offered by Last.fm and We7, and niche services such as community, hospital, student and prison radio stations.

11. PPL also operates an International service, used by many of its members. Through over 50 agreements with music licensing companies globally, PPL is able to collect licensing revenue from the use of its members’ recorded music around the world. Under these agreements with other music licensing companies, PPL also acts on behalf of their members to collect their UK licensing revenue.

12. After the deduction of PPL’s operating costs and certain approved industry funding contributions, the net revenue collected by PPL is distributed to its members at individual track and performer level, based on information about the music used by licensees and the data contained in the PPL Repertoire Database, which holds the details of the millions of recorded music tracks covered by PPL’s licences. PPL aims to keep its cost-to-revenue ratio below 15%.

13. PPL has a large and diverse membership. The term "record company" does not do full justice to the breadth of different sound recording copyright owners and licensees comprising PPL’s 8,500 recording rightsholder members. These members include the major record companies but the majority are, in effect, small businesses or sole traders based all over the UK: independent record companies and labels, and emerging artists making and releasing their own recordings. Similarly, whilst PPL’s 53,000 performer members include some globally successful artists, the majority are lesser-known performers, including thousands of session musicians across all genres of music.

14. PPL is a separate company from PRS for Music. Copyright protects musical compositions and lyrics separately from the recordings of them. PRS for Music licenses the use of those compositions and lyrics, on behalf of authors, songwriters, composers and music publishers. Playing music in public, or broadcasting it (including online) will in most instances require a licence from both PPL and PRS for Music.

COPYRIGHT AND GROWTH

15. PPL is proud to be part of a vibrant UK music industry which, as noted in evidence submitted to the Inquiry by others, adds real value to the UK economy in terms of growth, job creation, tax revenue and a net export position (with 12% of the global music market). Far from being a barrier, copyright is the foundation on which that value and growth is based.

16. In the context of PPL’s own operations, copyright generates significant value for PPL’s members. In 2011, PPL collected £153.5m in licence fees across its three main licensing areas of Broadcast and Online, Public Performance and International, representing 7% annual growth. This led to PPL’s annual distribution of licensing revenue, in June 2012, being the largest in PPL’s history. A huge cross-section of PPL’s membership benefited from that distribution, with for example payments being made to over 24,500 individual performers.

17. PPL licensing does not just benefit PPL’s members. By providing a simplified and centralised means for UK businesses to play recorded music legally and for a fair price, it is also enabling those businesses to unlock and enjoy the commercial benefits of doing so. As part of ongoing efforts to raise awareness of music licensing requirements within the UK business community, PPL and PRS for Music have jointly commissioned independent research under the "MusicWorks" banner (www.musicworksforyou.com).

The most recent research, published earlier this year, found that:

· 77% of small to medium sized businesses say that playing music in the workplace increases staff morale, and creates a better atmosphere and working environment for staff and customers;

· 22% would prefer to lose a day's trade than operate in a silent environment;

· 65% say music in the workplace makes their employees more productive; and

· 40% believe that playing music can increase sales or results for the business.

COPYRIGHT AND INNOVATION

18. PPL, like many within the creative industries, has found the feasibility study into the Digital Copyright Exchange (commissioned by Government and led by Richard Hooper) to be a positive process. PPL welcomes the genuinely consultative and evidence-based approach taken by the feasibility study. The "Copyright Works" report published by Richard Hooper in July 2012 was a fair and balanced assessment, acknowledging-in the context of the music industry-the steps already taken to simplify and streamline copyright licensing in reality (in contrast to what the report identified as a "perception" of difficulty and inaccessibility) but encouraging further progress to be made. As the Committee may be aware, representatives of the publishing, music, images, audio-visual and other creative sectors have joined forces (and committed funding) to take forward the Hooper recommendations. PPL is pleased to be part of this ongoing activity, on the basis that this remains a voluntary and industry-led solution .

PPL joint working with PRS for Music

19. Innovation in copyright licensing is not confined to the digital market. The "Copyright Works" report noted other opportunities for further streamlining and, in that context, fully supported the fact that PPL and PRS for Music have agreed to work more closely together, including more joint licensing.

20. Collective licensing already simplifies the licensing process for music, by providing blanket access to millions of different compositions (via PRS for Music) and recordings (via PPL) rather than requiring each business or broadcaster using music to obtain separate permission from each copyright owner. The first report from the Digital Copyright Exchange feasibility study acknowledged that each of PPL and PRS for Music is efficient in its own right. However, both organisations recognise the value, to music users and rights owners alike, in finding ways to work more closely together. To that end, PPL and PRS for Music already operate joint licensing solutions covering schools, churches, DJs, community buildings, and "limited manufacture" (i.e. the making of a small number of CDs or DVDs including music, such as amateur dramatics societies recording their stage productions, or charities recording community projects). PPL and PRS for Music have also been working together on raising awareness of music licensing, such as through joint advertising and joint attendance at trade events.

21. As the next step in working together, PPL and PRS for Music are developing two new initiatives: joint licensing solutions for small workplaces and for amateur sports clubs (planned to be administered by PRS for Music and PPL respectively).

Innovation in data management

22. In its recommendations on the issue of data building blocks, the "Copyright Works" report also identifies the importance of rights information database and highlights the role that PPL and PRS for Music are playing in the development of, respectively, a Global Recordings Database and a Global Repertoire Database.

23. PPL is well-placed to help the UK take the lead on the world stage as far as the management of sound recording data is concerned, having developed and built a new Repertoire Database which is at the heart of PPL’s licensing and distribution activities. It holds data on 5.5 million recordings, with-on average-data on over 10,000 new recordings submitted by PPL’s members each week.

24. Delivering (on time and on budget) the new database, together with new repertoire matching and revenue distribution systems, has been a significant undertaking and a lot of hard work-but represents an essential evolution for PPL not least because of the growing scale of its UK operations (let alone the potential to develop a global solution). For example, in order to distribute 2011 licence fees to members (allocated at individual track and performer level), PPL processed 3.1 billion seconds of recorded music usage by TV and radio broadcasters.

25. PPL’s database is also used to provide sound recording metadata to PRS for Music to support the licences that rightholders require (so that the songwriters, composers and publishers are paid) when releasing a recording and to support the anti-piracy activities of the IFPI and BPI (identifying the owners of recordings used illegally).

IMPACT OF UK GOVERNMENT IP POLICY

Hargreaves Review and subsequent developments

26. The Hargreaves Review (and resulting Government response, through the Consultation on Copyright and subsequent policy proposals) has unfortunately been a largely disappointing experience. It is clear that PPL shares this view with many other businesses, organisations and creators within the creative industries-as can readily be seen from other parties’ submissions to the Inquiry and indeed from the evidence and conclusions from other reviews, such as the recent All Party Parliamentary IP Group inquiry into the role of Government in protecting and promoting intellectual property.

27. Certainly-in the context of copyright at least-the Hargreaves Review and subsequent process has been characterised by policy proposals which, in the supposed name of growth and streamlining, would in reality largely just transfer value from creators to users and introduce new and unnecessary complexity. Further, those proposals were seemingly based on the unproven proposition that copyright is broken and then built on flimsy evidence and flawed analysis; contrary to the stated Government aspiration of evidence-led policy, it has often seemed to be more a case of policy-led evidence.

28. In its March 2012 submission to the All Party Parliamentary IP Group inquiry, PPL expressed its hope that the evidence comprised in the numerous submissions to the Consultation on Copyright would be used to give a much more robust factual, legal and economic basis to the Government’s ultimate policy proposals on these issues. Unfortunately, thus far, much the same evidential concerns endure.

29. Government’s various proposals for additional or extended copyright exceptions are a key example of these concerns, where the potential harm to rights holders is significant and yet the economic justification is widely disputed. Whilst perhaps not as prominent as the debate around format-shifting, the proposals include a new exception covering "official celebrations" and a widened exception covering use of copyright works relating to the demonstration or repair of equipment. In neither case has a clear argument been made for how economic growth would result, whereas both proposals would directly and adversely reduce licensing income for UK rightsholders.

30. By way of further example, similar concerns arise in the context of Government’s proposals for codes of conduct for collecting societies.  As explained below, the UK’s collecting societies have already been taking the lead in establishing a self-regulatory framework for codes of conduct, focusing on transparency, accountability and good governance-a voluntary process which was already well underway before the Hargreaves Review. Notwithstanding this, the Hargreaves Review recommended regulatory intervention through statutory codes, despite a distinct lack of credible evidence or analysis justifying this or clearly linking it to economic growth.

31. Government has subsequently supported self-regulation in the first instance but with strings attached, in that there is still said to be a need for statutory "backstop" powers to regulate collecting societies. Whilst PPL and its fellow UK collecting societies welcome support for the self-regulatory model, we remain concerned as to whether we will be given a fair and proper opportunity to show that self-regulation works, in light of our misgivings regarding the policy-making process thus far.

Case Study: Codes of Conduct

32. PPL is committed to providing first class service to its members and licensees. We were proud to reach the finals of both the UK Customer Experience Awards (in 2011 and 2012) and the European Call Centre and Customer Service Awards (in 2012). PPL is also committed to transparency, accountability and good governance.

33. This week, PPL has published formal Codes of Conduct for members and licensees, setting out important information about PPL (and how to find out more), what members and licensees can expect from PPL, and how they can help PPL to help them. PPL has adopted these voluntary Codes as part of a wider self-regulatory initiative by collecting societies across the creative industries, under the umbrella of the British Copyright Council (BCC). PPL’s Codes are based on the BCC’s Principles of Good Practice for Collective Management Organisations’ Codes of Conduct and also reflect feedback from members and licensees (and their representative bodies) obtained via a 12-week open consultation earlier this year. The Codes can be viewed on the PPL website.

34. The BCC collecting societies’ ongoing work to design, build and deliver this self-regulatory regime was given only a fleeting mention in the Hargreaves "Digital Opportunity" report [1] . Instead, the Hargreaves Review focused on purported economic evidence as set out in Supporting Document EE to the Hargreaves Report [2] . That supporting document has attracted widespread criticism for its inaccuracies and its unsubstantiated and mistaken assertions (as evidenced, for example, by many of the responses-including PPL’s-submitted to the BIS Committee’s inquiry into the Hargreaves Review in August 2011 [3] ).

35. The relevant impact assessment published alongside the Government’s Consultation on Copyright largely repeated the flawed "evidence" of Supporting Document EE and compounded this by making further unsubstantiated and misplaced assertions.

By way of just one example, the impact assessment referred to multiple licensees having alleged that they were put under duress by collecting societies to obtain licences that they were unsure they needed. The impact assessment went on to say:

"This duress can be heightened where licensees are under the impression that a collecting society is a government agency or acting with the sanction of government. In one case … the government has had to ask a collecting society to refrain from referring licensees to a government helpline for corroboration of a licensing method used by it."

PPL believes that it is the collecting society in question, but is able to confirm that the impact assessment misrepresents what actually happened. PPL sometimes encounters businesses that are unsure whether PPL, or even copyright licensing generally, is some sort of scam. In appropriate cases, as part of its efforts to be clear and transparent with these prospective licensees, PPL has suggested that they may wish to visit the IPO website, where t he re is useful, neutral information about copyright licensing and the collecting societies (including PPL) which operate in the UK. PPL believes that the impact assessment is referring to one such case. To this day, PPL does not understand why the IPO was so concerned about PPL making reference to the IPO in this context.

36. PPL commented at length on all of these concerns in its detailed submission to the Consultation on Copyright [4] and was therefore disappointed to see that the same issues persisted in the revised impact assessment published in July 2012 [5] . In PPL’s view, by repeatedly declining to take the opportunity to improve the evidence base, the IPO only served to compound the concerns and lack of confidence prompted by the original evidential and analytical failings.

37. The statutory backstop powers proposed by Government have been introduced into the Enterprise and Regulatory Reform Bill in what is currently Clause 68 and Schedule 21. Those draft provisions confer a series of very broad powers on the Secretary of State to regulate licensing bodies (i.e. collecting societies). These include the power to require a licensing body to adopt a code of practice, to impose a statutory code of practice under certain circumstances, to impose financial sanctions for non-compliance and to recover the cost of regulatory measures from licensing bodies. There are very few parameters set out on the face of the Bill for the exercise of these powers, and the detail is all to be left to secondary legislation.

38. PPL welcomes Government’s support for self-regulation by collecting societies. However, in light of the enduring concerns regarding the evidence base for this and other aspects of the Government’s proposed copyright changes, it is very important that the decision whether- and, if so, how-to exercise the backstop powers (if enacted) is based on meaningful consultation and robust evidence. In particular, this must avoid creating a duality of regimes, which could be highly cost-inefficient for collecting societies (harming their members) and highly confusing for rights users and rights holders alike.

Other experiences

39. It may also assist the Committee for PPL to comment on two other instances of UK Government IP policy-making that are directly relevant to PPL and its members. In both these instances, the ultimate outcome has been very positive, with legislative change helping to bring about a fairer balance between the rights of creators and users and a better alignment of UK law with the EU and international position: However, these outcomes were only achieved recently, after a surprisingly long and difficult journey (and more resistance than support from Government officials).

40. The first example is sound recording copyright term extension, which is now the subject of an EU Directive to be implemented at national level by November 2013.

This brings the rights of record companies and performers more into line with other copyright owners and will in particular help to safeguard a very important income stream for older generations of performers (a heartfelt point made by many of those performers personally in a video petition submitted to 10 Downing Street). Without the extension, key recordings from the 1960s risked falling out of copyright which, given the strength and enduring appeal of British music, would have had an adverse economic impact on the UK music industry and therefore on UK plc. However, despite this risk, the widespread support for this reform across many EU member states, and the clear disparity between the term of protection for sound recordings and performances compared to that afforded to other types of copyright work, the UK Government was initially steadfastly opposed to copyright term extension and it was only after many years of concerted effort-with support from EU commissioners rather than officials here in the UK-that a breakthrough was finally made.

41. The second example is the repeal, effective from 1 January 2011, of sections 67, 72(1B)(a), 128A and 128B of the Copyright, Designs and Patents Act 1988. These reforms removed two copyright exceptions (affecting the use of sound recordings in the not-for-profit sector) which were incompatible with EU and international law and should have been removed many years earlier to comply with the EU Rental and Lending Directive (dating from 1992 and which the UK purported to implement-but without addressing these exceptions-in 1996). Notwithstanding the very clear legal and moral case for reform, and the economic harm to rights holders which undoubtedly resulted from the operation of these "rogue" copyright exceptions for so long, there was again sadly a palpable lack of support from IPO officials for many years, meaning that it was a slow and difficult process to achieve change.

General observations

42. PPL notes the conclusions of the All-Party Parliamentary IP Group (IP APG) in its recent report on "The Role of Government in Promoting and Protecting Intellectual Property". In addition to observing that the IPO’s policy-making function has lost the confidence of stakeholders, the IP APG concludes that a champion of IP is needed within Government, with due recognition of IP as a property right.

43. PPL wholeheartedly supports that conclusion, and would add that it is not just a matter of championing IP in the UK but also on the European and global stages. PPL is aware that in Brussels there is currently some surprise at the current stance of the UK Government; namely that despite the international success of the UK creative sector, the impression given by Government is one of being opposed to the protection of IP.

44. As the Committee may be aware, the IPO has also recently published its conclusions [6] following its earlier discussion paper: "From Ideas to Growth: Helping SMEs to get value from their intellectual property". The conclusions document identifies the importance of raising business awareness and understanding of IP. In doing so, the conclusions document also states: " The IPO’s ambition is to ensure that UK SMEs both recognise and understand the value of their intellectual property and can access the advice they need to grow their business by maximising the benefits which flow from their innovation and creativity. "

45. With so many of its own members comprising small or micro businesses, PPL hopes that the above sentiment will be reflected not just in the IPO’s awareness-raising work but also more generally in its policy-making. PPL would welcome an expanded educative role for the IPO in promoting awareness and respect for copyright and its value within the wider UK business community. However, even more importantly, there must be improved awareness and respect for copyright within the IPO itself.

December 2012


[1] www.ipo.gov.uk/ipreview-finalreport.pdf

[2] www.ipo.gov.uk/ipreview-doc-ee.pdf

[3] www.parliament.uk/business/committees/committees-a-z/commons-select/business-innovation-and-skills/inquiries/parliament-2010/hargreaves-review-of-intellectual-property/

[4] www.ipo.gov.uk/response-2011-copyright-ppl.pdf. See pages 14 to 26 and in particular PPL’s response to Q46 (starting on page 17).

[5] www.ipo.gov.uk/consult-ia-bis0313-20120702.pdf

[6] www.ipo.gov.uk/business-sme-conclusions.pdf

Prepared 14th December 2012