Music Industry Spin

What will the changes to music royalty fees really mean to Australian musicians? [Image credit: magic/flickr]   

A week ago, I spoke on Radio National's Australia Talks program about a recent decision by the Australian Copyright Tribunal on music royalty fees paid by dance parties and nightclubs.

The decision, which followed a civil case brought by the Phonographic Performance Company of Australia, means a massive increase in the licensing fees charged to nightclubs, venues and dance parties which play recorded music for the general public.

It's a complex decision resting on the labyrinthine arcana of Australian copyright law. But the fundamental issues underlying it are very simple. To get an idea of who has won and who has lost, you need only look at the size of the fee increase that venues and dance parties have been slapped with.

The size of the hike is enormous: from 7c per patron per night to $1.05. In percentage terms, that's 1400%.

Take a minute to think about that figure. Kevin Rudd has been campaigning lately about the rising cost of living for families. But bananas, petrol and inner-city rent has nothing on this.

The latest CPI figures in Australia show prices increasing at an annualised rate of 4.8% for the June 2007 quarter. So that's 5% for the whole economy – but 1400% for nightclubs and dance parties. In fact, the ABS says prices it tracked in the “recreation” category actually declined in the June quarter! It's no wonder that venues are upset.

As Melbourne Business School economist Joshua Gans has pointed out, that kind of price rise simply doesn't happen in a competitive market economy. No, to get away with this kind of price-gouging in a globalised 21st century economy, you need to have some kind of legally enshrined monopoly.

And that's exactly what the PPCA is. The reason that PPCA can make this kind of claim is that the Copyright Tribunal accepted the PPCA's assertion that it should be allowed to collectively bargain on blanket music licenses with the entire nightclub and venue industry. (Actually, the PPCA asked for an even larger increase than the one it got, but the Copyright Tribunal knocked it down by more than a dollar).

According to the Howard Government's rhetoric on industrial relations, collective bargaining is a big no-no – an inflexible practice of the distant past inimical to the future of Australia's economy. But according to the PPCA, a copyright collection agency representing some of the largest corporations in the world, collective bargaining is merely protecting the rights of musicians.

There were many questionable aspects of the Copyright Tribunal's decision. The Tribunal made its decision by comparing the bar and entry prices of public bars that don't play music against nightclubs that do – ignoring the many permutations of the live entertainment industry. What about bars with free entry and DJs? What about venues that play recorded music between bands? What about staying home and watching Rage? Worse, venues are to be levied the fee according to their capacity, not actual patronage – a manifestly unfair ruling.

The PPCA has been up-front in it defence of the decision – and as well it might by. Last year, the PPCA took in around $15 million in license fees, but paid out only around $10 million in royalties. The rest was gobbled up by the PPCA itself to pay for its own expenses. It's nice work if you can get it.

PPCA Board Member Lindy Morrison has been forthright in characterising the decision as a win for musicians. In the PPCA's press release of 10 July, and again on Radio National last Friday, she used highly emotive language in defence of the price rise. Here's an example from the PPCA press release:

“When we lose a musician in Australia the public grieves. It reminds us that many of our recording artists have very little finance to fall back on as they grow older. In my experience the community recognises that musicians have been given a poor deal and that’s why these tariffs are important. Music bestows a cultural bond between us all and artists should be valued for this.”

Given the size of the increase, perhaps its time the PPCA throttled back on its own spin. With all due respect to Morrison, who has had a distinguished musical career as a former drummer of seminal Australian pop band The Go-Betweens, musicians are not the biggest winners from this decision (that dubious prize goes to the PPCA).

Music may well bestow “a cultural bond between us all,” but this decision is all about the money, and most of the money is not going to filter down to musicians.

That's because of the way the PPCA gives out its royalties. The PPCA takes its own cut straight off the top, and what remains is divided equally between labels and so-called “featured musicians.”

It's not that easy to become a “featured musician.” You can't be a DJ, for starters – remixing is expressly not allowed. Nor do session musicians get any joy. In fact practically the only musicians who will get revenues from this agreement are those “entitled to be paid a royalty under their recording agreement.”

That's bad news for those musicians who signed away their rights in their contract. And it is no help at all for the bulk of grass-roots musicians who have never been signed.

The real winners are the copyright holders – in other words, the major labels. And that shouldn't be surprising, because it is the major labels, after all, who really run the PPCA.

Just who is the PPCA, anyway? Well, the Board of the PPCA is stacked with record label executives. The Chair of the PPCA is John O'Donnell, who is the Manging Director of EMI Australia. Then there's Denis Handlin, who is the Chair and CEO of Sony BMG Australia New Zealand. There's also Ed St John, the Chairman and CEO of Warner EMI Australasia, and George Ash, the MD of Universal Music Australia.

There's no better argument in support of the collusive nature of the PPCA than this board representation: literally all four of the major label bosses, all sitting there together on the PPCA Board. Together they represent 80% of the market. In the immortal words of Adam Smith: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Enough about the PPCA. The implications of the Copyright Tribunal's decision are broad indeed. For many nightclubs, it could well mean extinction. Despite the PPCA's rhetoric about nightclubs charging $5 to check your coat and $8 for a basic beer, many clubs and music venues are in fact only marginally profitable.

At the Copyright Tribunal hearing, Sydney's Home Nightclub testified that the increase in licensing fees would mean they would have to pay $480,000 a year - or more than the nightclub's entire operating profit! As the Tribunal itself noted, “one of the consequences of the introduction of the proposed license fee may be to reduce significantly the number of nightclub operators who are prepared to pay the fee for the privilege of playing recorded music at their venues.”

For dance parties, by their nature often underground and cash-based events, the huge temptation will be to remain in the black economy, not reporting their ticket sales and indeed ceasing to operate legally at all.

For DJ's, this decision is even worse. Despite paying thousands of dollars for their record collection, they are now in the position of costing venues more than they are worth to book. Make no mistake, the move is on to attack the rights of DJ's to play other people's music. In the eyes of the content industries, the whole idea of “remix culture” is deeply suspect, possibly criminal.

Now many gyms and sporting clubs that play music to their patrons are waiting to see whether the PPCA will try and increase their fees in line with this decision.

But the real losers from this decision are music fans, who are going to be slugged in higher door and bar prices to pay for the royalty increase. Opportunities to see top DJ's will diminish, as some venues are pushed to insolvency and dance party promoters decide it's too hard.

It's yet another victory for content owners in their profit-driven war on the public domain of ideas.

For the major labels who control the PPCA, there is no such thing as the public domain. To quote US copyright lawyer and Creative Commons founder Lawrence Lessig, the reason is “because now culture is owned.”