Copyright Tribunal rules on licence fee to be paid by BBC to Welsh collecting society

Posted: February 18, 2014

The Copyright Tribunal has ruled that the BBC must pay a licence fee of £100,000 per year to Eos.   Eos is a collecting society whose members are primarily composers, authors and/or publishers of Welsh-language music.   Applying the BBC’s model, which the Tribunal considered a useful starting point, resulted in a baseline licence fee of £46,000 per year.  The Tribunal arrived, however, at an overall licence fee of £100,000 per year, after making an upwards adjustment for certain sensitivities in the BBC’s methodology and applying a generous uplift to reflect the uniqueness of Welsh-language music and the fact that the BBC and the Welsh-language music industry had a “unique mutual dependency”.

Background

The BBC broadcasts a number of services, including BBC Radio Cymru, BBC Radio Wales and BBC One Wales.  Each of these, but particularly BBC Radio Cymru (the only dedicated Welsh-language radio station), requires a repertoire of Welsh-language music for its broadcasting services.

Until 31 December 2012 the BBC licensed its entire Welsh-language music repertoire from the Performing Right Society Limited (PRS) and the Mechanical-Copyright Protection Society Limited (MCPS).  From 2006 onwards, this was achieved through a blanket licence agreement between PRS, MCPS and the BBC (Alliance Agreement), under which the BBC licensed, for a lump-sum fee, all rights controlled by PRS and MCPS for all of the BBC’s services.

Eos members became discontented with PRS and withdrew broadcasting and televising rights from PRS, with effect from 1 January 2013, and granted those categories of rights to Eos.  The Alliance Agreement continues to govern the rights controlled by MCPS, as well as online rights.  A number of other composers, authors and publishers of Welsh-language music remain members of PRS, and so the BBC continues to license some Welsh-language music under the Alliance Agreement.

The BBC and Eos sought to negotiate at the end of 2012, but were unable to agree the terms of a licence.  From 1 January 2013 this caused considerable disruption to the Radio Cymru services.  On 1 February 2013, the BBC made a reference to the Copyright Tribunal  and applied  for an interim order to enable it to use the Eos repertoire at such a rate and on such terms as the Copyright Tribunal considered reasonable in all the circumstances pending a substantive hearing.  On 11 February 2013 the parties agreed an interim licence, under which the BBC agreed to pay Eos an interim licence fee of £10,000 per month (excluding VAT).  The Tribunal’s Provisional Licence Decision, made in May 2013, determined that the provisional licence fee should remain at £10,000 per month (excluding VAT) pending the Tribunal’s final decision.

The main issue that the Tribunal was asked to determine was the amount of the licence fee payable by the BBC to Eos.  According to the BBC, it should be no more than £100,000 per year.  In the view of Eos, it should be £1.5 million per year.

Decision

The Tribunal has a broad discretion under section 125 of the Act.  It can make “such order, either confirming or varying the terms [of a proposed licence], as it may determine to be reasonable in the circumstances”.  In determining what is reasonable, the Tribunal has a duty to have regard to “all relevant considerations”,  but, in particular, it is required to take account of any comparable licences.   The Tribunal also has a duty to exercise its powers “so as to ensure that there is no unreasonable discrimination between licensees”.

Comparators

Despite arguments from Eos to the contrary, the Tribunal found that the Alliance Agreement was a relevant comparator for the Eos licence, and that the fee paid under it was a reasonable starting point for determining the fee to be paid under the Eos licence.  The Tribunal noted that both the Alliance Agreement and the proposed Eos licence related to copyright for musical works, related to the same use of the copyright (broadcast television and radio services) and took into account the benefits of collective licensing.  It had also been freely negotiated between a willing licensor and a willing licensee.  The test to establish this was whether:

(a) the collective licensing body had had the authority of the relevant members to conclude the licence; and

(b) in the negotiations, whether the collective licensing body independently and in good faith had represented the collective interest of those members, without any collusion with the licensee.

BBC methodology

It was then necessary for the Tribunal to determine what part of that fee was attributable to the Eos repertoire.  The BBC’s case was that this should be determined by reference to how much the repertoire was consumed by an audience, and proposed a methodology called the “audience consumption model”, which it used internally to allocate the fee paid under the Alliance Agreement to its individual stations for budgeting purposes.  In summary, the methodology was:

(a) to ignore the fact that the Alliance Agreement related to online and recording rights (which Eos did not control) as well as the right to broadcast, which had the benefit of simplicity, and also on the basis that any difference in value was likely to be marginal;

(b) to allocate the fee payable under the Alliance Agreement between radio and television (the fee that the BBC proposed being the split that was set out in the Alliance Agreement, although both the BBC and PRS each internally adopted a different split);

(c) to determine, for each radio station, the total “listener hours” for all the music that was licensed under the Alliance Agreement, using RAJAR data;

(d) to determine the number of listener hours attributable to the Eos repertoire (and in the absence of clarity about this, the BBC took the mid-point of a range put forward by Eos);

(e) to work out what percentage the Eos listener hours represented of the PRS listener hours;

(f) to apply this percentage to the fee allocated under the Alliance Agreement to radio (on the basis that Eos’s repertoire was used almost entirely on radio); and

(g) to make an adjustment to take into account use of the Eos repertoire on the BBC’s television services.

On this basis, the BBC’s position was that the appropriate licence fee under the Eos licence was £46,000 per year.

Eos did not dispute the specific figures put forward by the BBC in applying the audience consumption model, but contended that it was wholly inappropriate for the Tribunal to rely on the model.  Unsurprisingly, as Eos strongly argued that the Alliance Agreement was not an appropriate starting point, it did not propose any other methodology using the Alliance Agreement as a starting point.

The objections raised by Eos included that the BBC method for splitting the fee payable under the Alliance Agreement between television and radio was flawed because the main purpose of that split was for the BBC to allocate its expenditure internally and so was not instructive of the value of the Eos repertoire.  The Tribunal recognised that the way in which the fee paid under the Alliance Agreement was allocated between television and radio was a “sensitivity” in the BBC methodology, and that there were a number of methods for this allocation.  It considered, however, that the Alliance Agreement was a good starting point, and that, as the Eos repertoire was used almost exclusively on radio, it was logical to determine a reasonable allocation of the Alliance Agreement fee between radio and television.

For Eos, the audience consumption model was also flawed by its premise that all PRS music had the same inherent value.  The Tribunal, however, considered that this principle was a logical premise that had been adopted widely in the music industry and, indeed, had been adopted by Eos in its own distribution policy.  The Tribunal also noted that the amounts earned by individual artists from radio broadcasting varied enormously, and that it was highly likely that there were English-language artists who would earn the same as or less than many Welsh-language artists from their music.  The Tribunal accepted that not all music comes from the same position of cultural strength, and that particular value may attach to music that is the product of an indigenous minority culture; but this factor could be accommodated, as appropriate, by a suitable adjustment to the baseline figure resulting from the audience consumption model.

The Tribunal noted that there were other “sensitivities” in the audience consumption model.  These were:

(a) Uncertainty about the extent of repertoire controlled by Eos versus PRS – The Tribunal took this into account, but noted that the BBC and Eos intended to include an adjustment to the fee in the event of changes to the Eos repertoire.

(b) The relative value or “popularity” of the Eos and the PRS Welsh-language music repertoires – The Tribunal noted that Eos had not presented any methodology for determining “popularity” and so found it impossible to place any significant weight on this factor, but noted that the audience consumption model embodied one measure of “popularity”, being listener hours.

(c) The RAJAR data used in the audience consumption model to establish listener hours – These were based on sampling and so subject to possible error, but the Tribunal noted that it was the best information available.

(d) The time period used for the different variables in the calculation – Different years or an average would produce slightly different numbers.  The Tribunal accepted that the number of listener hours would vary from year to year, but the parties intended to include an adjustment to the fee in the event of material changes to listener hours.

The Tribunal concluded that, despite its sensitivities, the audience consumption model provided a logical methodology to assist it in determining the licence fee payable under the Eos licence.

Eos approach

The Tribunal considered the points put forward by Eos to support its claim of a licence fee of £1.5 million.  These submissions included:

(a) The BBC’s Charter obligations and Radio Cymru’s service licence – Eos argued that the BBC is responsible for ensuring a regular supply of new, distinctive and wide-ranging Welsh-language music, which could only be ensured if it paid more for the Eos repertoire.  The Tribunal declined to determine whether the BBC was meeting its Charter obligations or whether Radio Cymru was meeting the terms of its service licence.  In any event, no evidence had been put forward by Eos as to why a £1.5 million licence fee would achieve this result. The Tribunal noted that the licence fee could not be considered in isolation from other sums that Radio Cymru spent in developing Welsh-language music, or the significant financial contributions that the BBC had made to Eos’s start-up costs and to its legal fees to support Eos’s participation in the Copyright Tribunal proceedings.

(b) An assertion that minority indigenous-language music should be treated differently from other music, including other minority music – The Tribunal accepted that indigenous-language music might be a “niche product” or “scarce resource”, or might come from “a position of different cultural strength”.  While that factor might influence value, this could be dealt with by a suitable adjustment to the baseline fee resulting from the audience consumption model.

(c) A letter from Reed Smith (acting for the BBC) to PRS – This set out the difficulties that the BBC was facing in concluding a licence with Eos and those that Radio Cymru would face if it could not use the Eos repertoire from 1 January 2013, and the BBC’s view that the PRS licence fee should be reduced in value to £2 million for 2013.  The Tribunal did not consider this letter to reflect the BBC’s own valuation of the Eos repertoire for 2013 or any other year, nor that the letter assisted it in valuing that repertoire.  It noted that the £2 million figure was based on the assumption that the BBC would effectively be forced to pay the licence fee that Eos had been demanding of over £1 million to avoid severe disruption to Radio Cymru.  It was also clear from the letter that the BBC did not consider this fee to be reasonable, or that it represented the value of the Eos repertoire.  In any event, the BBC had decided not to pay the fee, but had instead made a reference to the Tribunal.

(d) An assertion that the BBC should pay a “premium” for indigenous-language services – Eos believed that the cost to the BBC of broadcasting in Welsh was much higher than broadcasting similar content in English.  The Tribunal found Eos’s methodology to be “fundamentally flawed” because it confused the cost of providing the service with paying a premium for a specific input of the service.  As the BBC’s expert pointed out, the reason it cost more to broadcast in Welsh was not because a premium was paid for any particular input of that service, but solely because the non-premium cost of each input was spread over a much smaller listener base.

Tribunal’s conclusions

The Tribunal concluded that none of the assertions made by Eos assisted it in determining the licence fee.  It went on to consider cross-checks with commercial radio and, to a lesser extent, with PRS’s distributions made to Eos’s members for broadcast and television rights.  The fee determined using commercial radio as a comparator resulted in a fee of £48,000, which was broadly consistent with the £46,000 fee arrived at by applying the audience consumption model.  While the Tribunal did not place a “great deal of weight” on the PRS distributions as a cross-check, it noted that the 2012 amount paid to Eos members was £58,000, of which £51,000 related to Radio Cymru.  Again, this was broadly in line with the licence fee proposed by the BBC.  The Tribunal noted that the highest distribution by PRS to Eos members had been £134,500 in 2006, which was “much closer to the licence fee proposed by the BBC than the licence fee proposed by Eos”.

Nevertheless, the Tribunal found that the sensitivities in the BBC’s methodology warranted some upwards adjustment to the baseline licence fee.  An uplift should also be applied to reflect:

(a) the uniqueness of Welsh-language music, being one of only two indigenous minority languages in the UK, and the “unique qualitative contribution” it made to “the richness and diversity of the culture of the entire country”; and

(b) the fact that the BBC and the Welsh-language music industry had a “unique mutual dependency”, which was recognised implicitly by the BBC’s indication that it was being “pragmatic” in contemplating a licence fee of up to £100,000. The Tribunal emphasised that the uplift was limited to the unique circumstances of this case, and that it only applied to minority indigenous-language music controlled by Eos, and was only payable where the BBC was essentially the only broadcast outlet for that music, and where other sources of revenue for recordings of that music were very limited.  It also made clear that if Eos or other collective licensing bodies continued to make no distinction in their distribution policy between minority indigenous-language music and other music, this would be strong evidence that the minority indigenous-language music had ceased to justify an uplift, on the basis that it was being treated in the same way as any other music. The Tribunal pointed out that it had not attempted to determine specific numbers for the uplift, or for adjusting the baseline fee for the sensitivities in the audience consumption model.  It concluded that £100,000 represented a reasonable licence fee for the Eos repertoire, after including a generous allowance for the “sensitivities” in the model and a very substantial uplift.  Comment

This case illustrates the Tribunal’s approach to determining rates for broadcast usage of special repertoire and was decided on its particular facts.  The BBC can now recover from Eos a £20,000 overpayment made for the 2013 licence fee in accordance with the Tribunal’s interim ruling, although it was urged by the Tribunal to be “pragmatic” about such recovery. The allowance and uplift to the baseline licence fee that were awarded by the Tribunal to Eos more than exceed the baseline figure.  The Tribunal did not provide any explanation or guidance as to how it had calculated either the allowance or the uplift, but presumably, in arriving at the overall licence fee, it must have been swayed by the BBC’s indication that it would contemplate a licence fee of up to £100,000.

Eleanor Steyn Associate, Michael Simkins LLP

Article written for Entertainment Law Review.