Calculating royalties payable in respect of licences for musical works

The Copyright Tribunal recently heard a case concerning the terms of renewal of a ‘blanket’ joint licence for the performance and broadcast of musical works. Paddy Gardiner, partner at Simkins LLP, which represented PRS for Music, explains the background to the case and the potential implications of the judgment.

This article was first published on Lexis®PSL IP & IT on 19 July 2016. Click for a free trial of Lexis®PSL.

Case

ITV Network Limited v PRS Limited and MCPS Limited CT 127/14

What was the background to this reference to the Copyright Tribunal pursuant to section 126 of the Copyright, Designs and Patents Act 1988 (CDPA 1988)?

The case concerned the terms of renewal of the ‘blanket’ joint licence granted by PRS and MCPS (operating as PRS for Music (PRSfM)) to the ITV Group for the performance and broadcast of musical works in its programmes. ITV had referred its existing licence to the tribunal under CDPA 1988, s 126, seeking an order that it should continue to be entitled to the benefit of that licence on such terms as the tribunal determined reasonable in the circumstances.

What were the key arguments put forward by PRSfM on the one hand and ITV on the other?

The focus of the dispute was the royalty payable by ITV for the years 2014–17:

• ITV argued that it should continue to pay an annual royalty of £23.5m
• PRSfM was seeking a fee of £28.46m for 2014, adjusted for subsequent years by changes in both inflation and ITV’s audience as measured by the Broadcasters Audience Research Board (BARB)

The parties accepted that the fee should be determined on a ‘willing licensor/willing licensee basis’. The tribunal found that the ‘starting point’ for determining the 2014 licence fee was the most recent relevant licence between the parties, which ITV argued was its existing licence, but which PRSfM argued was irrelevant as that was expressly agreed to be ‘non-precedential’ and that the most relevant freely negotiated licence was that for the years 2008–10.

How did this reference differ from previous decisions relating to licences for TV broadcasting?

In reaching its decision, the tribunal made reference to various previous decisions involving PRS and other broadcasters (see para [13] of the decision). It drew out a number of principles to be derived from these decisions about the manner in which the tribunal should determine the royalty payable. PRSfM relied in particular on the tribunal’s previous ruling in the BSkyB case (see British Sky Broadcasting Ltd v Performing Right Society Limited [1998] RPC 467, [1998] EMLR 193), which had applied annual adjustors for inflation and changes in audience as factors to determine the licence fee (the BSkyB formula). ITV sought to depart from that decision by arguing that it should pay a flat fee for each year of the licence, with no annual adjustments.

What was the tribunal’s decision? What key factors did it take into account?

Non-precedential

The tribunal decided that the existing licence was intended to be ‘non-precedential’ and so could not take it into account in determining the appropriate royalty. It found that it was standard practice for parties to deploy the term ‘non-precedential’ to preclude reliance on an agreement for the basis for calculating future royalties. The tribunal relied on its previous decision in CSC Media Group Limited v Video Performance Ltd [2010] EWHC 2094 (Ch), [2010] All ER (D) 57 (Aug) and the fact that the parties had previously used the phrase ‘non-precedential’ when agreeing a reduction in ITV’s licence fee.

BSkyB formula

ITV submitted that the tribunal should not adopt the BSkyB formula, particularly as this had been devised almost 20 years previously in a very different television market. However, the tribunal concluded that the formula provided a practical means of updating the royalty by reference to inflation and ITV’s viewing hours, both of which were factors to be taken into account.

Inflation

ITV argued against any increase in the fee for inflation, its main argument being that it could not pass on inflationary increases in royalties to its advertisers. The tribunal found that:

• ITV was financially able to bear an increase in royalties particularly as it had done well in recent years
• the tribunal had in the past adopted inflationary adjusters in similar licences and
• PRSfM members were entitled to have their royalties protected against inflation

Audience

The tribunal also found that it made good sense for the licence to be adjusted according to ITV’s use of the rights licensed and this could be linked to increases in ITV’s BARB-measured viewing figures.

Relevance of other broadcasters

The tribunal heard a significant amount of evidence in relation to the terms of licences granted to other major broadcasters which the parties had described as a ‘sense check’ against the royalties payable by ITV. However, the tribunal made it clear that it did not find that evidence helpful, even as a sense check.

What messages can those acting in this field take from the decision?

The ruling and decision are significant as this is the first major decision of the tribunal in relation to a broadcast licence for almost 20 years. The tribunal largely adopted PRSfM’s proposal that it should apply the BSkyB formula to a base royalty and adjust this for changes in audience and inflation. The tribunal applied that formula, even though ITV argued that the TV market had changed in the meantime, as it provided a practical means of determining and adjusting the fee.

Paddy Gardiner is the head of the Disputes group at Simkins LLP.

Interviewed by Alex Heshmaty.