OREANDA-NEWS. June 19, 2015. Following an in-depth investigation, the European Commission has approved under the EU Merger Regulation the proposed creation of a joint venture for multi-territorial online music licensing and copyright administration services by three music collecting societies. They are PRS for Music Limited ("PRSfM") the UK, F?reningen Svenska Tons?ttares Internationella Musikbyr? u.p.a. ("STIM") of Sweden and Gesellschaft f?r musikalische Auff?hrungs- und mechanische Vervielf?ltigungsrechte ("GEMA") of Germany. The approval is conditional upon the proposed joint venture implementing commitments that will enable other players to compete with the joint venture in the provision of copyright administration services.

The Commission had concerns that the creation of the joint venture would make it more difficult for other collecting societies to offer copyright administration services by raising the barriers to entry and growth in this market. The commitments submitted by the companies address these concerns.

Commissioner Margrethe Vestager, in charge of competition policy, commented: “The proposed joint venture would make it easier for online music platforms such as iTunes, YouTube or Deezer to get the licences they need to offer cross-border music services to consumers. The Commission is satisfied that the commitments will ensure that other collecting societies can also compete and offer copyright administration services.”

Collecting societies and the proposed joint venture

Collecting societies manage the copyrights of authors, performers and writers of musical works. They grant licences on their behalf to users of musical works, monitor and detect these licences' unauthorised use, and collect and distribute to rightholders the revenue derived from the exploitation of their musical works.

Online platforms such as iTunes, Spotify, YouTube or Deezer must obtain licences for the music copyrights in order to distribute music to their customers and, in particular, obtain from rightholders both performing rights and mechanical rights.

The joint venture will provide copyright holders with a number of services, namely:

  • Licensing music to online platforms. The joint venture will provide licences for the combined music repertoire of PRSfM, STIM and GEMA on a multi-territorial basis, that is, for use in several countries. Through a single licence, online platforms will therefore obtain the rights for three repertoires and for all countries in which they operate. Currently, online platforms need separate licences from each of PRSfM, STIM and GEMA.
  • Provide copyright administration services to collecting societies and the so-called 'Option 3 music publishers'. These services include the collection and processing of royalties from online platforms and the provision of database services. 'Option 3 publishers' are large music publishers that have withdrawn the mechanical rights related to their Anglo-American repertoire from the collecting societies and have started to license these rights directly. These publishers rely on the collecting societies solely for administrative services.

The Commission's investigation

The Commission focussed its investigation on the impact of the joint venture on competition in the market for copyright administration services.

As regards copyright administration services provided to 'Option 3 publishers', the Commission had concerns that the creation of the joint venture would make it more difficult for new players to enter the market or for existing ones to expand.

First, the joint venture could force 'Option 3 publishers' to use only its services for copyright administration.

Second, 'Option 3 publishers' typically license performing rights together with their mechanical rights by virtue of a mandate granted to them by PRSfM. Following the creation of the joint venture, PRSfM could have an increased incentive to push 'Option 3 publishers' or their service providers who are not yet customers of the joint venture to purchase copyright administration services from the joint venture. The reason for this is that PRSfM controls the performing rights that match the mechanical rights that 'Option 3 publishers' have withdrawn from the collecting societies system and license directly. .

The copyright administration services that the joint venture will offer to other collecting societies are a new product because they relate to multi-territorial licences. So far, collecting societies have only administered each other's repertoires for a single country, namely the home country of the collecting society. Some collecting societies have just started, or are considering, cooperating to provide copyright administration services to other, smaller collecting societies.

The Commission was concerned that the creation of the joint venture would prevent some of the existing cooperation initiatives from succeeding or new cooperation initiatives from emerging. The joint venture could bundle the different types of copyright administration services it offers and make it difficult for customers of its database to take their data to a competitor. In addition, the joint venture could require its customers not to source their copyright administration services from any other third party. This would lead to less competition and potentially higher prices for customers.

The Commission also investigated the impact of the joint venture on competition in the market for online licensing. Specifically, it assessed whether the combination of the repertoires of PRSfM, STIM and GEMA into the new product that the joint venture will license to online platforms would allow it to charge higher royalty rates than those each of the parties would obtain if they licensed their repertoires separately. The Commission analysed the contractual terms between online platforms and collecting societies and the royalties paid by online platforms, as well as information provided by market participants and documentary evidence from the parties. Based on this analysis, the Commission found that in the present market situation, collecting societies licensing larger repertoires on a multi-territorial basis are typically not able to command higher royalty rates than those licensing smaller repertoires on a multi-territorial basis. The Commission therefore concluded that the creation of the joint venture was unlikely to lead to higher royalty rates for online platforms.

Commitments

To address the Commission’s concerns, the companies submitted the following commitments:

  • PRSfM committed not to use its control over the performing rights that it manages to force 'Option 3 publishers' or their service providers to purchase copyright administration services from the joint venture. The joint venture will allow other collecting societies and 'Option 3 publishers' to choose which copyright administration services they want to use.
  • The joint venture will offer key copyright administration services to other collecting societies on terms that are fair, reasonable and non-discriminatory when compared to the terms offered to its parents PRSfM, STIM and GEMA. The joint venture will also facilitate the switching of collecting societies relying on the joint venture’s copyright database to another provider of database services. Collecting societies can terminate their contract with the joint venture at any time.
  • The joint venture will not enter into exclusive contracts with its customers for copyright administration services other than for database services.

The commitments aim at maintaining market conditions that allow other collecting societies to enter the market by ensuring that the joint venture's customers will remain free to switch to competing providers. The commitments address in full the competition concerns raised by the creation of the joint venture.

Companies and products

PRS for Music Limited (PRSfM) is a subsidiary of the Performing Right Society Limited (PRS) and manages the performing rights owned or controlled by PRS. It also manages the mechanical rights controlled by the Mechanical-Copyright Protection Society Limited (MCPS). PRS and MCPS are both UK collecting societies for copyrights of authors of musical works.

F?reningen Svenska Tons?ttares Internationella Musikbyr? u.p.a. (STIM) and Gesellschaft f?r musikalische Auff?hrungs- und mechanische Vervielf?ltigungsrechte (GEMA) are respectively the Swedish and German collecting societies for music copyrights.

Merger rules and procedures

The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the European Economic Area or any substantial part of it.

The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).

There are currently five other on-going phase II merger investigations.

-      the proposed acquisition of US-based rotating equipment manufacturer Dresser-Rand by Siemens of Germany, with a decision deadline of 24 July 2015;

-      the proposed acquisition of the industrial chocolate business of Archer Daniels Midland ("ADM") by Cargill with a decision deadline of 6 August 2015;

-      General Electric's proposed acquisition of Alstom's energy business, with a decision deadline of 21 August 2015;

-      the proposed joint venture between the Danish operations of TeliaSonera AB and Telenor ASA with a decision deadline of 2 September 2015 and;

-      the proposed acquisition of the Greek gas transmission system operator DESFA by the State Oil Company of Azerbaijan Republic (SOCAR).

More information on this case is available on the Commission's competition website, in the public case register under the case number M.6800