The European Directive 2014/26/EU – an overview The new European Directive unifies and harmonises how collective management organisations must manage rights and royalties collected on behalf of their members, as well as the licensing of author’s works to online music services. The legislation is due to be transposed into English law in April 2016. What does this mean for the existing infrastructure and set-up? For artists, collecting societies, music-tech startups, and the music business? What about the users’ rights? Alex Damon, Solicitor - Head of Digital Media and Technology, Russells

1. Directive 2014/26/EU
on collective management of
copyright and related rights
and multi-territorial licensing
(CRM Directive)
Music 4.5
Global is the new licensing territory
Alex Damon
Head of Digital Media and Technology
Russells Solicitors
25 February 2015

2. Growth of online distribution
Key statistics:
• A 2012 WIPO study estimated that in Europe the value of EU recorded
music market is approximately €4.1 billion
• US - 2013 - 68% of US consumers streamed music
• Subscription services are the fastest growth area in digital music
• Spotify is the second largest source of digital music revenue in Europe –
largest in Finland, Norway and Sweden
• January 2015 – Spotify exceeds 15 million subscribers
• OHIM and EPO study revealed that copyright–intensive industries
account for: up to 4.2% of EU’s GDP - circa. €510 billion - and 9.4 million
jobs

3. Collective Management Organisations (CMOs)
• Established for authors and performers (and publishers and record
companies) - rightholders (RH) - to collectively manage their rights
• The licensing point for music services, TV, VOD providers
• Example CMOs:
• Buma/Stemra (Netherlands)
• PRS for Music (UK)
• SACEM (France)
• GEMA (Germany)
• Overlap and sometimes competing interests
• Each CMO grants licences in its repertoire

4. CRM - Key changes:
Harmonisation of governance and management of CMOs
Meeting the needs of the growing use of online services – matching innovation
• Harmonisation
• Introducing rules of governance
• Consistency of approach
• Transparency (mentioned over 20 times in Directive)
• Handling and distribution of revenues – reducing time and targeting the ‘black box’
• Risk management –avoid practices of many banks during the late 2000s
Balance the needs of the RHs, CMOs and service providers
No single entry point for licences to protect free market

5. What does it introduce for Rightholders (RH)
RHs shall have the right to (Art 5):
• Authorise the CMO of their choice to manage the rights, categories of
rights, types of works for the territories of their choice, irrespective of
MS nationality or residence (of CMO or RH);
• If scope of rights falls within a CMO’s remit it may only refuse to manage
such rights on objectively justifiable reasons;
• Retain right to grant licences for non-commercial purposes;
• Right to terminate all or withdraw certain rights (of their choice) on no
more than six months’ notice, and certain rights survive termination;
• Individually identify rights that are to be managed – this must be
documented

6. Membership of CMO (Art 6)
Membership requirements
• to be based on objective, transparent and non-discriminatory criteria
CMOs statute and terms to be made publically available
• Transparency
Must contain effective mechanisms for the participation of its members
• Electronic means of communication
Maintain and update accurate records of its members

7. Governance of a CMO
The CMO General Assembly must (Art 8):
• Be convened at least annually
• Decide upon: amendments to its statute, appointment of its directors, review of their general performance,
remuneration and other benefits of CMO
Must also decide upon:
• distribution of amounts due to RHs
• general policy on deductions from rights revenue and any income arising from such revenue
• a policy on and use of non-distributable amounts (Black Box income)
• risk management policy
Must be fair and balanced representation with regular meetings (Art 9)
CMO management (staff) obligations (Art 10)
• Management in a sound, prudent and appropriate manner
• Avoid conflicts of interests.

8. CMO management of rights revenue (Art 11)
Be diligent in its collection and management of rights revenue
Keep separate accounts:
• rights revenue and related investment revenue
• asset management and related revenue
CMOs must not use any rights revenue (or investment from rights revenue)
other than to distribute to RHs – excluding offset of proper management fees
Any investment of rights revenues must be in best interest of RHs in accordance
with the Directive

9. Deductions and distribution of revenue
Deductions (Art 12)
•transparency of deductions
•reasonable in relation to services provided
•management fees shall not exceed justifiable costs
•Any cultural, social or educational services must be allocated based on fair criteria
Distribution (Art 13)
•diligently and accurately distribute and pay amounts to RHs
•distribute no later than 9 months from the end of the financial year in which revenue collected
•CMOs must take all necessary measures to identify and locate rights holders
•within 3 months of the 9 month period CMOs must make available information on the works that have not been identified
to the RHs it represents, or CMOs it’s represented and include detailed information (name of writer, publisher, title…)
Black Box income
•amounts not distributed where RHs cannot be identified or located to be kept in a separate bank account
•these amounts become non-distributable three years after the end of the financial year in which the collection occurred
•GA shall decide on the use of the non-distributable amounts
•MS may limit or determine such permitted use

10. Transparency (Articles 18 – 22)
Transparency
• Mentioned over 20 times in the Directive
• Information to RHs
• Information provided to other CMOs in representation agreements
• Disclosure of information to the public
Annual transparency report:
• must contain at least the information in the Annex to the Directive
(detailed set of accounting, financial and reporting requirements)

11. Benefits to service providers (Art 16)
Licensing:
• CMOs must conduct negotiations with users in good faith and the parties must
provide each other with all necessary information
• Licensing terms to be based on objective and non-discriminatory criteria and are
not fixed to a precedent for new online services
• CMOs must reply without undue delay
• CMO to either offer licence or a reasoned statement as to why it will not license
• Communication by electronic means
Reduce costs
Legal clarity

12. Multi-territory licence (MTL)
(Articles 23 – 32 )
Authors’ rights for online services
• Licensing in more than one MS of the exclusive rights of reproduction and
communication to the public – making available right
• Music service providers need to aggregate these rights
Creates the rules and standards that CMOs must comply with
and reach in order to provide MTLs
Any CMO can offer an MTL if it meets the requirements

13. Multi-territory licence (MTL)
Capacity:
• Accurate identification of music repertoire on a per-track basis
• Transparency of repertoire
• Accuracy of multi-territorial repertoire information
Accurate and timely:
• reporting and invoicing
• payments to RHs
• Handle data electronically
Agreements between CMOs
• Non-exclusive and manage on a non-discriminatory basis
• If a CMO is already in MTL arrangements it cannot refuse to license additional CMO repertoires for those
territories (Art 30)
• By 10 April 2017 – if a CMO does not facilitate MTLs then the RH can withdraw those rights and use any
other CMO but the original CMO must continue licensing the existing RHs’ rights (Art 31)

14. Compliance (Articles 33 – 38)
Articles 33-38
• No prior authorisation of licensing scheme
• MS must have competent authorities monitoring compliance
• Must be empowered to impose effective, proportionate and
dissuasive sanctions
Transposition by each MS by 10 April 2016 (Art 43)

15. • Alex Damon
• Head of Digital Media and Technology
• EMAIL: alexd@russells.co.uk