A recently adopted EU Directive will overhaul the governance and functions of collective management organisations and will introduce a multi-territorial licensing regime for the use of music online.

The Collective Rights Management Directive , which is due to be transposed into national law by April 2016, is intended to benefit rightholders, commercial users of copyright content and consumers. The Directive has two main aims:

  1. to promote greater transparency and improved governance of collective management organisations (“CMOs”); and
  2. to facilitate the multi-territorial licensing of authors’ rights in musical works for online uses.

During the preparation of the Directive the European Commission identified various deficiencies and areas for improvement in relation to CMOs and the operation of the collective rights management system in the EU generally. These include the fragmented nature of the CMO market (there are more than 250 CMOs in the EU), inefficiencies in the collection and distribution of revenue and, in some cases, poor standards of governance and transparency, which have resulted in, amongst other things, irregularities in CMOs’ financial management and investment decisions. The Directive is intended to improve the functioning of CMOs by increasing their accountability to their members, mandating compliance with financial, administrative and governance best practice and fostering competition between CMOs (including cross-border competition).

The key provisions of the Directive regarding the governance of CMOs are as follows:

  • Rightholders - Rightholders may authorise a CMO of their choice to manage their rights. Membership must be based on objective, transparent and non-discriminatory criteria and a CMO may only refuse to manage rights if it has objectively justified reasons for doing so. Members are entitled to be involved in the internal decision making of the CMO. Furthermore, rightholders retain the right to grant licences for non- commercial purposes.
  • Revenue – CMOs must adhere to  specific rules regarding the management and distribution of rights revenue. Management fees must be transparent and may not exceed the justified and documented costs incurred by the CMO in managing the rights. Revenue must be distributed accurately and promptly to rightholders (no later than 9 months from the end of the financial year in which the rights revenue was collected) and it must be kept separate from the CMOs own assets. There are also specific rules regarding deductions and investment of rights revenue.
  • Reporting – Each CMO must have in place a supervisory function for continuously monitoring its activities. CMOs are also required to publish an annual transparency report.

The Directive will also enable commercial users of copyright content to obtain multi-territorial licences from CMOs. At present, a prospective licensee must deal with separate CMOs in each Member State in order to obtain the relevant licences that they require for access to musical repertoires. This territorial based regime can be complicated, time consuming and expensive and is not compatible with the borderless nature of the internet or the goal of creating a Digital Single Market.

The Directive sets out certain capabilities that a CMO must have in order to be in a position grant multi-territorial licences of author’s rights in musical works. For example, a CMO must be able to process electronically, efficiently and transparently the data needed for the administration of the licences, including data required to identify the music repertoire and monitor its use. It also provides for representation agreements to be entered into between CMOs to facilitate cross-border cooperation.

The Directive has been broadly welcomed as a useful step in achieving the Digital Single Market. It was notable, however, that in the course of approving the Directive, various members of the European Parliament took the opportunity to criticise the pace of  more substantive reform of the Community copyright regime. The European Commission is due to make a decision by the end of this year as to whether legislative reforms to EU copyright law are merited.