Last year, a Commission under the Department of Trade and Industry in South Africa was appointed to investigate collecting societies in South Africa. The Commission’s Report was recently released and can be accessed in full here.
This 223-paged report on collecting societies in South Africa made a number of key recommendations. For instance, this is what the Commission had to say, in part, about the Southern African Music Rights Organisation Limited (SAMRO):
“The constitutive documents for SAMRO are not aligned to the Companies Act of 2008 and good corporate governance standards and should be revised to fairly protect the members.” (see 7.3.2 in Chapter 7)
In the wake of this recommendation, SAMRO has recently uploaded a youtube video clip of SAMRO CEO Mr. Nick Motsatse calling all SAMRO members to participate in a consultative drive to seek members’ views on desired changes that SAMRO should make in order to comply with South Africa’s current company laws. As Motsatse explains in the video below, SAMRO currently operates as a company limited by guarantee (so does MCSK in Kenya) but it is now faced with a choice to either become a non-profit organisation, a for-profit organisation or another legal entity. The SAMRO CEO advocates that SAMRO should change into a cooperative because, it is best suited for it to accomplish its mandate as a collective management organisation. The full video is available below:
SAMRO recently celebrated 50 years, making it the largest and oldest collecting society in Africa. The total collections for music royalties (performance, needletime and mechanical rights) for 2010 amounted to approximately R357,9 million. Over and above the royalty collections, SAMRO has investments in excess of R300 million in different classes of assets. Over the last three years, these investments generated income of between R41 million and R66 million per annum.
Closer to home, IPKenya believes that this report by the South African Copyright Review Commission provides important insights into three hotly contested issues involving our own music collecting societies: Kenya Association of Music Producers (KAMP), Performers Rights Society of Kenya (PRISK) and of course, Music Copyright Society of Kenya (MCSK). These three issues are: 1) mechanical rights licensing in the digital domain, 2) ratio of distribution of royalties to administrative costs and 3) the existence of performing rights in a musical download aka “double dipping” debate.
Separate Collecting Society for Mechanical Rights?
In Kenya, mechanical rights licensing in the digital domain is largely dealt with by MCSK, as the collecting society for authors, composers and publishers of musical works. However the sticking appears to be the split or rather lack thereof before the artist and the producer in respect of royalties from mechanical rights licenses. Indeed, IPKenya has often wondered why producers and performers don’t seem to be getting their dues from ringtone downloads and the like. Perhaps one of IPKenya’s more informed readers can explain to us why related rights are sidelined from the mechanical rights cake? As one ponders on this issue, one possible solution that arises is the creation of a mechanical rights society of Kenya to properly and equitably administer licensing and royalties particularly in digital downloads.
In this connection, the recent case of JB Maina’s copyright tussle with Safaricom, Liberty Afrika and MCSK is worth mentioning. The Business Daily now reports that Safaricom is working on an out-of-court settlement with JB Maina. IPKenya wonders whether Safaricom is tacitly acknowledging that it may not have acquired mechanical rights from JB Maina despite the alleged existence of a valid and enforceable content provision agreement as well as a deed of assignment.
In South Africa, royalties payable in respect of mechanical rights are currently collected by SAMRO and NORM, an incorporated association collecting mechanical royalties on behalf of about 300 South African music publishers and composers. Originally, the sole licensing body in South Africa was SARRAL, but this entity collapsed and it is now under liquidation. The recent CRC report recommended that the legislation be amended to allow for only one collecting society per set of rights with regard to all music rights governed by the Copyright Act. IPKenya submits that this recommendation could easily be applicable to Kenya as explained above.
Ideal cost-to-royalty income ratio for collecting societies?
The costs-to-royalty income ratio (i.e. administration costs as a percentage of total collections) for collecting societies selected for international benchmarking purposes varies between 10% and 24%.
It is no secret that MCSK’s ‘deregistration’ by the Kenya Copyright Board (KECOBO) was due, in no small part, to a perceived mismanagement of funds largely attributed to a high costs-to-royalty income ratio. To put it bluntly, MCSK was accused of spending more on its own expenses while distributing less as royalties to its members. For more on this and other issues, please refer to IPKenya’s recent discussion with MCSK CEO Maurice Okoth.
MCSK has consistently taken the view that KECOBO‘s 70:30 is arbitrary and has no basis in law i.e. Copyright Act or Copyright Regulations. MCSK adds that the 70:30 is inconsistent with some but not all of its distribution classes. For instance, MCSK claims that an 80:20 split may be possible in broadcasting distribution but impossible for public performance because the latter is more difficult to collect hence increasing MCSK’s administrative costs.
Meanwhile in South Africa, the maximum allowable ratio is 20% in terms of current local regulations. Therefore the CRC believes that SAMRO’s current ratio of approximately 30% is excessive in relation to the international average. This is confirmed by the fact that when compared with other collecting societies, SAMRO has the lowest average ratio of revenue collected to labour costs. The CRC recommends that SAMRO be given three years to resolve this matter. It is clear that to comply with Regulations, which require a maximum of 20%, SAMRO will have to improve its levels of collection and reduce cost.
Performing rights in a music download?
In the US case of re Application of Cellco Partnership D/B/A Verizon Wireless, the court declined to hold that a sound recording (set as a ringtone) is performed in public each time a user’s phone rings. The court held that Verizon (a mobile service provider) did not need a public performance licence for musical compositions because it provides ringtones to its customers. This, of course, did not exonerate the service provider from paying the mechanical royalties, the communication right to the copyright owner and the ‘making available’ right for every sound recording it delivers to a customer.
However MCSK and SAMRO have both taken the view that indeed a performance royalty is payable on the downloading of music works. This view is supported by a number of persuasive judicial precedents from the United Kingdom. In South Africa, the Wireless Application Service Providers’ Association (WASPA) has denied this liability but agreed that mechanical royalties must be paid for all downloads, and that performance royalties must be paid for any kind of streaming of sound recordings or music.
This is an interesting debate to follow in Kenya, as MCSK will now attempt to get telcoms and broadcasters to buy in into this “principle of licensing performing rights”.
IPKenya has come to realise that the copyright industry is as fiercely competitive and territorial as any other capitalist industry. Although collective management organisations like MCSK and SAMRO were once intended to exist solely to assist copyright holders in the collective administration of their rights under copyright and related related rights, these bodies have evolved into corporate entities aggressively pursuing profit-making objectives ostensibly for the benefit of their members.
It is reported that SAMRO acquired a property in Braamfontein, South Africa valued at R94 million to house its operations and save on future rental costs. SAMRO also has investments in shares, unit trusts and properties, which generate significant amount of income that ought to be, in turn, distributed to its members. Meanwhile the younger MCSK has been expanding its revenue base by setting up regional offices all over the country and employing their infamous agents to collect license fees from all and sundry dealing with copyright works. At one point, MCSK was rumoured to be eyeing property in the Kileleshwa area for purposes of permanently setting up its headquarters.
While there is merit in actively pursuing profit-making, MCSK and indeed SAMRO have a primary responsibility to their members and therefore discontentment about royalty payments and other issues relating to good governance definitely strike a bad note.
However, it hasnt been all sour tunes for MCSK. Recently, it has received favourable press for its introduction of scientific distribution of royalties and license fees using the WIPOCOS software as well as its 24-hour monitoring software for broadcasts in partnership with local IT firm Digital Linkage Technologies. Other positive events to be noted are the uncharacteristically sober manner in which new MCSK Board Members were voted recently as well as the successful MCSK gala night organised to celebrate Kenya’s best talents. More recently, MCSK set up the MCSK Foundation which has been established to cater for the social and cultural activities of its members. This Foundation is intended to provide members’ allowances for transport, medical assistance, funerals, benevolent payments and others.
IPKenya is counting on the newly constituted Competent Authority aka Copyright Tribunal to conclusively address these emerging issues in the administration of copyright and related rights in Kenya.