COST REVENUE RATIO - A MEASURE OF INEFFICIENCY
Hugh Duffy (IMRO)Mexico, July 1998
Introduction
Since I became involved in the business of the collection and distribution of copyrights owned by creators and their publishers some few short years ago I was amazed at the fact that the only criterion of efficiency that was ever used was the cost/revenue ratio, that is the total administration costs incurred by a society expressed as a percentage of its total revenue.
I say I was amused at it in that I had some bizarre conversations with both creators and publishers, including members of other collection societies, where they pointed out, in response to the fact that IMRO was doubling its distributable revenue every couple of years, that we were still not reducing our cost/revenue ratio. This led me to investigate the reasons why otherwise rational people could adopt this myopic approach to a very simple business model.
Reason for Emphasis on Cost/revenue Ratio As A Measure of Efficiency
There are, in my view, two reasons why this approach has been adopted.
(a) The first is that people concerned with collection societies, and I include here owners of rights and publishers as well as the staff involved in the collection societies, see their organisations as akin to a charity. The cost/revenue ratio is the only criteria which is used in assessing the efficiency or otherwise of a charity. Unfortunately, many people involved in the royalty collection and distribution business do not see it as a business and that is why they use the criteria for charitable operations to assess its efficiency, and behave accordingly. They are in fact using a business model which was more appropriate to the 1890s before the advances in the development of the management science approach to the operation of businesses.
(b) The second reason for the use of the cost/revenue ratio as a measure of efficiency is, I believe, that the agenda for collection societies has, in large part, been dictated by the major multinational publishers and their parent record companies. They too adopted this erroneous definition of efficiency but, for different reasons. From a multinational point of view, particularly with multinational publishers, the most efficient system would be one which would collect all the broadcasting royalties direct from the broadcasters and the mechanical royalties direct from the major record companies. In this scenario collection societies would have very few people employed. They would merely divide up the money very simplistically, giving each of the major multinational publishers a percentage based on the sales of their records and allowing the publishers then to pay out to the writers they felt were important to them.
This simplistic model, espoused by the multinationals, completely misses the reason why collection societies exist and further emphasises the absolute necessity for the existence of collection societies.
I would like to elaborate on why this simplistic model is much admired by the multinationals.
The six major multinational record/publishing companies dominate the market for popular music and have an 80% share. From time to time within that 80% share, the balance may change slightly as between one multinational and another, but by and large their share of the market is pretty static from year to year.
If collectively you control 80% of the market you are not really interested in a transparent collection society which ensures that maximum data is collected so that the small writers and publishers get the monies to which they are entitled because their repertoire is being used. All of this extra work is costly and, since these publishers have 50% of the performing right and 100% of the mechanical right, no matter how diligent the collection societies are, in the area of distribution, or how transparent they are, it will not add anything to the amount of money that the multinational publishing companies get. In fact it will reduce the amount they get, because:-
(a) It will incur costs which, if not incurred, would ensure that their share of the revenue was bigger and
(b) Any transparent system which distributes the money more accurately must, of necessity, take it from the multinationals who have traditionally received more than their fair share of the royalties collected, particularly in the performance areas and especially for broadcasting.
The extremes of this are seen in the United States where, of the 70 million hours broadcast on radio, only a few hundred thousand hours are used as a sample so that only the most frequently aired songs (i.e. Top 40) are sure of being included in the sample. If the sample were reduced or increased it would make some marginal difference to the overall split of the revenue as far as the major multinationals are concerned as more middle and smaller order writers might get some money at the expense of the 'stars' in the multinational stable and a number of independent publishers would get some of the royalties that currently go to the 'majors'.
Moving into the European sphere, it is the practice of many of the large collection societies to use a few days per month as samples for the distribution of broadcasting revenue. This again, of course, helps the multinationals because the fewer the sample days the less the cost and the majors will receive their 50% of whatever is available, irrespective of whether there are 2 days a month sampled or 10 days a month sampled.
Reducing the amount of sampling helps the so called 'efficiency' of the societies because it reduces the costs. In fact, far from improving genuine efficiency, it actually prevents the societies from accurately distributing their royalties. It is surprising that in 1998 few of the societies have the technology that allows them to get a full census of music use from the broadcasters and to allocate the money at a very reasonable cost.
Small publishing companies and, in terms of popularity, middle order to lower order creators receive no, or very little, money under this system. The system is akin to a supermarket deciding that it would only pay the major suppliers but would still require the suppliers of the less popular items to continue supplying it on the assumption that they might be lucky and come out of the draw in the sample from time to time. Just imagine the howls of derision that would greet a company which called itself a business if it were to behave like that. I will return to this issue later in my paper.
The Real Signs of Efficiency
This brings us on to the next question, namely, what are the real signs of efficiency?
It would be wrong to say that the cost/revenue ratio is not one of the criteria for measuring efficiency but it is a relatively unimportant criterion provided the core objectives of collection societies are being met.
It is worthwhile reiterating the objectives of collection societies for the sake of clarity.
Collection societies exist only to -
(a) Collect royalties on behalf of writers and their publishers from broadcasters, cable operators and everybody who uses their music outside the domestic circle.
(b) Distribute that money to all the people whose music is used, in a timely fashion.
If a collection society does not meet these criteria or is not at all times striving to meet these criteria then it really does not fulfil its function as far as the vast body of its membership is concerned and will have difficulty in justifying its existence to the regulatory authorities.
The fact that it behaves 'efficiently' for the major publishers and the major writers does not necessarily give a collection society any right to exist. Its efficiency can only be assessed on the basis of how it performs in relation to the majority of its writers and publishers who are not part of the elite.
We are a quasi-trade union but we do not behave like trade unionists.
Can you imagine a trade union publication showing photographs of their highest earning members in their newsletters?
We do it all the time and then we show surprise as politicians perceptions of us as 'fat cats'.
What other trade union, trade bodies, employers' representatives, farmers organisations, give awards publicly to the most successful and most affluent members of their organisation?
When did you last see photographs of songwriters who, for the third year running, got no royalties because of the sampling system used in their societies?
In order to array the efficiency indices one should look outside the copyright collection societies and examine the criteria which analysts use to view the top companies in the world ranking.
The Criteria are as follows:
1. Improvement in earnings per share, year on year, to all of the shareholders, not just to selected shareholders.
2. Market share - how much of its market does the company hold? Is it increasing its market share or is it losing it to competitors, or is it leaving existing markets for its products unserved?
3. How is it developing the market, given the resources it has at its disposal? Is it engaging in research and development and bringing new products onto the market in order to stimulate demand even further?
4. Is it protecting its copyrights and its patents from piracy?
5. Does it practice good housekeeping? Does it use the most modern technology in its operation? Does its financial and accounting norms adhere to best practice?
6. Is its pricing policy sufficient to meet normal overheads and give a return to its stake holders?
7. How is it seen from the perspective of all the stakeholders i.e. its shareholders, its staff, its customers, its creditors, the regulatory authorities and the community in general?
8. If it has a dominant position in the market does it abuse that position?
9. In terms of corporate governance does it adhere to best practice?
It is possible that a society will, year on year, improve its cost/revenue ratio and yet not achieve one of these nine criteria by which companies are judged in the business world.
This simplistic cost/revenue ratio, which is used in assessing charities, hides the inefficiencies in collection societies. Most collection societies strive to meet this single criterion which is relevant only to judging the efficiencies of charities. In doing so, they ignore the real tests of efficiency and effectiveness and, in time, if they follow blindly this single criterion, will do enormous damage to their core activities and to the reasons for their existence and, over a period of time, will guide them to terminal decline.
It is tragic that societies who try to fulfil their objectives in meeting most of these criteria are regarded by the other societies who are dominated by multinationals as being inefficient. Unfortunately this myth is now being accepted as a fact and unless it is rebutted factually it will destroy collection societies. The void created will be filled by entrepreneurs and or by the multinationals who will not take either a long term or a cultural view of their activity.
In this era of convergence there is a greater need for the survival and the development of collection societies so that they can perform their core activity which is the protection of the rights of the creators, whether they be large creators, medium creators, or small creators.
In this paper I propose to take each of the criteria and show where I believe collection societies are falling short and what they have to do to meet these criteria, which, at the end of the day will be the criteria that regulators will use.
I believe it is incumbent on working groups within CISAC to take these business criteria on board, to examine them objectively and find solutions which will ensure that societies by and large conform to them.
In presenting the paper I will refer to businesses in the US business listing "Fortune 500" where these yardsticks are met.
In the course of the paper I will refer to some individual societies and I do this only because I am better acquainted with some of the societies than others. I am not saying that these societies are worse than other societies of which I don't have the same detailed knowledge.
1. The improvement in earnings per share, year on year, to all of the shareholders, not just to selected shareholders.
This is one criterion which is certainly not being met, on the basis of the information which is in the public domain.
Members of many societies receive no royalties in respect of their works which are performed publicly or are broadcast, or, in the case of international performances, members receive their royalties many years after the performances have taken place.
The explanation that the works of such members do not feature in the sample would not be accepted in any normal business in 1998. If collection societies cannot service all its members then it should not accept them as members. If it does accept them as members it must do so on the basis that some royalties are more difficult and, therefore, expensive to collect and to distribute than others. A simple costing system which has existed for at least 3 decades would serve their purpose.
Because of the obsession with this 'cost/revenue ratio', anything that is considered complex or likely to cost money is rejected and this leads to a fundamentally flawed business practice.
The correct approach would be to have a simple costing system and pay the royalties to the people whose music is performed, charging them the actual costs that are incurred in both the collection and the distribution.
This is not a new or novel concept. The biggest petro chemical company in the world, Dupont, has profit margins ranging from 27% to 4% in the six parts of its business. It earns only 4% profit on its petroleum business, which is 50% of its turnover. If it were to adopt the collection society model it would leave the petroleum business and stay with the chemicals, fibres, polymers, diversified business and agribusinesses where it would effectively improve its cost/revenue ratio from 10% to 15% which would be an increase of 50%.
It does not do this because it is not rational to do so and it would cost shareholders a billion dollars in lost profit per year, reduce earnings per share and reduce the stock market value of the shares.
2. Market Share - how much of its market does the company hold? Is it increasing its market share or is it losing it to competitors, or is it leaving existing markets for its products unserved?
This is probably the area in which many societies, for various illogical reasons, fail. The owners of music are fortunate in that the whole world wants to use their product and it is just a matter of going out and collecting that money. Yet many societies stand back from doing this for the understandable reason that it will affect their cost/revenue ratio. There can be no justification for societies failing or refusing to collect royalties simply because to do so would affect this ratio.
This may appear expensive in the short term to achieve but if it is not achieved other royalties will become more expensive to collect through customer resistance and creators will lose and the rights may become eroded and, ultimately, lost.
This has happened in the United States, in particular, where the collection societies have stood back to such an extent that the European Commission, in their recent examination of the licensing of music works in the United States of America, stated "during the investigation the Commission services indeed found clear indications that the US performing rights organisations have abandoned the field and to not even try to license small and medium sized businesses even for mechanical music that is to say music from CD or tapes" where there are no statutory exemptions.
This would not happen in any rational business market. The argument that a market is too big is not sustainable. For example, if the management and board of Coca Cola told its shareholders that it was too difficult to sell Coca Cola in the midwest of the USA, I am sure their response would be very clear - resignations all round!!
By refusing to incur costs in collecting the more difficult monies and yet ensuring that foreign societies collect royalties on their behalf, the home society is exporting its failures and inefficiency. For example, if European society 'A' collects ,4 per head of population at a cost of 40% and then sends that money to US society 'B', the effect is to make the US society appear more efficient compared to the 'inefficient' European society, even though the US society, in terms of distributable domestic revenue, is collecting, on any basis put forward, just a fraction of what it should collect.
This is not a problem which exists only in the United States. It exists in other markets and if CISAC is serious in its approach to ensuring that the rights of creators are protected worldwide in accordance with the Berne Convention, it should fight these issues where there are legal obstacles and, where the obstacles are purely managerial, 1920 responses should not be acceptable in 1998.
The CISAC societies may be forced to take unilateral action en bloc to bring some countries' domestic law and practices into the 20th century.
It is interesting to note that the US have been very pro-active in protecting computer software, the film and record industry and have put huge pressure on the Governments of various countries to update the protection in that area.
3. How does a society develop its market, given the resources at its disposal? Is it engaging in research and development and bringing new products onto the market in order to stimulate demand even further?
This is one of the areas which causes widespread recrimination between some societies when the activity is described as social and cultural deductions, rather than public relations, award ceremonies or membership development.
Social and cultural deductions can be seen as money spent in research and development, in bringing new products onto the market. It can also be seen as public relations in helping to make the societies more visible as part of the cultural community or it can be seen as just a simple deduction with no value to the societies.
It strikes me as incomprehensible when most of the Fortune 500 companies spend large sums of money building relations and partnerships with their stakeholders and the wider community by stimulating culture and art, that the companies which represent the creators are seen to be inefficient, or worse, when they do likewise.
I would like somebody to explain to me why Intel, which is a manufacturer of microprocessors for the computer industry, can sponsor the New York Rock Week and why ASCAP or SACEM or GEMA or IMRO cannot do the same in terms of the cultural events in their own countries.
The multinational record companies which are based on the 'star system' are prepared to spend huge sums of money in promoting their star with the intention of breaking the record internationally so that the record is profitable. This same record company is paying a pittance in terms of mechanical royalties to the creators of the music. The figures in the US are 6.95 cents per composition or 1.3 cents per minute, whichever is the greater, subject, I believe, to a maximum royalty based on 10 tracks irrespective of the number of tracks on the record. The figure paid in 1909 was 2 cents per track. If the rate of 2 cents had kept pace with inflation the present 6.95 cents should be 34.33 cents.
There may be a further deduction of 25% of the statutory minimum mechanical royalties by the strong-arm use of the 'Controlled Composition' clause within recording contracts which allows the record companies to 'claw back' mechanical royalties.
"Although it is clear that the royalties being paid to songwriters and publishers for use of their compositions on recordings have not even matched inflation, the record companies created the 'controlled composition' clause, to particularly counter Congress' attempt to provide some reasonable, if modest, financial protection for those songwriters and publishers.
Today, the 'controlled composition' clause appears in virtually all agreements between artists and their record companies. A controlled composition is one that is written or at least partially owned or controlled by the artist. This clause is inserted into these agreements by the record company as a means of reducing the amount of mechanicals which must be paid by the record company, and this reduction is directly at the expense of the artist who has written or controls, in some fashion, the composition".
From a cultural point of view and bearing in mind that all European Union countries who have signed the Maastricht Treaty are bound by Article 128 of that Treaty to "Contribute to the flowering of the culture of the Member States while respecting their national and regional diversity and at the same time bringing the common cultural heritage to the fore", there is a great danger in this 'star system' as operated by the multinationals because a record must break internationally to become profitable and under these circumstances 'stars' become homogenised and abstract and deprived of any organic content. The star system presupposes the breakdown of traditional forms of organic culture and the creation of a mass audience.
If it is accepted that the quality of individual life depends on the coherence and depth of social relations then the existence of stars and the individual mass society dialectic on which they draw, implies not only an impoverished sphere of social relations but also an impoverished sense of the individual. What is desperately needed are forms of cultural intervention that allow pleasure, satisfaction, aesthetic experience outside the dominant modes of commodity consumption.
The cultural deductions, I believe, go some way to correct the imbalance.
4. Is it protecting its copyrights and its patents from piracy?
The answer to this question is, in some countries, yes, and in some countries, no. It is absolutely critical that the copyrights of the creators in all of the countries of the world are fully protected and that the collection societies within those countries, irrespective of the cost, use whatever legal and moral authority that they have to ensure that the copyright laws within their countries adhere to the Berne Convention and to Article 9 of the TRIPS Agreement.
The GATT Agreement was signed by all of the countries in the trading world to ensure a level playing field for the products and services from the various countries. It is not sustainable that collection societies within some of these countries accept that their copyright laws are not conforming to the Berne Convention while at the same time those countries’ governments criticise other governments for not protecting their copyrights in the overseas markets.
Again, I must again refer to the United States but it is now a matter in the public domain that the European Commission has accepted that the copyright laws of the United States violate international trade rules as adopted by the World Trade Organisation. It has also stated that their exemptions violate Article 11 bis 1 of the Berne Convention on copyright and thus Article 9 of the Trade Related Aspects of Intellectual Property section of GATT.
We know that there are other countries whose laws are not in accordance with the Berne Convention or the GATT Agreement and it is incumbent on CISAC members to ensure that this is corrected. The intellectual property of countries that do not adhere to the TRIPS Agreement should not be protected elsewhere in the world. I believe that CISAC societies should consider putting the royalties of societies in offending countries in escrow until the matters are rectified.
5. Does it practice good housekeeping? Does it use the most modern technology in its operation? Does its financial and accounting norms adhere to best practice?
Regrettably, the answer to this has to be no. The collection societies from their inception had the first ever databases and in many of the societies the updating and manipulation of those databases has not kept pace with modern technology and, as a result, attempts to operate transparent, fair and timely distribution procedures are not possible.
In this area it is essential that CISAC societies put maximum effort into developing the Common Information System and that consultants be hired and be paid by a levy on all of the collection societies to ensure that this CIS system is up and running within 12 months.
It is not acceptable that sub-committees of societies which meet a couple of times a year are responsible for this critical operation.
Failure to do this will raise questions as to whether some societies are only paying "lip service" to the project. It is a fact that when it is operational that there will be a diminution in the earnings of many of the multinational publishing companies and many of the stars in that, with its advent, it will be feasible, practical and cost efficient to ensure that the repertoire which is used is the one that is paid for and that royalties actually go to the owners of the repertoire and not to the dominant players within that repertoire who currently receive a disproportionate amount of the collections.
It is also clear that the financial and accounting procedures of some societies do not adhere to best practice. It is inconceivable that in 1998 very few societies have accounts prepared which show the costs allocation over the various headings of income.
If this were to happen and distributions were made with only the costs accruing to the various pools deducted it would protect the integrity of the societies in the long term.
It is unfair that somebody who gets a lot of radio play where the costs of collecting and distributing using modern methods might only be 10% is lumbered with the extra percentages which arise because of the difficulties in collecting and distributing some forms of public performance.
It is equally unacceptable that a rock concert, the royalties which are very simple to collect and very simple to distribute, used to have to carry the same level of overheads as the collection of live music royalties in a restaurant or pub.
6. Is its pricing policy sufficient to meet normal overheads and give a return to its stakeholders?
Various reports which are prepared annually show a marked divergence between the amount of money collected per head of population in various territories and also, if one is to use the amount of collections as a percentage of GDP. These also show the same kind of inconsistencies.
While it would be anti-competitive to suggest that societies should, on an international scale, become involved in price fixing it is important within each territory that the tariffs which are charged, reflect the economic conditions within that territory and that the sums collected are sufficient to give a fair return to the owners of the work.
It is unacceptable that, even in the last bastions of laissez-faire capitalism, there is a minimum wage for everybody except for the creators.
It is equally unacceptable that many members have to wait for up to two years to receive their royalties from other societies.
In the EU, with the acceptance under the Maastricht Treaty of the Social Chapter, there is a mechanism for ensuring that all European citizens (including creators) receive fair remuneration and conditions. In other jurisdictions and in Europe, economic analysis and studies, comparable to those carried out by trade unions, farmers associations, banks and the corporate sector in general, should be carried out to ensure that the tariffs reflect a fair return for the use of the work. Again, to quote from the DG 1 of the European Commission report on the American music industry...
"When bars, restaurants, shops etc. play music their expectation is that it will make the place more attractive to potential customers and thus increase the return of those premises. The purpose of using music in such situations is to increase profit."
The Commission has accepted that the use of music by users is to increase profit but this profit should not be subsidised by a tariff system which leaves 80% of the members of the CISAC societies on or near the poverty line and forces them to do other work to exist or to rely on the state for support by way of social welfare payments.
The main problem here is that the members of societies and their Board’s had different and conflicting agendas.
Major publishers and the stars are mass marketeers and they want to tell the world how successful they are.
The middle order and lower profile creators just want a living and an existence. They depend on the revenue from small and medium enterprises to give them that living and the message they want to get across is totally different to the message that the major publishers/the star performers continually present to the public.
7. How is it seen from the perspective of all the stakeholders i.e. its shareholders, its staff, its customers, its creditors, the regulatory authorities and the community in general?
Collection societies in general have a very patchy relationship with their stakeholders. With regard to their members i.e. the copyright holders, some do very well and others do very badly. In general they do not have a good relationship with their customers and it is fair to say that the staff of collection societies have, in the main, good employment terms. With regard to the regulatory authorities and the community in general, societies, with some exceptions, failed to become part of the community.
Many societies have failed to form a relationship with their customers, other than a confrontational one, and this results in antagonism between customers and the collection societies, further reinforcing the view that societies are 'takers’, unfairly supported by archaic legislation, rather than business partners.
Customers are reluctant to pay anything whether it is taxes or royalties but if a good relationship is built up over the years, it is possible, through a process of education, to get them on side. In turn, governments and legislators are less reluctant to be openly supportive of societies if they, the legislators, are not perceived as taking sides in confrontational situations. A good example of this partnership relationship was the recent formal launch of IMRO, where the Irish Prime Minister attended, together with representatives of all music using groups and members of IMRO.
It is interesting to note that all the top 500 American companies have extensive community budgets in which they involve both their customers and the community in general. In the Appendix attached I have taken off the Internet a small selection of the top of the Fortune 500, it is interesting to note that General Motors has sponsored the national broadcast of the Detroit Symphony Orchestra Concert Series.
Sears Roebuck also has used Gloria Estefan in a project to empower youth and have a relationship with the Ringling Brothers Circus. Procter and Gamble spend $60 million worldwide in community contributions and that includes $1,628,633 to cultural organisations and projects in the United States including sponsoring free summer concerts in the park performed by the Cincinnati Symphony Orchestra. Dupont, the oil company, has a community initiative fund which works to have them as an oil company better accepted in their community.
It is very difficult against this background to understand why there is such antagonism towards some societies who work with their community, and their regulatory authorities, and are generally seen to be supportive of the cultural and social life of the communities in which they operate.
8. If it has a dominant position in the market does it abuse that position?
Unfortunately, the answer again is that it does. It is a matter of public record that the MMC investigations in the UK highlighted forty four items in the case of the PRS some of which even under EU law would have constituted an abuse of a dominant position.
In the case of IMRO we had to change our memo and articles to conform to competition law and I am sure that if other societies were subject to an intensive investigation that changes would be required.
In a document read by a European Commission official to the Fordham Corporate Law Institute in October of last year various instances of anti-competitive behaviour were cited, for example, retaining royalties for unnecessarily long periods.
Many of the assertions contained in that report are unfounded and need to be rebutted. It will be difficult to rebut many of them so long as the financial information, accounting and distribution methods are those which I would have expected to find in a company in 1898 rather than 1998.
9. In terms of corporate governance does it adhere to best practice?
In this area, all societies are suspect, in that the Board of Directors is usually made up of a cross section of songwriters and composer and their publishers. In effect, if the decisions are made at the boardroom table in terms of distribution methods and sampling practices it is likely that each and every director has a conflict of interest. It is against this background that the MMC in its report on the PRS stated "However, even from its earliest days, there have been differences in the interests of the various types of member, most markedly between writers and publishers where there has always been tension about the way in which royalties from musical performances were divided and concern that publishers might seek, in exploiting the creative talents of their writers, to give too little weight to writers’ interests. There have also been tensions between those who are involved with different types of music because of the great variations in the cost of collecting royalties from music performed in different media and at different venues. Naturally, those who are the larger earners are concerned that administration expenses primarily incurred on behalf of the many smaller earners are kept to a minimum. The corporate organisation of the PRS and its sometimes cumbersome procedures need to be viewed against this background."
The only reason that collection societies exist, and the only reason that they enjoy their quasi-monopoly position is to collect the royalties on behalf of individual rights owners because, in practice, individual rights owners can not collect their own royalties.
If the raison d'être of collection societies converges to a point where the major publishing companies and their major writers are the people who decide the policy of the societies then the societies are departing from their core function and will not be allowed to retain their quasi-monopoly status by competition authorities as a result of the inevitable cross-subsidisation of their royalties by the non-payment of royalties to the smaller earning members.
If collection societies are to prosper in the future, which they must do in order to protect the creators, it is essential that there be a balance of outside non-executive directors on the Boards who will represent regulatory authorities and who will represent, dare I say, users!! In the past year, IMRO has appointed to its board one such director, who is neither an author or a publisher, but an economist who is an expert on competition law.
While I accept that there is a conflict of interest between users and rights holders a coalition serving the creators which would result in compliance might be a very cheap price to pay for an open transparent operation.
Users, generally, are of the view that they don’t mind paying royalties but what concerns customers is that they believe that the owners of the copyright do not receive the monies that are paid. This is a fact of life in that the copyright holders who come into contact with users are not the stars but the ordinary middle of the road to lower down the end of the creative ladder and they rightly point out that they receive no remuneration for the use of their work.
There is not much point in having a songwriter/performer playing in a bar once a week and having that bar pay royalties to a collection society when the owner of some of the songs may never receive any payment and the answer which is put forward is that it is too expensive to distribute.
I believe that if there was a coalition of users and rights holders in societies which have as their core objective to ensure that, as far as possible, the owners of copyright were paid for the use of their work there would be a much higher degree of compliance and there would not be the antagonism towards collection societies that at present exits in some countries.
The usual response put forward is the "law of diminishing returns", i.e. for each extra dollar spent, a smaller amount of new income is collected.
However, this law is now no longer accepted in the area of "knowledge based industry". The concept of "increasing returns" is being widely accepted and is the basis of the anti-trust cases in the US against Microsoft. Its proponent is W Brian Arthur, Professor of Economics, Stanford University and Citibank Professor, Santa Fe Institute.
With convergence and a thinner line between user and content provider it may be time for a radical rethink in this area.
I hope that this paper will create some controversy and some examination but suffice it to say that I think the case is proven that to rely only on a cost/revenue ratio as the sole criterion of efficiency is not the way forward. It is not a mark of efficiency and, indeed, it conceals real inefficiencies in the operation of the societies and will eventually lead to problems that are insoluble and terminal to those societies.
I could have highlighted some of these glaring inefficiencies by reference to the accounts of some societies but I feel that it is more important to go forward positively to repair the collective errors of our ways than to engage in inter-collection society rivalry which, at its best, is non-productive and, at its worst, is only destructive to the rights which we are here to protect, those of the creators.
We have to be radical in the future to survive.
We should not tie our future and the future earnings of the vast majority of our members to the mega stars or the multinational publishers. By all means we should work with but not for them.
We are in danger of losing faith with the millions of unheralded songwriters and using them as cannon fodder for the stars and the six multinationals and if we continue along that road we will lose in this area of regulation, consumer power, transparency and the end of cartels and dominant players. One has to look no further than the computer industry to see that the giants of a few years ago are not bit players in a very fast changing market and, in some cases, the unthinkable has happened to them in the space of a few short years.
