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Wednesday, July 11, 2007


Dancing Queen No More? 1400% Increase in License Fees

When you receive several emails about a copyright related development, all before lunchtime, you know something is up (though it could just say something about me).

Yesterday the Copyright Tribunal approved an application to increase licensing fees for nightclubs and dance parties. The application was made by a copyright collecting society called Phonographic Performance Company of Australia (PPCA). PPCA are calling the decision 'a better deal for artists' I am calling it 'license fee increase of around 1400%- that is massive'.

The decision can be found here [RTF]. Brief outline below.

Phonographic Performance Company of Australia Limited (ACN 000 680 704) under section 154(1) of the Copyright Act 1968 (Cth) [2007] ACopyT 1

Framework: The Tribunal discusses the statutory framework for its power to confirm or vary licence schemes. At [10] they note that this involves "a value judgment as to what it considers reasonable in the circumstances. It is not usually possible to calculate mathematically the correct licence fee in any particular case."

Nightclubs and Dance Parties: The decision discusses a study commissioned by the PPCA raising ground breaking points such as nightclubs play music and sometimes nightclubs have dance floors. Nightclub operators presented evidence of their declining patronage and how they usually operate below capacity. Dance parties are usually one off events, the popularity of these events have also declined according to evidence presented to the Tribunal.

Current Tariffs: Current license fees for nightclubs are 7.48 cents per person per night (number is based on licensed capacity of the venue). The amount is payable for each area where music is playing (if applicable, different rooms, levels etc). Dance parties need to pay 19.8 cents per person, based on estimated attendance.

The Respondents: The Respondents include Australian Hotels Association, Clubs Australia, Clubs NSW, Explorer Cruise Lines Ltd and others together with Nightclub Respondents. Issues raised included the definition of nightclub, whether license fees should be calculated based on attendance rather than capacity, non protected music, whether the extent that patrons are willing to pay for recorded music can be established, the way in which the fee is calculated for dance parties and whether not for profit organisations liked Mardi Gras should be treated differently from other organisations.

Willingness to Pay: The PPCA engaged Allen Consulting Group (you might remember their report into the economic effects of copyright term extension) to estimate the value of sound recordings in nightclubs and dance parties. Allen Consulting utilised a 'choice modelling survey' to determine 'willingness to pay'. The nightclub respondents criticised the survey claiming that it was "divorced from economic and competitive reality" and provided unrealistic choice sets (at [147]) . The case continues with various factors relevant to the assessment of economic impact.

Judicial Estimate: With respect to nightclubs the PPCA claimed $2.32 per person. The Tribunal discounted this rate based on non-protected music (-20%), competition from other late night venues providing live or recorded music (-20%) however chose not to discount for actual patronage being below or above capacity. Further:

"The division of the estimate of willingness to pay should be adjusted to reflect the fact that the entrepreneurial risk in relation to the operation of a nightclub is undertaken by the operator and not by the Society or by APRA...A more appropriate division, therefore, would be 50% to the operator and 25% to each of APRA and the Society. " at [215].

The Tribunal arrived at a figure of $1.05 for the use of protected music at nightclubs.

PPCA claimed $15.37 for value of music at dance parties. This figure was reduced by 20% for non-protected music and entrepreneurial risk, leaving this figure at $3.07 per person.

Not for profit: Mardi Gras made an application under s 157(2) of the Copyright Act seeking a determination that the license scheme is unreasonable in their circumstances. The Tribunal found:

"Clearly, much of Mardi Gras’s activities are intended to serve a community purpose. However, that does not mean that the Society, and its members, must also be compelled to support those purposes. It is not for copyright owners, or any other private group in the community, to subsidise public instrumentalities or charities" at [232].
Outcome: The scheme proposed by the PPCA was approved subject to adjustments (to rates and defintions) indicated by the Tribunal. The application by Mardi Gras was refused.


The case provides interesting insight into the calculation of licensing fees. The Tribunal noting that:
"The exercise that results in that figure is, of course, to a considerable extent, arbitrary and artificial. Nevertheless, it has a rational basis for arriving at what has been described as a judicial estimate of what a reasonable but not too anxious licensor would require to be paid and what a reasonable but not too anxious nightclub operator would be prepared to pay for the right to play recorded music at nightclub venues" at [217].
In the end, it is the consumer who has to pay. Both through increased prices and, if this leads to closures, then reduced choice. It is the extent of this impact that is unclear. If this decision leads to the closure of less mainstream clubs then it is important to ask which artists are actually getting the better deal.

More reports here (The Age) and here (SMH).

Update: More info on the economic analysis in the Tribunal decision available here on Core Economics (hat tip: Peter Black).

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