Independent Management Entities under Directive 2014/26/EU : Practical consequences for individual music authors

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Independent Management Entities under Directive 2014/26/EU

Practical consequences for individual music authors

Master's thesis

Program: LLM Informatierecht

Institution: Faculty of Law - University of Amsterdam

Name student: Ruben Bolder Student number: 10214933

Supervisor: mr. dr. Lucie Guibault Date: February 17, 2017

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Abstract

This thesis addresses the regulation of Independent Management Entities under Directive 2014/26/EU on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market. A study was carried out with two objectives: First, to determine which organisations qualify as Independent Management Entities, and, second, to assess the consequences of the regulation of Independent Management Entities under the Directive for individual music authors.

This thesis provides an elaboration of the practical context of online music rights

management in the European Union, based on academic literature and on information from organisations involved in the music industry. Subsequently, a qualification of a sample of selected organisations as Independent Management Entities under the Directive is carried out on the basis of information obtained on the internet. Seven organisations that qualify as Independent Management Entities are identified. Lastly, the consequences of the Directive's regulation of Independent Management Entities for individual music authors are assessed based on the provisions of the Directive and sources from academic literature and

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1 Introduction

In recent years, technological developments have transformed the music industry. Driven by those developments, there has been a continuous growth of new possibilities for the use of internet in the music industry. Digital technologies created new forms of music consumption such as the downloading and online streaming of music.1 Online possibilities have led to the market entry of music services such as Beatport and Spotify.2

Because of the cross-border nature of the internet, online music services typically operate on a multi-territorial scale.3_{This has consequences for the licensing of the copyrights and related} rights on music. In order to offer music through downloading or streaming services, the providers of these services need multi-territorial licenses for the use of the music. However, the management of copyrights and related rights for which licenses are needed is often done by different parties.4 Hence, under the traditional system, the management of music rights is fragmented on multiple levels and this leads to a complex licensing practice.5

In the EU, the collective management of copyright and related rights has traditionally been organised on a national basis.6 That mono-territorial system of collective rights management was effective for the licensing of music in an offline context. Online music services,

however, require multi-territorial licenses.7 The inadequacy of the EU’s mono-territorial system of music rights management to meet the multi-territorial licensing demands of online music services put the traditional system under pressure.8

Recognizing the problem of the increasing obsolescence of the traditional system of collective rights management in the EU, the European Commission issued a directive that aims to stimulate multi-territorial licensing in the EU. This directive, known as Directive 2014/26/EU, has two main objectives.9 First, the Directive aims to promote multi-territory

1_{Schwemer 2014.}

2_{Beatport (www.beatport.com) is a platform for the online streaming and downloading of music; Spotify}

(www.spotify.com) is a platform for the online streaming of music.

3_{In this thesis, ‘online music services’ will refer to music downloading, streaming and other forms of music}

consumption that take place in an online environment.

4_{Brinker & Holzmüller 2010, p. 558.} 5_{Mazziotti 2011.}

6_{Hereinafter, ‘copyright’ will refer to both copyright and related rights, unless specified otherwise.} 7_{Hilty & Nérisson 2013, p. 222-234.}

8_{Visser 2009.}

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and multi-repertoire licensing by CMOs. Second, it is supposed to improve the transparency and good governance of CMOs by establishing legal standards for their functioning. This entails norms on transparency, control and accountability.10

The Directive employs a system of layered regulation. Two different layers of regulation apply to two different categories of rights management. The first category encompasses organisations that qualify as CMOs. For CMOs, the Directive is wholly applicable. As a second category, the Directive introduces independent management entities (IMEs). For these ‘entities’, a limited selection of provisions is applicable. Hence, the Directive’s regulation applies in two different ‘layers’.

According to Article 3(b) of the Directive, an independent management entity is defined as ‘any organisation which is authorised by law or by way of assignment, licence or any other contractual arrangement to manage copyright or rights related to copyright on behalf of more than one rightholder, for the collective benefit of those rightholders, as its sole or main purpose, and which is neither owned nor controlled, directly or indirectly, wholly or in part, by rightholders; and which is organised on a for-profit basis’.

Although the definition of IMEs seems straightforward, the practical interpretation of this new category of entities has proven problematic. The meaning of IMEs is generally unclear to the parties to which the Directive’s regulation might be relevant. National implementation of the Directive by EU Member States has resulted in a lack of comprehension of the scope of the category of IMEs.

A clear understanding of the meaning of IMEs is important from the perspectives of different parties. First, for national legislators who need to enforce the provisions of the Directive, it is important to understand the concept of IMEs in order to decide if and how they should apply the Directive to certain organisations. Second, for organisations that provide music rights management services, it is important to be able to reliably assess to what degree they are obliged to comply with the layered provisions of the Directive.

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Ultimately, the way in which the Directive applies to different types of rights management organisations has a considerable impact on a third group. This third group consists of the people that make use of the services of different types of rights management organisations. The layer of the Directive’s regulation that is applicable to both CMOs and IMEs provides norms with regard to transparency, accountability and negotiating practices. These norms are supposed to protect the music authors and rightholders whose rights are managed by CMOs or IMEs.

A particular vulnerable sub-group within this third group consists of individual authors. Compared with music authors who are under contract with a major record label, the position of individual music authors in the music business has traditionally been relatively fragile. Lacking the economic and organisational security of a professional record label, changes in the regulation of music rights management can have considerable consequences for

individual authors.

In the light of the above, two issues are apparent. First, there is ambiguity with regard to the meaning of IMEs in practice. Second, the consequences of the Directive’s regulation of IMEs for individual music authors are unclear. This thesis aims to address both issues. Specifically, this thesis has two research objectives: First, to analyse which organisations qualify as IMEs under the Directive. Second, to assess the consequences of the regulation of these

organisations under the Directive for individual music authors. These objectives are embodied in the following research question:

Which organisations qualify as Independent Management Entities under Directive 2014/26/EU and what are the practical consequences of their regulation for individual music authors?

In order to provide a comprehensive answer to this research question, its relevant aspects will be addressed with specific subquestions. The main elements of the central research question (the qualification of IMEs and the analysis of consequences of the regulation of IMEs for individual authors) are addressed in two separate subquestions. Furthermore, to facilitate the research of the practical context of both elements, a third subquestion is formulated in order to elaborate on the European music industry as the relevant context of the research topic. Specifically, these are the three subquestions:

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1) What is the practical context of online music rights management in the European Union? 2) Which organisations qualify as Independent Management Entities under article 3(b) of Directive 2014/26/EU?

3) What are the implications of layered regulation of music rights management under Directive 2014/26/EU for individual music authors?

A combination of different methods is used to answer the subquestions. The elaboration of the EU music industry is based on information from academic sources as well as on

information obtained from professional parties that are involved in the music industry, such as research reports obtained from national CMOs.

The compilation of the sample of organisations that are recognized as relevant for this research is mostly guided by information from different places on the internet. This includes information from the websites of the organisations themselves and information on blogs dedicated to the music industry. Furthermore, several academic articles and professional research papers provided names of relevant organisations.

The qualification of the organisations in the sample is based on the definition of IMEs provided in article 3(b) of the Directive. The discussion of the legal implications of this qualification in the light of the Directive’s layered regulation is based on the provisions of the Directive.

This structure of this thesis follows the subquestions. The following chapters each address a specific subquestion and the final chapter provides a conclusive answer to the central research question. Specifically, this results in the following structure. Chapter two provides an overview of online music rights management in the context of the European music industry. In chapter three, the legal framework of online music rights management in the EU is elaborated. Chapter four presents the analysis of IMEs under the Directive. In chapter five, the practical consequences of the regulation of IMEs for individual music authors are

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2 Europe’s digital music industry

The Directive's regulation of IMEs is not an unrelated occurrence in EU law. In order to grasp the meaning of the Independent Management Entity, this legal concept under the Directive should be interpreted in relation to the context of the EU music industry.

Understanding the practical context of IMEs provides directions for the selection of relevant 'candidates' in order to carry out the qualification of different organisations under the

Directive's definition of IMEs in the next chapter. Furthermore, understanding the interplay between the different actors in the EU music industry facilitates a comprehensive analysis of the consequences of the regulation of IMEs for individual music authors.

Therefore, the first step in this study is to answer the following subquestion: What is the practical context of online music rights management in the European Union? For that purpose, this chapter elaborated the different actors that play a role in the music industry. In order to understand the relations between those actors, this chapter also explains different types of rights and licenses, and of different forms of management of those rights.

Furthermore, the influence of digitization on music rights management and on the position of individual authors is elaborated.

2.1 Digitization of the music industry

2.1.1 The EU music industry

At the foundation of most activity in the music industry is the creation of music. The creation of music can take a variety of forms, involving different parties. In general, the music

industry is described in academic literature as an industry made up of three interconnected businesses: publishing, recording and live performance.11 An alternative description of the music industry is offered by the United Kingdom's Department for Culture, Media and Sports (DCMS). The DCMS also describes the music industry as an industry comprised of three parts, but in this explanation the different parts are based on three types of activities: core activities (e.g. music production), supporting activities (e.g. distribution) and related activities (e.g. advertising).12 This thesis does not adhere to one particular definition of the music industry. Rather, using the above descriptions as reference points, this thesis aims to interpret

11_{Hesmondhalg 2007.} 12_{DCMS 1998.}

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the music industry in the broadest possible sense so as to include all relevant activities in this study.

The market structure of the music industry has a concentrated character. The market is dominated by three multinational music companies, the so-called majors: Warner Music Group, Universal Music Group and Sony Music Entertainment.13 Together, the majors control 70 percent of the global music market. The rest of the music market is occupied by a large number of independent labels, the so-called indies.14

Of all global recorded music revenues, more than a third is generated in the EU. In 2014, the total revenue of the European recorded music industry was four billion euro.15 The member states with the largest share in the EU music industry are France (27%), the United Kingdom (23%), Germany (17%), Italy (6%), Sweden (5%) and The Netherlands (4%).16

2.1.2 Digitization

Technological developments have fuelled changes in the music industry. An ongoing shift takes place from the traditional 'physical' music industry to the digital music industry. With technology and the internet, music can be distributed through multiple online channels and it can be accessed on multiple platforms. New markets are entered and the consumers can choose from a collection of music that is more extensive than ever before.17

Two types of online music services in particular have grown in popularity: downloading and streaming.18 The worldwide relevance of new music services such as digital downloading and online streaming is growing. A study that was commissioned by the International Council of Creators of Music indicates that while online music streaming services had a modest fifteen percent share of the global music market in 2014, these services will probably be the main

13_{Leurdijk, Andra, Mijke Slot, and Ottilie Nieuwenhuis. "Statistical, ecosystems and competitiveness analysis}

of the media and content industries." European Commission (2012).

14_{KEA 2012, p. 23.}

15_{IMPALA, "European music in numbers", see: http://www.impalamusic.org/node/9} 16_{Leurdijk, Slot & Nieuwenhuis 2012, p. 34.}

17_{KEA 2012, p. 8.} 18_{Einhorn 2002, p. 165.}

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form of music consumption in the future.19 In Europe, about 35% of the total revenue of the recorded music industry was made up of digital revenues.20

The rise of digital downloading and streaming of music, and, to a lesser extent, other online music services such as customized online radio, have transformed the infrastructure of music distribution. Several processes, such as CD manufacturers and (physical) record shops, are becoming more and more obsolete. The music industry is continuously adapting to these changes. Music suppliers try to find ways to use the technological developments to their advantage. For example, by embracing the new technologies behind the changes, music suppliers can optimise the efficiency of their distribution chain.21

2.1.3 Consequences of digitization

Technological developments have changed the music industry on a structural level. Because of the fundamental impact of those changes on the music industry, many different actors are affected in some way. For some parties the changes have a negative effect on their business prospects, for example in the case of parties that are active in the declining market of physical record sales. For others the changes provide opportunities for growth, such as in the case of a rightholder of regional folk music that can offer his repertoire worldwide through an online distribution channel. In subchapter 2.2, which elaborates on the different types of actors in the music industry, the effects of digitization on specific actors will be discussed.

Furthermore, the technological developments create opportunities for the innovation of new models for the production and distribution of music, or for other activities related to the exploitation of music rights. These new models can lead to the entrance of new players in existing markets, or to the creation of totally new markets in the music industry. This also happens in the 'market' for music rights management, in which initiatives based on new forms of rights management services are positioning themselves as alternatives for traditional CMOs.

An example of the nature of those new forms of rights management services can, in fact, be found in the Directive's definition of IMEs. Although new rights management services can

19_{Lalonde 2014, p. 2.}

20_{IMPALA, ‘European Music in Numbers’,}_{http://www.impalamusic.org/node/9}_{(last visited: December 2016)} 21_{Pitt 2015, p. 3.}

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have different forms and therefore should not be treated as a homogeneous group, a number of those services will fall under the Directive's definition of IMEs. In that context, the introduction of Independent Management Entities in the Directive can be understood as an attempt of the Commissions to align the regulatory scope of the Directive with the evolving structure of the 'market' for music rights management.

2.2 Actors in the music industry

2.2.1 Music creators

As the primary generators of value, music creators are core actors in the music industry. Works of music can be created in a wide range of ways, involving different parties and processes, and for different purposes. Nonetheless, the creation of music in the context of the music industry generally follows a typical pattern that involves a combination of parties that can be categorized as composers, music publishers, performers or record companies.22

It should be noted that these categories are not mutually exclusive. In practice they can, and often do, overlap. For example, a professional singer who personally writes a new song for a special performance is both the composer and the performer of that work of music.23_The specific arrangement of roles carried out by the parties that are involved in the creation of a work of music dictates the distribution of copyright and related rights on the work. Further elaboration of this distribution of rights is integrated into the detailed explanation of music rights in subchapter 2.3. In that context, the four different parties are discussed in their capacity as potential holders of one or more rights on the work of music.

Composers are the people who create the musical content of a work of music. They build chord progressions, they combine notes to form a melody and they design rhythms. A composer turns a musical idea into an actual musical composition. This category also includes lyricists. A lyricist writes the text that complements the musical composition. Both the musical compositions are inextricable elements of a work of music and in that regard lyricists are equated with composers. A musician who is the composer as well as the lyricist in the creation of new songs is commonly referred to as a 'singer/songwriter'.24

22_{Schwemer 2014, p. 144.} 23_{Pitt 2015, p. 61.} 24_{Pitt 2015, p. 61.}

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Music publishers are companies that publish new works of music as their main business. These works of music are not recordings, but the musical composition and the lyrics for a new song. They usually obtain the rights to new songs from multiple individual composers and songwriters. By controlling the rights on a large repertoire of works of music, they can generate a profit from the exploitation of those rights. Music publishers can be seen as an extension of individual songwriters.

Performers are people who possess the skills and talent to put a written song into real music. A performer can be a skilled instrumentalist or a professional singer. In many cases, the person who has composed a work of music is not the most suited person to perform the composition and turn it into real music. Often, the composer is neither a great singer nor a great instrumentalist and therefore professional performers are hired.

Record companies are companies that work with artists to create and exploit works of music. Usually, the artist has signed a contract that involves a transfer of certain rights from the artist to the record company. As music creators, they can be actively involved in the creation of music or they can fulfil a more facilitating role. Record companies, especially the big ones, often have professionals such as music producers and technicians working for them. These people can create new songs, or they can support artists who work with the record company.

Record companies have the knowledge and the necessary equipment to make professional sound recordings. For this purpose they may also employ audio engineers who are skilled in the final mastering of sound recordings. In practice, most of a record company's efforts will be directed at the exploitation of recorded music, involving activities such as negotiating licensing deals and music promotion.

2.2.2 Music users

The public that listens to music in any way can be seen as the end user of works of music. For these end-users, music is 'used' be the public for its entertainment value. However, music is also used in another way, namely to generate profit. Companies use music in different ways. Shopping areas and bars use music to improve the atmosphere in their establishments with the aim of higher consumer spending. Producers of movies and television commercials use music to enhance the audio-visual experience of the imagery and to strengthen the message

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they wish to convey through their medium. Using the value of music more directly, record shops and vinyl stores sell physical copies of recorded music in order to generate profit.

In much the same way as record shops, online music services use music to generate profit. The most widely used types of online music services are streaming and downloading. The number of online marketplaces for digital music downloads and online streaming continues to grow, as large internet companies seem to also be embracing online music services as an opportunity to generate additional profit. Figure 1 provides a selection of examples of digital download and online streaming services.

Examples of providers of digital music

download services that have a strong presence in the EU are iTunes, Amazon, Google Play, Media Markt and Xbox.

Examples of providers of online music

streaming services that have a strong presence in the EU are Spotify, Netflix, Amazon, Deezer and Youtube.

Figure 1. Online music services. (Source: The Orchard)

2.2.3 Rights managers

For the management of copyright and related rights on music, rightholders have traditionally relied on the services of CMOs. CMOs are organisations that represent rightholders, such as songwriters, singers and record labels, by negotiating licences and collecting remuneration on their behalf.25 Outsourcing of rights management to specialised CMOs is often necessary for rightholders from a practical and economic point of view.

Since 2005, several agreements between CMOs and major music publishers have been established in order to provide a 'one-stop-shop' for the licensing of online music rights for

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the repertoires of those music publishers.26 These agreements created new entities that were authorized to provide pan-European licenses. Most of these entities have combined the management of both copyright and related rights, enabling them to provide mechanical rights licenses and performing rights licenses. As such, they are referred to as hybrid rights

management entities. The initial hybrid initiatives were CELAS, PAECOL, DEAL and PEDL. In 2014, CELAS and PAECOL merged into the joint venture Solar Music Rights Management.27

Next to the establishment of these hubs for the major record companies, a similar initiative was also created for independent music publishers. In cooperation with PRS For Music and the Music Publishers Association, both based in the United Kingdom, IMPEL was

established in 2010 as a hybrid rights management entity authorized to provide pan-European licenses on behalf of independent music publishers.28

Apart from those hybrid entities, other forms of rights management have been established in the music industry. These new entities provide rights management services but they do not qualify as CMOs. Technological developments have made it possible to provide new rights management services based on innovative solutions and economies of scale. Such services can provide support for different aspects of rights management. Kobalt, for example, facilitates individual rights management by providing an online platform through which music authors can manage their rights themselves.29 Music Reports, an automation platform, provides administrative and data processing services that facilitate rights management.30

Although rights management by a CMO provides several practical and economic advantages, the interests of rightholders are not always served in the best way possible. Because of their monopolistic position, CMOs have a relatively strong economical position.31 Sometimes this leads to behaviour that suggests that CMOs seem to serve their own interests rather than the interests of rightholders.32 Those CMOs seem mainly interested in consolidating their own

26_{Schwemer 2014.}

27_See

http://www.prsformusic.com/aboutus/press/latestpressreleases/pages/sony-atv-prs-for-music-gema-launch-joint-venture.aspx

28_{See http://www.mpaonline.org.uk/content/impel}

29_{Kobalt Music, see http://www.kobaltmusic.com/page-about.php}

30_{Music Reports, see https://www.musicreports.com/musicreports/pages/about_us.php} 31_{Handke & Towse 2007.}

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position.33 In some instances, doubt has risen about the financial integrity of the management of CMOs. In 2001 for example, a board member of the Dutch CMO Buma/Stemra resigned from his function after his corrupt behaviour came to light.34_{In other instances, rightholders} were dissatisfied with the negotiations that were undertaken by the CMOs that managed their rights.35

In recent years, alternative rights management services, such as Soundreef for example, have emerged.36 The emergence of these new forms of rights management is mostly a result of possibilities created by new technologies. Under the influence of technological

developments, the music industry has changed. The situation in which CMOs were the only providers of music rights management services is not the reality anymore. Failure of CMOs to adapt to changing demands creates opportunities for other actors that are able to address those demands.

The technological developments led to changes in the regulatory landscape of rights management. These changes have brought down barriers for entry on the market for rights management services. New rights management services offer rightholders an alternative to traditional CMOs and as such they can be seen as competitors of established CMOs. Hence, CMOs may perceive the competing activities of new rights management services as threats to their vested interests.37 Accordingly, the regulatory changes that made the market entry of new entrants possible may be perceived as a deterioration of their traditional monopolistic positions.

In Italy for example, the legitimacy of Soundreef as an alternative to traditional collection societies did not go unchallenged. In a case before the Italian constitutional court, the services of Soundreef were claimed to be an illegitimate violation of the special role that Italian law supposedly attributed to the Società Italiana degli Autori ed Editori (SIAE), the Italian copyright collecting society. However, the Italian constitutional court declared the

33_{Pitt 2015.} 34_{Kuyper 2011.} 35_{Schwemer 2015, p. 9.}

36_{Soundreef is involved in the management of music rights, but it does not qualify as a CMO. For more}

information, see: http://www.soundreef.com.

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services provided by Soundreef legitimate, especially when considered in the light of the goals of Directive 2014/26/EU.38

2.2.4 Other actors

The transformation of the traditional music industry into a 'digital' music industry has fundamentally changed the EU music industry. One area that has been particularly affected by the process of digitization is the supply chain that underlies music distribution.

Traditionally, the supply chain was organised in a linear fashion that was designed for the distribution of physical reproductions of musical content. In the digital music industry, several activities that were central in the old way of music distribution have been replaced by online processes. Many businesses have become obsolete and one of the clearest examples of this is the fact that digital copying of musical content has made the production of physical copies completely obsolete.39

As a result of the changed nature of the music industry, a new infrastructure for the

distribution of music has evolved. Online music services like downloading and streaming rely on the online accessibility of a huge database of musical content. This has led to to new forms of content distribution. The most notable new actors in that regard are digital music aggregators.40_{Digital music aggregators handle the digital musical content which is licensed} by online music service providers. The databases in which the musical content is stored is connected to the online music services and provides the content that those services require to operate.

2.3 Music rights management

2.3.1 Types of rights

When a work of music meets the eligibility requirements for copyright protection, copyright law attributes the copyright on a work of music to the author of the work. This author can be an individual composer or a group of co-creators. Copyright on a work comprises a 'bundle of rights'.41 EU copyright law recognizes three main rights for authors of musical works. These

38_{Vecchi 2014.}

39_{Leurdijk, Slot & Nieuwenhuis 2012, p. 55-56.} 40_{Zibold 2013}

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rights give authors the exclusive right to reproduce the work, to communicate the work to the public and to distribute copies of the work to the public.42

Next to copyright on a work of music, there are so-called neighbouring rights that can rest on the work. Neighbouring rights are derived from the recording of a performance of the work. These performances are usually carried out by professional artists, and not by the author of the work. In practice, record labels are often the rightholders of neighbouring rights on works of music. Most artists are signed to a record label and it is common practice that those artists are contractually obliged to transfer the rights on their recorded performances to the record labels.43 With regard to related rights, EU copyright law recognizes the reproduction rights and the right to communicate the work to the public.44

Figure 2. Overview of rights required for online music services.

2.3.2 Online music rights licensing

Thanks to the existence of copyright and related rights on works of music, holders of those rights can control the (commercial) use of the music. The common way to exploit a work of

42_{Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of}

certain aspects of copyright and related rights in the information society, O.J. L 167/10.

43_{Schwemer, 2014.} 44_{Directive 2001/29/EC.}

Online music

service provider

Needs to clear:

Performer's

rights

Record producer

Record

producer's rights

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music for profit is by licensing the use of the work of music in exchange for a license fee. The music rights themselves are not transferred with the license but stay with the licensor.45 Rather, the license is a permission to use the music in a specific way.46_{Alternatively, if an} author does not wish to commercially exploit his work, music can be published under a free license that automatically allows the use of the music by others with minimal or no

restrictions.47

Depending on the intended use of the music, specific licenses must be obtained from one or both rightholders. Reproduction and distribution of a work of music requires a mechanical rights license, and performance and communication of the work a performing rights license, from the owner of the copyright. The use of a sound recording of a work of music also requires a master rights license from the owner of the related rights.48 The exploitation of a recording of a work of music is thus controlled by both the owner of copyright and the owner of related rights on the work.49 Copyright is usually held by authors and music publishers, while the related rights are held by record labels and performers.50

The distribution of music through the internet has both material and immaterial features.51

Therefore, for online music services, the distinction between the reproduction of music and the communication to the public of music has blurred.52 In practice, online music services often require licenses for use of the mechanical rights on music as well as licenses for use of the performance rights.53 Often, some of the required rights are managed by different

collective management organisations, while other rights are held by the original

rightholders.54_{This means that providers of online music services need to obtain different} licenses from multiple parties.55

45_{Lindsay 2002.}

46_{Kohn & Kohn 2010, p. 350.} 47_{Loren 2006, p. 274.}

48_{Dissecting the digital dollar 2015.} 49_{Dehin 2010.}

50_{Schwemer 2014.} 51_{Hugenholtz 2003.} 52_{Rosén 2012.}

53_{This was also noted by the European Commission in European Commission Greenpaper (95) 382.} 54_{Brinker & Holzmüller 2010.}

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Because of the cross-border nature of the internet, online music services typically operate on a multi-territorial scale. The multi-territorial scale of online music services did not fit well with the territorial fragmentation of collective rights management in the EU. The traditional organisation of collective rights management on a national basis was relatively effective for the licensing of music in an offline context, but it was too complex for the licensing of online music services.56 Online music service providers require multi-territorial licenses and this put the existing system under pressure.57

For online music services, the need to obtain licenses from multiple parties, combined with the territorial fragmentation of music rights management, results in a very complicated licensing process. After official recognition of the need for multi-territorial licensing by the European Commission in 2005, which will be discussed in the next chapter, new models of rights management have addressed the issue of online music licensing.

For the management of copyright and related rights on music, rightholders have traditionally relied on the services of CMOs. CMOs are organisations that represent rightholders, such as songwriters, singers and record labels, by negotiating licences and collecting remuneration on their behalf.58 Outsourcing of rights management to specialised CMOs is often necessary for rightholders from a practical and economic point of view.

Since the establishment of Europe's first CMO, the French SACEM, in 1851, most European countries have appointed CMOs for the management of music rights in their territory. The management of mechanical rights and performance rights are generally managed by the same organisation. With regard to these rights, authors and record producers can be represented by different organisations though.59 The way in which Member States have organised collective rights management in most cases results in positions for the national CMOs. Because of their dominant market position and their important role in the functioning of copyright law, CMOs are regulated by national law, and increasingly by EU law.60

56_{Visser 2009.}

57_{Hilty & Nérisson 2013.} 58_{Gervais 2010.}

59_{Schwemer 2014.} 60_{Handke & Towse 2007.}

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Traditionally, CMOs have been organised on the basis of territoriality. In that situation, the activities of a CMO, such as the enforcement of copyright and related rights and the

collection of royalties, are confined to the territory of a particular Member State. In order to include the rights on music from other countries in their repertoire, CMOs enter into mutual representation agreements with foreign CMOs or other foreign rightholders. Through such arrangements, licenses for the use of music from an extensive 'worldwide' repertoire can be obtained from one CMO.

However, those licenses are only valid in the CMO's national territory. To clear the rights for the use of music from that repertoire in other Member States, licenses from those Member States' particular CMOs must be obtained. In that 'classical' situation, repertoires are based on multiple territories, but the licenses are 'mono-territorial'.61_{For rightholders as well as for}

providers of multi-territorial music services, this fragmentation makes licensing very complex in practice.62

Although the initiatives for hybrid hubs supposed to make the online music licensing process more efficient, they have increased the fragmentation of repertoires.63 If online music service providers want to use the repertoires of the major music publishers and the repertoires of other, independent music publishers, they need licenses from national CMOs for the repertoire of independent music publishers, and on top of that they need the pan-European licenses from the 'hybrid' management entities for the repertoire of the majors.64

Figure 3 and Figure 4 present a visual overview of the development of online music licensing practices and of the current situation. Figure 3 shows the central 'licensors' through which rightholders have been represented, along with their representative scopes and the ways in which they were regulated. Figure 4 shows how the different actors are involved in music licensing and what their interrelationships are.

61_{Hilty & Nérisson 2013.} 62_{Mazziotti 2011.}

63_{Brinker & Holzmüller 2010.} 64_{Mazziotti 2013.}

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Figure 3. Developments in licensing practices. (Source: Schwemer 2016, p. 13)

Figure 4. Multi-territorial licensing in the EU. (Data source: KEA "Licensing music works and transaction costs in Europe", 2012)

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3 Qualification of Independent Management Entities

This chapter presents a legal assessment of different organisations in order to find out which organisations qualify as IMEs under the Directive. Specifically, this chapter aims to answer the following subquestion: Which organisations qualify as Independent Management Entities under article 3(b) of Directive 2014/26/EU?

3.1 Set-up of the analysis

3.1.1 Structure and methods

The aim of the analysis is to determine which organisations fall within the scope of the Directive’s definition of IMEs. In advance of the analysis it is not evident which

organisations qualify as IMEs and therefore the selected sample of organisations for the analysis may include organisations from all three categories. However, this does not imply that all organisations with marginal potential relevance are included in the sample of the analysis.

In order to perform the analysis both effectively and efficiently, a balance between two considerations must be found. On the one hand, the selected sample should be large enough to include a significant number of relevant organisations, i.e. organisations that indeed qualify as IMEs. This is important in order to be able to answer the research question. On the other hand, the sample should not unnecessarily include organisations that unequivocally do not qualify as IMEs. The reason for this is that indiscriminate selection of organisations for the analysis will result in a large sample that requires a relatively high amount of futile effort for its analysis, while it does not add considerable relevance to the analysis.

The design of the analysis aims to reflect a proper balance between relevance and

comprehensiveness. Under this design, the analysis is carried out in three different stages. In the first stage, a comprehensive overview of organisations that could in any way be relevant for the analysis is established. This overview forms the basic starting point for the analysis. This stage of the search process involves gathering as much organisations as possible that could be relevant for the analysis. The selection criteria are not yet taken into account, because the aim of this stage is to establish a comprehensive overview of organisations that could in any way be relevant in the light of the analysis. This is done in an attempt to not

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exclude any organisations that should be included in the analysis because they might qualify as IMEs.

In stage two, a set of predefined selection criteria is applied to the initial overview of

organisations that was established in the first stage. These criteria are based on the definition of IMEs in the Directive and on this chapter's objectives. The aim of these criteria is to filter out organisations that are not relevant for the analysis because it is obvious that they don't qualify as IMEs. It would be unnecessary to include them in the legal analysis and to carry out a comprehensive legal analysis of their qualification as IMEs.

By filtering out irrelevant organisations in stage two, a small and relevant sample for a more in-depth analysis in the third stage can be formed. Hence, the final qualification of

organisations as IMEs under the Directive is only carried out for organisations that realistically have the potential to qualify as IMEs, while not wasting time on the in-depth analysis of organisations of which it is relatively clear that they don't qualify as IMEs.

In the third and final stage, a comprehensive legal analysis of the selected organisations in the light of the Directive’s definition of IMEs is carried out. This analysis takes into account all the elements of the Directive's definition of IMEs and only the organisations that meet all the criteria of Article 3(b) will be identified as organisations that qualify as IMEs. The results of this analysis will indicate which organisations qualify as IMEs under the Directive. This provides an answer to the subquestion of this chapter.

The methods for the first stage involve searching the internet for organisations that appear to be in any way related to the management of copyright and related rights on music. Several useful starting points are available for this exploration, such as online blogs relating to the music industry, online discussion fora for music producers and of course search engines such as Google. The results that these searches yield can often be used as reference points for further exploration of the internet.

An additional method for searching for relevant organisations is the examination of academic literature. Although the specific subject of IMEs has remained relatively under addressed in academic literature, there is a considerable collection of information about related subjects. For example, many articles address the impact of recent technological developments on the

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music industry. Furthermore, several sources provide information about the infrastructure of online music services.

3.1.2 Definition of Independent Management Entities

According to the definition in the Directive, an IME is an organisation that (a) manages copyright or related rights, (b) on behalf of rightholders, (c) for the collective benefit of those rightholders, (d) as its sole or main purpose. Furthermore, an IME is (e) organised on a for-profit basis and is (f) not in any way owned or controlled by rightholders. These six criteria correspond to the distinctive characteristics of IMEs and as such they form the criteria for the qualification of IMEs in the third stage. Notably, the wording of article 3(b) indicates that these are cumulative criteria. Only the organisations that integrate all six characteristics qualify as IMEs. Hence, if an organisation does not meet any of these criteria, it does not qualify as an IME. Figure 2 provides an illustration of the criteria based on which the organisations from the sample can be qualified as IMEs.

Based on the Directive’s regulation of music rights management, three different categories of organisations that are involved in the management of rights can be distinguished. First, there is a category of ‘traditional’ collective management organisations, as defined in article 3(a) of the Directive. Second, there is the category of Independent Management Entities, as defined in article 3(b) of the Directive. Third, there is a ‘residual’ category of organisations that -although they are in some way involved in music rights management- do not fall into either of the other two categories.

The exact boundaries between the three categories are set by the scopes of the Directive’s definitions of CMOs and IMEs. The boundary between the categories of CMOs and IMEs on one side, and the ‘residual’ category on the other side, is set by the combined scope of the definitions of CMOs and IMEs. The boundary that distinguishes the category of CMOs form the category of IMEs is set by the scopes of both definitions relative to each other.

3.1.3 Selection criteria for initial exploration of relevant organisations In order to attain a sample that is both relevant and comprehensive, the selection of

organisations for the analysis is based on a set of predefined criteria. The formulation of these criteria is based on the considerations described above. For a large part, this definition is

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identical to the Directive’s definition of CMOs in Article 3(a).65 A literal comparison of both definitions indicates that two specific characteristics form the basis of the distinction between IMEs and CMOs, namely ownership structure and profit incentive. CMOs are owned or controlled by their members and are organised on a not-for-profit basis. IMEs are not owned or controlled by rightholders and are organised on a for-profit basis.66

Based on the Directive's definitions of CMOs and IMEs, and with the goal to make both a relevant and comprehensive selection of organisations that will be analysed, the following selection criteria have been formulated:

I. According to article 3(a) and 3(b) of the Directive, both CMOs and IMEs are involved in the management of copyright or related rights as their sole or main purpose. The meaning of ‘management’ in this context will be interpreted in line with the

explanation in number (2) of the Directive’s preamble, according to which

management includes ‘the granting of licenses to users, auditing of users, monitoring of the use of rights, enforcement of copyright and related rights, collection of rights revenue derived from the exploitation of rights and the distribution of the amounts due to rightholders’.

This criterion can serve as a basic filter to make an initial selection out of the many organisations that potentially fall into any of the three main categories. Accordingly, the first selection criterion for the sample of organisations for the analysis is: The organisation is involved in the management of copyright or related rights as its sole or main purpose. This analysis is focused on organisations that are currently active in music rights management. Hence, future organisations or organisations that have permanently discontinued their activities are not included.

II. This research focuses on the management of copyright and related rights on works of music. Organisations that manage copyright or related rights on other types of works, but that do not manage copyright or related rights on works of music, are not

65_{Article 3(a) in the appendix of the Directive.}

66_{The fact that the legislator uses the word ‘rightholders’ here instead of ‘members’ possibly refers to the}

different legal nature of a for-profit entity. For example, a foundation can have members, but a corporation cannot.

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supposed to be included in the analysis. Hence, the second selection criterion is: The organisation is involved in the management of copyright or related rights on works of music.

This criterion filters out those organisations that meet the first criterion but that do not manage copyright or related rights on music and are therefore not relevant for this study. Examples of such organisations that meet the first but not the second criterion are stock photo websites and film right management services.

III. Several organisations that manage copyright and related rights qualify as national CMOs, such as the German GEMA, the French SACEM and the Dutch Buma/Stemra. As such, those organisations cannot qualify as IMEs. Therefore, they are not included in the analysis. Accordingly, the third selection criterion is: The organisation does not qualify as a national CMO. This criterion regards the ‘original’ national CMOs, but not any derived or hybrid entities related to those CMOs.

IV. The practical context of this research is the European music industry. The legal framework for this research is mainly formed by EU Directive 2014/26/EU. Rights management organisations are only relevant for this research if their online or offline activities take place in the EU and are subject to EU legislation. Hence, the fourth selection criterion is: The rights management activities of the organisation wholly or partly take place in the EU and are subject to EU legislation.

The territorial aspects of online activities are highly debatable. Although this is a very interesting subject, the matter is too complicated to address here in detail. In order to avoid ambiguity, the fourth selection criterion should be interpreted in the broadest possible sense. Rights management organisations that are in any way active in the EU will be supposed to be subject to EU legislation. In case there is a credible but not completely validated indication that an organisation’s activities are subject to EU law, the organisation will be given the benefit of the doubt and will not be excluded by this criterion.

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3.2 Analysis

3.2.1 Collection of relevant organisations

In the first stage of the analysis, the open-ended search has resulted in a varied collection of organisations that might be relevant for qualification under the Directive's definition of IMEs. A complete overview of the organisations that are identified during this exploration is

provided in Appendix 2. Based on the elaboration of the music industry in chapter 2 of this thesis, different types of organisations can be distinguished in the overview.

There is a category of organisations that are related to traditional, national CMOs. Examples of such organisations are Armonia and Solar. There are also organisations that focus on the representation of independent rightholders, such as Impala and Impel. There are several online music service providers, like Apple and Spotify that are also involved with the

management of rights. Also, there are multiple organisations that claim to bring new models of music rights management. Examples are BMG Rights Management and Kobalt.

Furthermore, there are organisations from a variety of related categories that are involved in rights management. This group includes distributors, aggregators, administrative services and other types of services. Examples are EmuBands, TuneCore and Music Reports. These

categories often overlap, as organisations provide multiple services. This relatively large group could be very relevant, because it includes multiple organisations that, on first sight, seem to fulfil the selection criteria for the second stage of the analysis.

Figure 5. Categorised overview of organisations collected in the first stage of the analysis.

Types of organisations CMO-related organisations Rights management for

independents Distributors Aggregators

Administrative

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3.2.2 Application of selection criteria

In order to determine which organisations are relevant for the analysis, the selection criteria are applied to the initial collection of organisations. Based on the first criterion, all

organisations that do not have rights management as their sole or main purpose are excluded. This entails most aggregators and music distributors, such as PlayMPE and ReverbNation, and a variety of other types of organisations.

Based on the second criterion, rights management organisations of which the activities do not involve music rights, such as Can Stock Photo, are excluded. The third criterion excludes all national CMOs, such as the UK-based PRS for Music. Based on the fourth criterion, all organisations that are not active, either online or offline, in the EU, are excluded, even when their activities by themselves are relevant in the light of the analysis. Some of these selection criteria may seem superfluous, but because the nature of rights management organisations can be ambiguous they will be systematically applied to make sure that the sample for the third stage is relevant.

The result of the application of the selection criteria is a limited group of remaining organisations that constitute the sample of organisations for the analysis. Although the sample includes different types of organisations, they all have at least one thing in common: They fulfil the selection criteria for inclusion in the third stage. These organisations are relevant enough to be included in the sample for analysis, because they have relatively more potential to qualify as IMEs under the Directive.

The overview in Appendix 2 indicates which organisations were excluded because they did not fulfil all four selection criteria. That overview also specifies for every excluded

organisation which criterion is not fulfilled. The organisations that do fulfil all four selection criteria for inclusion in the third stage are:

AMRA Armonia Beatpick

Global Master Rights Global Music Rights

Solar Songtrust Soundreef TomatoShark Tribe of Noise

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Impel

Merlin Network

Villa Music Rights

Figure 6. Overview of included organisations.

3.2.3 Qualification of Independent Management Entities under Directive 2014/26/EU In this third and final stage of the analysis, the qualification criteria that are derived from the Directive's definition of IMEs will be applied to the organisations that are are included in the final sample. In the figure below, the qualification criteria are structured in correspondence with the respective elements of the definition in the Directive. In order to qualify as an IME, the organisation must meet all criteria (a, b, c, d, e and f).

Figure 7. Qualification criteria.

AMRA is a global digital music collection society that (solely) manages copyrights on behalf of, and for the collective benefit of, rightholders. It claims to offer these services for the collective benefit of rightholders. It is a US (Florida) corporation, which indicates that it is organised on a for-profit basis.67 Hence, AMRA meets criteria a, b, c, d and e. AMRA is

67_{See http://www.amra-music.com, under 'Terms of Service'.}

Independent Management Entities a) manage copyright b) on behalf of rightholders c) for the collective benefit of those rightholders d) as their sole or main purpose e) are organised on a for-profit basis f) are not in any way owned or controlled by rightholders

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owned by Kobalt Music Group.68 Kobalt Music Group is a private company.69 This leads to the conclusion that AMRA is not owned or controlled by rightholders. Hence, AMRA qualifies as an IME.

Armonia is a pan-European hub that provides licenses for online music service providers. It is an alliance of nine national CMOs, including the French SACEM and the Spanish SGAE. Armonia is registered in France as an Economic Interest Grouping and it is formed without share capital.70 It is a collaborative structure of national CMOs that are organised on a not-for-profit basis and this conflicts with criterion 'e' (organised on a for profit basis).

Furthermore, because national CMOs are controlled by rightholders, Armonia is (indirectly) also controlled by rightholders, which conflicts with criterion 'f' (not controlled by

rightholders). Consequently, Armonia does not qualify as an IME.

Beatpick is a music licensing service with a catalogue that is mainly comprised of independent artists and labels. The company provides licenses for master rights and

synchronisation rights on behalf of rightholders, who grant Beatpick non-exclusive control of these rights. Beatpick pays a share of the royalties that are earned form these licenses to the artists and labels.71 The company is organised on a for-profit basis in the form of a private company.72 Because all the criteria are met, Beatpick qualifies as an IME.

Global Master Rights is a company that focuses on the administration of neighbouring rights on music. The company operates globally and its services include the collection of royalties and claims and dispute management. Global Master Rights functions as a professional rights manager between multiple rightholders and the (foreign) collecting societies that administer their rights. The company thus meets criteria a, b, c and d. The company is registered as a limited partnership (Dutch: commanditaire vennootschap), which indicates that it is not controlled by rightholders and that it is organised on a for-profit basis. As such, Global Master Rights meets the qualification criteria and qualifies as an IME.73

68_See https://www.nytimes.com/2015/06/08/business/media/going-to-the-ends-of-the-earth-to-get-the-most-out-of-music.html?_r=0. 69_{See http://www.kobaltmusic.com/legal/terms-of-service.} 70_{See http://armoniaonline.com/en/terms.} 71_{See http://www.beatpick.com/intro/faq.} 72_{See https://beta.companieshouse.gov.uk/company/05611966.} 73_{See http://www.globalmasterrights.com.}

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Global Music Rights represents rightholders for the licensing of public performances of their music. A public performance takes place in the case of internet radio, so this license is relevant for online music service providers. The company offers licensing services, as well as services with regard to the collection and distribution of royalties.74 Global Music Rights is a private limited company, which indicates that it is organised on a for-profit basis. The main focus of the company is on music rights management. The company meets all the criteria and therefore it qualifies as an IME.

Impel offers collective rights management services on a multi-territorial basis. It manages the online mechanical rights for a collective of independent music publishers. Impel is a limited company, owned by the Music Publishers' Association (MPA).75 This suggests that Impel is not organised on a for-profit basis. Furthermore, the music publishers that are members of the MPA are rightholders. This means that, through the MPA's ownership, Impel is controlled by rightholders. Hence, Impel meets criteria a, b, c and d, but because it is (indirectly) controlled by rightholders, it does not qualify as an IME.

Merlin Network is a digital music rights agency that represents independent labels worldwide. It acts on behalf of rightholders for their collective benefit and this is its sole purpose. Merlin Network meets criteria a, b, c and d. However, as is stated on the website of Merlin Network, "Merlin is owned and controlled by a not-for-profit foundation" and it is supervised by a "member-elected board representing the wider independent label

community".76_{This makes clear that Merlin Network is not organised on a for-profit basis} and that it is (indirectly) controlled by rightholders. This conflicts with criteria 'e' and 'f' and therefore Merlin Network does not qualify as an IME.

Solar Music Rights Management is a joint venture between PRS for Music, GEMA and Sony/ATV Music Publishing that provides a "one-stop shop" for the pan-European licensing of Sony's digital rights. Solar Music Rights Management is incorporated in the United Kingdom as a private limited company.77 The principal activity of Solar Ltd. is the

74_{See http://globalmusicrights.com.} 75_{See http://www.prsformusic.com/impel/pages/default.aspx.} 76_{See http://www.merlinnetwork.org/what-we-do.} 77_See http://www.solar-music.com/docs/SOLAR%20Music%20Rights%20Management%20Ltd%20(Model%20Articles)%20Regulatio ns%202008.pdf.

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border, pan-European licensing and management of rights of music repertoires for online and mobile services".78_{Solar meets criteria a, b, c and d. However, the fact that Solar is partially} owned by two national CMOs and are thus indirectly controller by rightholders conflicts with criterion 'f'. Therefore, Solar Music Rights Management does not qualify as an IME.

Songtrust is a company that provides worldwide music rights management services based on a digital platform. Services include collecting royalties and providing data about earnings.79 Songtrust is a private limited company, fully owned by Downtown Music Publishing

Group.80 Songtrust manages music rights on behalf of rightholders for their collective benefit as its sole purpose. It is owned by the commercial company Downtown Music Publlishing and as such it is organised on a for-profit basis. Songtrust meets criteria a, b, c, d and e. Qualification as IME depends on criterion 'f'. In this case, it depends. Songtrust is owned by Downtown Music Publishing, which is a rightholder of works of music. In that sense, Songtrust is owned by a rightholder and this conflicts with criterion 'f'. This leads to the conclusion that Songtrust does not qualify as an IME.

Soundreef, according to information on its website, "licenses businesses to play its members' music in stores and live events in over 20 countries. As well as granting licenses to use music, it gathers and distributes royalties on behalf of authors and publishers, providing an alternative to traditional copyright collection societies"81. Soundreef Ltd. was founded and incorporated in the United Kingdom in 2011. In 2015, Soundreef S.p.A., an Italian public limited company that was established in 2015, wholly acquired Soundreef Ltd. The funding for this acquisition was provided to Soundreef S.p.A. by two Italian investment companies, VAM Investments and LVenture Group, which have stakes in Soundreef S.p.A.82. This leads to the conclusion that Soundreef meets all the qualification criteria and that it qualifies as an IME.

TomatoShark is a company that offers an online marketplace for music licensing. With the use of an online platform, TomatoShark offers rightholders the possibility to license their works of music online. This cuts short any further analysis of TomatoShark, because it

78_{See full accounts (18 May 2016): https://beta.companieshouse.gov.uk/company/08983482/filing-history.} 79_{See https://www.songtrust.com/#/features/global-royalty-collection.}

80_{See https://www.dmpgroup.com/our-story/.}

81_{About soundcloud - http://www.soundreef.com/en/about.}

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conflicts with criterion 'b'. TomatoShark does not manage rights on behalf of rightholders, it merely provides a platform through which rightholders can manage their rights themselves. Hence, TomatoShark does not qualify as an IME.

Tribe of Noise (ToN) is a blend of, on the one hand, an online community (hence the concept of a 'Tribe') that helps musicians to administer the rights on their works, and, on the other hand, an online licensing platform for those who need a license for the use of the music of one or more of those musicians. ToN acts as a kind of hub between the rightholders of works of music and the users of those works. ToN administers the licensing process on the basis of non-exclusive exploitation agreements with the rightholders. By facilitating a more direct connection between rightholders and music users, ToN aims to provide an efficient

alternative to rights administration by collection societies. This suggests that this company meets criteria a, b, c and d. ToN is registered in The Netherlands as a private company and there are no indications that it is in any way owned or controlled by rightholders. Hence, it appears that ToN meets all criteria and therefore it qualifies as an IME.

Villa Music Rights (VMR) is actually, as a business, very similar to Tribe of Noise. VMR also manages music right on behalf of rightholders. And, like Tribe of Noise, VMR facilitates the licensing of the rights of rightholders to music users. VMR is private company and there are no indications that is in any way owned or controlled by rightholders. Consequently, VMR appears to meet all criteria and hence it qualifies as an IME.

3.3 Results

During the analysis, seven organisations that qualify as IMEs have been identified. These are: AMRA, Beatpick, Global Master Rights, Soundreef, Tribe of Noise and Villa Music Rights. Although there are some differences between them organisations, these organisations all meet the qualification criteria derived from the Directive's definition of Independent Management Entities.

A general observation that can be made with regard to these organisations is that the majority of them is based on the internet to provide rights management services, for example by using an online platform to which members can log in. The organisations that do not specifically

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involve an online platform will use the internet as a way to expand the reach of their services to potential clients.

It is obvious that the possibilities that the internet offers play a significant role in the way these new forms of rights management are organised. As such, a parallel can be drawn between the 'rights management' segment of the music industry and the 'end-user music services' segment, in which the internet has also greatly influenced the rise of new business forms, such as streaming and downloading services.

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4 Implications for individual music authors

In the previous chapters the organisations that qualify as IMEs and the practical context in which they operate have been elaborated. This chapter will address the implications of the Directive's regulation of IMEs for individual music authors. Specifically, this chapter aims to answer the third subquestion: What are the implications of layered regulation of music rights management under Directive 2014/26/EU for individual music authors?

4.1 Legal aspects of the regulation of IMEs

4.1.1 Purpose of the layered regulation of rights management

The EU legislator has acknowledged the changes in rights management that are the result of technological developments. In a 2005 Recommendation, the Commission mentioned licensees' needs for multi-territorial licensing policies that stimulate the development of online music services.83 Furthermore, related to the emergence of new forms of rights management, the Commission recommended to promote competition between collecting societies.84

In order to address the inadequate regulation of rights management, Directive 2014/26/EU was issued. Directive 2014/26/EU has two main goals. Firstly, it establishes a framework for the harmonisation of the regulation of the collective management of rights on musical work in EU member states. Secondly, the directive aims to facilitate the multi-territorial licensing of music in the EU. In order to achieve these goals, the directive provides a set of norms that applies to CMOs and IMEs.

With the introduction of IMEs in the Directive, the Commission has laid down a regulatory framework that applies to CMOs as well as to new forms of rights management. Dictating that part of its norms also apply to IMEs, the Directive sets up a second layer of regulation. With this system of layered regulation, the functioning of both CMOs and new forms of rights management is covered by regulation. If IMEs would not have been included in the Directive, a number of relevant management entities would be able to evade important

83_{Recital 8 of Recommendation 2005/737/EC.} 84_{Article 3 of Recommendation 2005/737/EC.}

Independent Management Entities under Directive 2014/26/EU : Practical consequences for individual music authors