Commission, June 16, 2015, No M.6800

I. THE PARTIES

(1) PRS for Music Limited ('PRSfM', United Kingdom), Svenska Tonsättares Internationella Musikbyrå ('STIM', Sweden) and Gesellschaft für musikalische Aufführungs- und mechanische Vervielfältigungsrechte ('GEMA', Germany) are collective management organisations ('CMOs'), also known as collecting societies.

II. THE OPERATION

(2) On 28 November 2014, the Commission received a formal notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 (the 'Merger Regulation'), by which the undertakings PRSfM, STIM and GEMA (the 'Notifying Parties') acquire within the meaning of Article 3(1)(b) of the Merger Regulation joint control of a newly created joint venture (the 'JV') by way of purchase of shares. The concentration was notified to the Commission following a referral at the request of the Notifying Parties pursuant to Article 4(5) of the Merger Regulation.

III. SUMMARY

(3) PRSfM, STIM and GEMA are CMOs. They license copyrights in songs and other musical works (hereinafter the term songs will be used to denote both). The Notifying Parties intend to create a joint venture for multi-territorial online music licensing and copyright administration services.

(4) While the transaction would not lead to a significant impediment to effective competition on the online licensing market, the decision finds that the transaction would result in a significant impediment to effective competition on the market for copyright administration services provided to CMOs and 'option 3 publishers' (2) in relation to transactional multi-territorial licences.

(5) To remove these concerns, the Notifying Parties submitted the following commitments:

(6) PRSfM committed not to use its control over the performing rights that it manages to force option 3 publishers or their service providers to purchase copyright administration services from the JV. The JV will allow other collecting societies and 'option 3 publishers' to choose which copyright administration services they want to use.

(7) The JV will offer key copyright administration services to other collecting societies on terms that are fair, reasonable and non-discriminatory when compared to the terms offered to its parents PRSfM, STIM and GEMA. The JV will also facilitate the switching of collecting societies relying on the JV's copyright database to another provider of database services. Collecting societies can terminate their contract with the JV at any time.

(8) The JV will not enter into exclusive contracts with its customers for copyright administration services. This possibility, however, remains for back-office services.

(9) In light of these commitments, the Commission concluded that the proposed transaction would no longer raise competition concerns, as the decision is conditional upon full compliance with the commitments.

IV. EXPLANATORY MEMORANDUM

A. Background to the transaction

1. The different types of copyrights

(10) Several types of rights are relevant for the licensing of music and CMOs only license some types. A first category of rights are the recording rights, which protect the recorded rendition of a song. These recording rights are owned by the performers (the persons whose voice or instrument has been recorded) or by record companies (the companies that record and sell music). They are licensed directly by record companies and are not at issue in this case. A second category of rights are the rights in the song itself, that is, the rights in the composition and lyrics of the song. These rights are originally owned by the authors of the songs, that is, the persons who composed the music and wrote the lyrics.

(11) There are several types of rights in songs but for this case, only the online rights are relevant. Online rights consist of a combination of two types of rights: mechanical and performing rights for online use. Performing rights (which are owned by authors) are the rights to communicate a song to the public, which includes the right to make the song available to the public. Mechanical rights are the rights to reproduce a song.

(12) CMOs only license rights in songs, not recording rights. Authors transfer their performing and mechanical rights to CMOs because it would be difficult for them to license their copyrights themselves, as this would entail hundreds of transactions. CMOs bundle the rights of a large number of authors and then license those rights collectively. The entire package of rights that a CMO licenses in this way is the repertoire of the CMO. After licensing the rights, CMOs also monitor the use of these rights and collect royalties, that is, the compensation due to the author for the use of his or her song. CMOs forward the royalties to authors but deduct a commission for their work.

(13) Copyrights can be licensed for different uses. This case concerns the licensing of copyrights for online use, also known as online licences. Online platforms such as Spotify, Deezer and iTunes need to acquire these online licences to offer music to their subscribers. They need a licence for both the mechanical rights and the performing rights in the songs they offer on their platform.

(14) Copyrights can be licensed for a single country or for several countries, resulting in mono-territorial licences and multi-territorial licences respectively.

2. The role of CMOs as licensors, the fragmentation of repertoire and the CRM Directive

(15) CMOs traditionally licensed both performing and mechanical rights for online use to online platforms. They traditionally did so only for their own country. However, each CMO had agreements with other CMOs, so-called reciprocal representation agreements, allowing it to license the repertoire of the other CMOs. This way, each CMO was able to license the world repertoire, but only for its own territory. Online platforms therefore had to obtain a license from all CMOs in the EEA to operate in the entire EEA.

(16) In the past decade, this traditional scheme has changed in two important ways. First, some CMOs have started granting multi-territorial licences to their repertoire. In other words, they license their repertoire not only for use in their own country but also in other countries in the EEA. One consequence of this development is that these CMOs no longer grant an unrestricted mandate to other CMOs to license their repertoire for online use in countries covered by the multi-territorial licence.

(17) Second, some mechanical rights have been removed from CMOs' repertoire. In particular, CMOs have lost the right to grant online licences to an important part of the mechanical rights in Anglo-American repertoire, that is, the songs of authors registered with collecting societies in the UK, Ireland, the US and other English-speaking countries. Authors in these English-speaking countries have traditionally assigned their mechanical rights to music publishers, the companies that assist authors in creating songs and obtaining payment for the use of their songs. Because publishers had obtained the mechanical rights through assignment, they were able to withdraw their mechanical rights from the CMO-system and license their mechanical rights directly themselves. By contrast, in respect of non-Anglo-American repertoires, authors have traditionally not assigned their mechanical rights to publishers. Instead, authors traditionally registered their mechanical rights with a CMO.

(18) The publishers that have withdrawn their online mechanical rights from CMO repertoires are known as option 3 publishers. That name stems from the impact assessment preceding the Commission's 2005 recommendation on the cross-border collective management of copyright for online use. The 2005 recommendation recommended, among others, that publishers should have the right to withdraw their online rights and transfer the multi-territorial management of those rights to a CMO of their choice. The existing option 3 publishers include all major publishers and some smaller publishers. Option 3 publishers normally license their repertoire on a multi-territorial basis, in cooperation with one or more CMOs acting as service provider or agent. The withdrawal by option 3 publishers only concerns the mechanical rights for online use, not for offline use.

(19) The two developments described above, that is, the withdrawal of Anglo-American mechanical rights by option 3 publishers and the move towards multi-territorial licensing by some but not all CMOs, has made it complicated for online platforms to obtain the necessary licenses. Online platforms not only have to obtain licences from all CMOs but also a number of additional licences from option 3 publishers. Moreover, these developments have created challenges for CMOs' licence administration and processing systems, as the fragmentation of repertoire has made it more difficult to accurately calculate the royalties due.

(20) This situation has recently triggered regulatory intervention by the EU in the form of Directive 2014/26/EU on collective rights management and multi-territorial licensing of rights in musical works for online use in the internal market (the 'CRM Directive'). The CRM Directive was adopted in February 2014 and establishes a framework to promote the aggregation of different music repertoires for multi-territorial online licensing by CMOs. The CMOs that engage in multi-territorial licensing must, however, comply with a set of specific requirements laid down in the CRM Directive.

3. The role of CMOs in providing copyright administration services to option 3 publishers and other CMOs

(21) As mentioned, option 3 publishers license their mechanical rights themselves across the EEA. This multi-territorial online licensing activity requires negotiating licences, monitoring the use of these licences, calculating the royalties due and collecting royalty payments from online platforms for the songs played. Option 3 publishers currently rely on CMOs to conduct this work. The services provided by CMOs to option 3 publishers in relation to their copyright licensing activities are called copyright administration services. To enable CMOs to perform these services, option 3 publishers use CMOs as their service provider or agent. CMOs then negotiate the licensing agreement with online platforms but the licensing terms must be approved by the option 3 publisher. CMOs can also provide copyright administration services to other CMOs. For instance, a CMO may prefer not to set up the processing tools required for multi-territorial licensing itself and instead ask another CMO to engage in multi-territorial licensing on its behalf.

4. The JV

(22) The JV which the Notifying Parties intend to create will have two main functions. First, the JV will grant multi-territorial online licenses to the combined repertoire of PRSfM, STIM and GEMA to online platforms that are active in more than one country, i.e. multi-territorial online platforms. According to the Notifying Parties, the JV is a direct response to the CRM Directive, since that Directive promotes the aggregation of repertoires for multi-territorial online licensing.

(23) Second, the JV will offer copyright administration services to option 3 publishers and to other CMOs.

B. The relevant product and geographic markets

1. Market for copyright administration services provided to CMOs and option 3 publishers in relation to transactional multi-territorial licences

(24) The JV will provide copyright administration services to option 3 publishers and CMOs in relation to transactional (3) multi-territorial licences. Because the administration of multi-territorial transactional licences is more complex than the administration of mono-territorial (blanket) licences, the Commission considers that the relevant product market is the market for the provision of copyright administration services to CMOs and option 3 publishers in relation to transactional multi-territorial licences.

(25) The Commission considers that this market is EEA-wide in scope.

2. Online licensing market

(26) The JV will license online rights in songs on a multi-territorial basis. These rights include mechanical and performing rights. In Sony/Mubadala/EMI Music Publishing, the Commission defined a separate market for the licensing of online rights in songs. The Commission also defines the relevant product market in this case as the market for the licensing of online rights in songs or, in short, the online licensing market. It is possible that the online licensing market encompasses a narrower market, namely the online multi-territorial licensing market or an even narrower market, namely the online multi-territorial licensing market in which CMOs (not option 3 publishers) are active. The Commission does not need to decide whether this is the case, however, since even in these narrower markets the transaction does not raise competition concerns.

(27) The geographic scope of the market for the licensing of online music publishing rights is EEA-wide.

C. Competitive assessment

1. Market for copyright administration services in relation to the administration of transactional multi-territorial licences

(28) Copyright administration services in relation the administration of transactional multi-territorial licences are provided to option 3 publishers and CMOs.

(29) At present, four CMOs provide most of the copyright administration services to option 3 publishers. Those are PRSfM, the French CMO SACEM, GEMA and STIM. The remaining share of the market is held by a few medium-sized CMOs. Copyright administration services to CMOs in relation to multi-territorial licences have only just started to develop.

(30) The JV will combine the activities of three of the four CMOs that provide most of the copyright administration services to option 3 publishers. It may also limit the number of actual or potential combinations of CMOs ('hubs') that are currently providing and will provide copyright administration services to CMOs in the future.

(31) However, the Commission considers that the anti-competitive effect of the transaction does not stem from the increase in concentration resulting from the transaction, but from an increase in the barriers to entry and expansion. With respect to option 3 publishers, the increase in market concentration resulting from the transaction is small because, already today, PRSfM and GEMA provide copyright administration services jointly and therefore do not fully compete with each other. Moreover, STIM would lose most of its market share once the mandate granted to it by Kobalt will expire. Hence, the increase in market concentration is small. With respect to CMOs, while the transaction may limit the number of actual or potential hubs, the Commission takes the view that the competitive landscape is quite fragmented and still developing so that competing hubs could still develop.

(32) However, the transaction would raise barriers to entry and expansion. At present, barriers to entry for CMOs are low. Small and medium-sized CMOs could enter the market and start providing copyright administration services to CMOs and option 3 publishers without much difficulty. They have access to copyright databases, which are crucial to provide copyright administration services because they make clear, for each song, who holds which rights. Moreover, in particular as regards services provided to option 3 publishers, CMOs have ongoing relationships with publishers because publishers are members of CMOs.

(33) The transaction will make entry by CMOs more difficult for three reasons. First, because of the JV's increased presence in the market, PRSfM would have a greater incentive to use its control over Anglo performing rights to frustrate or delay entry of a competitor.

(34) Second, when CMOs rely on the JV for copyright administration services, they are likely to contribute their data to the JV's copyright database called ICE. They would then stop investing in their own database and become dependent on the JV. As a result, they would be locked into the ICE database and unable to switch to another CMO providing copyright administration services. In addition, the JV could decide to offer the different types of services as a bundle as opposed to on a stand-alone basis, thereby making it, again, difficult for customers to rely on another source for certain services.

(35) Third, when option 3 publishers or CMOs rely on the JV for copyright administration services, they would have to use the JV's services exclusively. This exclusivity makes it more difficult for new CMOs to enter the market and for existing CMOs to expand.

(36) The Commission concludes that the transaction would make it more difficult for other CMOs to enter the market and for existing CMOs to expand. The transaction would therefore significantly impede effective competition in the EEA-wide market for copyright administration services provided to CMOs and option 3 publishers in relation to transactional multi-territorial licences.

2. Online licensing market

(37) The Commission calculated the JV's market share by summing the market shares of the repertoires that will likely be included in the JV's licence.

(38) The Commission calculated market shares based on various different possible product market definitions. The JV's market share is higher on the EEA-wide multi-territorial licensing market than on the EEA-wide licensing market that includes both mono-territorial and multi-territorial rights. On the narrower multi-territorial online licensing market, the JV's market share would be [20-30] % after the transaction.

Pre-transaction l Post-transaction

PRSfM STIM GEMA MCPS l PRSfM JV

[10-20] % [5-10] % [5-10] % [5-10] % l [5-10] % [20-30] %

(39) On an even narrower market, the EEA-wide market for multi-territorial licences granted by CMOs (and excluding licences granted by option 3 publishers), the JV's market share would be even higher at [30-40] %

(40) Market shares are a starting point for the assessment of the JV's market position vis-à-vis online platforms. However, given the specificities of the market for the licensing of online music publishing rights, the Commission also attaches considerable importance to other elements. The specificities of this market include the fact that CMOs have a monopoly on the licensing of their national repertoire and the fact that there is a certain degree of complementarity between the different repertoires offered by different CMOs. This is evidenced by the fact that many online platforms do not license only one repertoire but several repertoires. Hence, the effect of combining several repertoires cannot be assessed on the basis of market shares alone.

(41) The Commission has therefore also conducted an empirical analysis on how the size of a repertoire affects the CMO's bargaining position and, ultimately, the licensing terms for online platforms. To this end the Commission relied on four sources of empirical evidence. The Commission: (1) assessed the evidence from the market investigation; (2) reviewed the Notifying Parties' internal analyses and assessments; (3) reviewed the commercial agreements between several CMOs and online platforms; and (4) conducted a quantitative analysis of royalty payments made by online platforms to CMOs.

(42) The analysis of the commercial agreements and the quantitative analysis did not show a systematic relationship between larger repertoires and better licensing terms. The market investigation and the analysis of the Notifying Parties' own analyses and assessments were mixed, meaning they contained some elements suggesting increased bargaining power and some elements suggesting the contrary. On balance, the Commission considered there was insufficient evidence to conclude that the JV's larger repertoire will give it increased bargaining power and, hence, lead to licensing terms that are worse for online platforms. Based on these elements, the Commission concludes that it is unlikely that the creation of the JV will lead to more onerous licensing terms for online platforms. It is therefore unlikely that the transaction would significantly impede effective competition in the EEA-wide market for the licensing of online music publishing rights.

3. Other aspects

(43) The Commission also assessed whether the transaction would lead to anti-competitive effects because it would lead to the exchange of commercially sensitive information. In view of the business separation measures that the Notifying Parties will put in place and the fact that the transaction will not significantly change the current situation as regards the aggregation of commercially sensitive information, the Commission concludes that the transaction would not lead to a significant impediment to effective competition as a result of an increased exchange of commercially sensitive information.

(44) The Commission also assessed possible spill-over effects because the Notifying Parties would retain certain activities in the online licensing market in which the JV will be active. Based on the differences in customers, geographical scope of the licence and repertoire covered, and in light of the business separation that the Notifying Parties will put in place, the Commission does not consider that the transaction makes coordination and, hence, spill-over effects between the Notifying Parties more likely.

4. Conclusion

(45) The transaction would lead to a significant impediment to effective competition in the EEA-wide market for the copyright administration services provided to CMOs and option 3 publishers in relation to the administration of transactional multi-territorial licences.

D. Commitments submitted by the Notifying Parties

(46) The overall aim of the commitments is to keep the EEA-wide market for copyright administration services provided to CMOs and option 3 publishers in relation to transactional multi-territorial licences contestable, that is, to ensure that new CMOs are able to enter the market and existing CMOs can expand. The commitments contain three key elements.

(47) The first key element addresses the Commission's concern that PRSfM could use its performing rights to make it more difficult for other CMOs to enter the market. At present, when CMOs provide copyright administration services to option 3 publishers, they obtain a mandate from PRSfM allowing them to negotiate licences for PRSfM's performing rights. This way, the CMOs can negotiate about both the option 3 publisher's mechanical rights and the matching performing rights controlled by PRSfM. PRSfM commits not to make the grant of such a mandate conditional upon the CMO or option 3 publisher relying on the JV for copyright administration services.

(48) Apart from a mandate to negotiate about PRSfM's performing rights, CMOs that provide services to option 3 publishers also need to obtain the consent of PRSfM to each specific licence agreement that the CMO negotiates on behalf of the option 3 publisher. PRSfM commits not to make the grant of consent to these licensing agreements conditional upon the CMO or the option 3 publisher relying on the JV for copyright administration services.

(49) The second key element of the commitments aims to ensure that CMOs who rely on the JV do not become 'locked in', which would make it more difficult for new CMOs to enter the market. Among others, the Notifying Parties commit to give CMOs a choice as to the specific services they want to use, rather than bundling all services. The Notifying Parties also commit to offer copyright administration services on terms that are fair, reasonable and non-discriminatory. They also commit to allow CMOs relying on the JV's database to exit the database and obtain an extract of the data relating to their works.

(50) The third key element of the commitments is a commitment that the JV will not enter into exclusive or sole mandates with any customer of the JV's front-office.

(51) The duration of the commitments is 10 years.

(52) The Commission considers that the commitments will ensure that the market for copyright administration services provided to CMOs and option 3 publishers in relation to transactional multi-territorial licences remains contestable. The first key element of the commitments removes PRSfM's ability to use its performing rights to force CMOs or option 3 publishers to use the JV's services. The second key element ensures that CMOs will be able to switch away from the JV to another CMO that offers copyright administration services. The third key element ensures this not only for CMOs but also for option 3 publishers. Together, these commitments ensure that new CMOs will be able to enter the market and existing CMOs will be able to expand their services. The possibility of entry and expansion will exert a competitive constraint on the JV and leads the Commission to the conclusion that, subject to compliance with the commitments, the transaction will not have anti-competitive effects.

(53) In its decision, the Commission therefore reaches the conclusion that, on the basis of the commitments submitted by the Notifying Parties, the notified concentration would not significantly impede effective competition.

V. CONCLUSION

(54) For the reasons mentioned above, the decision concludes that the concentration as modified by the commitments submitted on 10 April 2015 will not significantly impede effective competition in the Internal Market or in a substantial part of it.

(55) Consequently the concentration is declared compatible with the Internal Market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.

NOTES

(1) OJ L 24, 29.1.2004, p. 1.

(2) For a description of the activities of 'option 3 publishers' see paragraphs 16 and 17.

(3) The amount due for a transactional licence is calculated on the basis of each individual stream or download of a song.