PPCA takes Radio Cap to the High Court

By PPCA on 11th July 2011

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PPCA High Court of Aust - (C) uploaded to Flickr by DWZ

PPCA TAKES RADIO CAP TO THE HIGH COURT

On Tuesday 10 May, the High Court of Australia heard an appeal from the Phonographic Performance Company of Australia Ltd (PPCA) against the current 1% cap on royalties payable by radio for the use of sound recordings. The PPCA hopes to remove the statutory cap that has had Australian artists subsidising the provision of content to the highly profitable commercial radio sector for over forty years.

What is the cap?

Since imposed in 1969, the 1% cap limits the amount that Australian commercial radio broadcasters are required to pay to artists and labels to no more than 1% of the station’s gross annual revenue. 

At that time the cap was also set for the ABC at half a cent per head of population (i.e. $0.005 per head) and, since 1969, has not been adjusted to reflect any movement in the cost of living or the expansion of the ABC radio networks (eg. the introduction of the Triple J network).

These artificial caps are well below the rates applicable in other similar territories around the world (including the UK and NZ) and unfairly limit the amounts paid to artists by radio broadcasters.

The caps have been in place for over forty years. The PPCA believes that they undervalue the use of sound recordings so that artists are effectively subsidising the provision of content to the highly profitable commercial radio sector.

Over the years, separate independent reviews have recommended repeal of the commercial radio 1% cap.  The cap has been examined by two independent reviews commissioned by Government, one in 1995 (Simpson Review) and the other in 2001 (Ergas Review).  Both concluded that the cap was unjustified and should be repealed, as did a review by the Attorney-General’s Department in 2005. However, despite a commonly held view across a number of recent Governments that the cap should in fact be repealed, no action as of yet has taken place, leaving thousands of Australian artists and record labels under-compensated for the use of their sound recordings.

The High Court Appeal

Under current copyright legislation, radio broadcasters have a statutory right to broadcast recordings providing they provide an undertaking that they will pay whatever licence fee the Copyright Tribunal determines.  In effect this means that artists and labels cannot withhold supply of their material and, in determining what they should be paid for its use, the Copyright Tribunal is constrained by the cap. 

The PPCA is taking this matter to the High Court on the basis that the current legislative caps, together with the forced supply, represent an 'acquisition of property on unjust terms' under the Australian Constitution. They are arguing that:

  • There is no other copyright in Australia, relating to music or other copyright material, that is the subject of a statutory price cap. 

  • Across countries like the UK, Japan, New Zealand, Canada and France, a fair market rate is negotiated between the parties or determined by an independent specialist copyright body.  Actual rates around the world vary from about 1.5% to 4%.

  • Australian artists should be fairly rewarded for their contribution to commercial radio profitability, which has continued to rise steeply on an annual basis. When introduced in 1969, the cap was justified on the basis of the "special circumstances" then existing in relation to commercial radio.  Whatever these circumstances were at the time clearly no longer exist – commercial radio is a highly profitable industry with annual revenues in excess of $1 billion (the FM sector, as key beneficiary of the price cap, represents over 70% of the industry’s total revenue and 86% of its profit).

  • The effect of the cap is to impose a substantial penalty on record labels and Australian recording artists by effectively requiring them to provide a significant annual subsidy to the commercial radio industry, particularly the FM sector. 

  • Within the commercial radio industry, additional distortions are created with high music-use (typically FM) stations being subsidised in relation to one of their key input costs (i.e. sound recordings) whereas talk-format (typically AM) stations pay market rates for their key input costs. 

The High Court is likely to hand down its judgment at the end of the year or early 2012.

Conclusion

Should PPCA be successful in getting these unfair provisions set aside it will simply mean that the parties can then negotiate appropriate licence fees without the constraint of these artificial restrictions.  If the parties are unable to agree the specialist independent body specifically established for this purpose (i.e. the Copyright Tribunal) will be able to make a determination, also unconstrained by the caps. As the Chairman of PPCA George Ash stated before the High Court hearing:

"Commercial radio uses music to attract around nine million people every week across Australia. This enables them to drive significant revenues and whilst we are proud of our part in helping the radio industry raise revenue and drive profitability, this relationship with the industry is unfairly capped by an antiquated and unjust piece of legislation."

"It is imperative artists and labels are fairly rewarded for their contribution to radio’s profitability and the lifting of this legislative cap will allow both industries to find a fair and positive long term commercial relationship where artists are rewarded justly for their creative works."

This article originally appeared on the PPCA website press release and Radio Cap information sheet.

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