Affected market: Distribution of equitable remuneration due to
performers from the broadcast and public performance of sound recordings
on which they have performed
The OFT’s decision on reference under section 33(1) given on 2 May
2006. Full text of decision published 11 May 2006.
Phonographic Performance Limited (PPL) is a not-for profit
organisation of UK record companies that grants blanket licences and
collects the fees from those licences for public performance and
broadcasting of sound recordings in the UK. As a collecting society, PPL
distributes the fees collected to its record company membership, to
performers' organisations and directly to some performers. PPL also
collects revenues for and from overseas collecting societies and
subsequently distributes these to some UK performers.
The Performing Artists’ Media Rights Association Limited (PAMRA) is
a not-for profit organisation that collects revenue from PPL and from
certain overseas collecting societies and distributes it to its members,
who are performers (but who do not receive fees from PPL directly).
The Association of United Recording Artists (AURA) collects revenue
from PPL and distributes it to performers who do not receive fees from
PPL directly. It also has minimal trade association activities.
The collection and distribution functions of PAMRA and AURA will be
fully integrated into PPL, subject to the consent of the members
concerned. All current mandates for the collection of equitable
remuneration held by PAMRA and AURA will be transferred to PPL, and
performers will receive their remuneration generated from UK performance
and broadcasting directly from PPL. It is also expected that PPL will
substitute PAMRA in the agreements PAMRA has with some overseas
collecting societies. Following the transfer of mandates, PAMRA and AURA
will be gradually wound up.
The parties state that the transaction aims at creating efficiencies by
reducing the costs involved in allocating remuneration to performers. In
addition, it should facilitate the collection of overseas revenues due
to UK performers, and resolve AURA’s financial difficulties.
The OFT’s administrative deadline for deciding whether to refer the
merger to the Competition Commission is 2 May 2006.
As a result of this transaction, PPL, PAMRA and AURA will cease to be
distinct. The OFT is satisfied that the parties are ‘enterprises’ for
the purposes of Enterprise Act 2002 (the Act). The parties overlap in
(i) the distribution of equitable remuneration due to performers in
respect of the exploitation of recordings of their performances in the
UK and (ii) the collection and distribution of overseas income to
performers. Following the transaction, PPL will have almost 100 per cent
of the distribution of UK income to performers and therefore the share
of supply test in section 23 of the Act is met. The OFT therefore
believes that it is or may be the case that arrangements are in progress
or in contemplation which, if carried into effect, will result in the
creation of a relevant merger situation.
Broadcasting or playing a sound recording in public in the UK requires a
licence from the owner or exclusive licensee of the copyright of the
relevant sound recording if the recording is still protected by a
copyright. These licences attract a fee which is ultimately paid to both
record companies and performers. In the UK, the obligation to pay
equitable remuneration to performers is placed upon the record company
rather than the broadcaster or the music user. Almost all record
companies are members of PPL and have assigned their collection rights
to that organisation, which in turn grants blanket licences to music
users for the right to publicly broadcast its members’ music. There are
a few independent record companies that are not PPL members and
therefore may collect fees from music users directly.
After costs are deducted, the revenues from licence fees are distributed
to the record companies and to performers at a 50:50 ratio. This split
(equitable remuneration) was agreed between PPL and organisations
representing performers following the implementation of the EU Rental
Rights Directive (the Directive) in 1996, when equitable remuneration
became payable in the UK. Remuneration was previously distributed to
performers on an ex gratia basis.
PAMRA and AURA, unlike PPL, are not licensing bodies and do not collect
fees from UK music users directly. They are only involved in collecting
UK equitable remuneration from PPL to distribute it to their members.
Performers can either register directly with PPL to receive their UK
income, or mandate PAMRA or AURA to collect their payments from PPL.
Performers can also appoint managers or commercial agents to collect
their performance remuneration on their behalf from PPL, PAMRA or AURA.
Both PAMRA and AURA deduct their own administrative costs (which are
already net of PPL's costs) from the payments due to each of its
members at a rate of 7.5 per cent and 5 per cent, respectively. Third
parties suggest that the commission charged by agents or managers may be
as high as 30 per cent.
UK performers are also entitled to equitable remuneration as a result of
the exploitation of their performances embodied in sound recordings in
territories outside the UK. These are collected from the relevant
overseas collecting society, who had in turn collected licence fees from
music users in their respective jurisdictions.
The parties submit that some overseas collecting societies refused to
pay revenues due to UK performers because PPL was perceived to operate
like a commercial business, the UK distribution system was complex, PPL
was not regarded by many as being a performers’ association and some
societies refused to deal with collecting societies that deducted an
administration fee from remuneration due to performers. In view of this,
since 2003 PPL has collected overseas revenue on behalf of PAMRA and
AURA; this arrangement is known as the ‘UK Single Pipeline’.
PAMRA still collects revenues from some overseas collecting societies on
behalf of its members, and a number of mostly high-earning performers
collect overseas revenues directly – or through commercial agents or
FRAME OF REFERENCE
The relevant activities are the distribution of equitable remuneration
due to performers in respect of the exploitation of recordings of their
performances in the UK and the collection and distribution of overseas
income to performers.
The overlapping activities may be considered taking collection and
distribution separately, or by taking UK and overseas revenue
separately, or even in three separate frames of reference - distribution
of domestic income, distribution of overseas income and collection of
The OFT has not found it necessary to conclude on the precise product
market definition as the competition assessment is not affected by the
conclusion on this. The parties provided information on domestic and
overseas activities separately.
The geographic scope appears to be the UK. Distribution of income mostly
takes place within the UK and overseas income is collected by overseas
agencies which are then handed to the relevant UK agency for
However, the OFT has not found it necessary to conclude on the precise
geographic market definition as the competition assessment is not
affected by the conclusion on this. The OFT has focused its examination
of the merger on a UK wide basis.
Following the acquisition, PPL will increase its share of supply of
distribution of equitable remuneration due to performers from income
arising in the UK to almost 100 per cent and of collection and
distribution of performer income generated overseas to over 25 per cent.
However, there is no evidence that there is currently competition
between PPL, PAMRA and AURA, as it will be discussed below.
The evidence received from the parties and from third parties suggests
that PPL, PAMRA and AURA do not compete for performers to use them to
receive fees. The OFT has not received any persuasive evidence of
switching between PPL, PAMRA and AURA. In fact, a number of performers
were not even aware that they could switch between the three
organisations or that they faced additional costs to receive their
equitable remuneration through PAMRA or AURA. This may reflect the
differing profile of PAMRA members and AURA members. While AURA's bulk
of members consist of high-earning featured performers, the majority of
PAMRA members are non-featured artists.
PAMRA and AURA both charge a fee on top of the costs deducted by PPL,
and there is no evidence of price competition between them. Although in
theory performers do not receive any additional services for the extra
fees charged by PAMRA and AURA, a number of performers suggested that
PAMRA ensured that they were being properly and accurately paid by PPL
(we did not receive comments from any AURA members during this
investigation). However, there is no evidence that this constrained the
level of service provided by PPL and AURA.
According to the parties, and supported by third parties, PAMRA and AURA
were not established to compete with PPL but to replace it following a
change in the law through the implementation of the Directive in the UK.
It was assumed by the founders of PAMRA and AURA that performers would
be granted the right to collect performance and broadcast income
directly from music users. The OFT was told that, at that stage,
performers were actively encouraged by the Musicians Union to join PAMRA
on that basis. However, when the UK Government came to implement the
Directive, it expressly prevented performers from collecting UK income
at source themselves, whether individually or through collective
organisations. Therefore, PAMRA and AURA were set up to operate as
collecting societies, but effectively could not do so.
In relation to international revenues, since the UK Single Pipeline was
created, any competition in the collection of overseas monies was
virtually eliminated and therefore the merger will have little effect on
competition in this area.
This merger does not raise any vertical issues.
While a number of PAMRA members were concerned with this transaction,
most other third parties – including some PAMRA members - were positive
about the merger and the effects it may have on the efficiency of
collection and distribution of equitable remuneration, particularly in
respect to overseas collection.
The concerns raised by PAMRA members were unrelated to competition; some
submitted that PAMRA protects their interests towards PPL and record
companies, and a number of performers claimed that after PAMRA was
created they started to receive better remuneration. However, it may be
the case that the remuneration rise was due to the 50:50 split agreed in
1996 rather than by any action by PAMRA.
A number of third parties also mentioned that the merger will raise a
conflict of interest since PPL is a record company organisation and will
be in charge of distributing all UK remuneration to performers without
having PAMRA or AURA as a counterbalance. PPL submitted that it intends
to implement certain corporate governance mechanisms to ensure that
performers would be adequately represented in PPL post merger, which
would give performers more control over the allocation and distribution
of their share of income. In any case, these concerns are not related to
a lessening of competition and the merger is still subject to approval
by the relevant corporate bodies of the parties.
Although this merger will remove the choice performers currently have
between PPL, PAMRA and AURA, there is no evidence or concern expressed
by third parties that that the three organisations are currently
The considerable evidence gathered during the course of this
investigation demonstrates an absence of material competition between
the parties in terms of fees or customers switching (indeed many were
unaware they could). Although some PAMRA members perceive that they
receive a better service than they would from PPL, there is no evidence
that this has constrained PPL and AURA. The parties were not established
to compete with each other but to offer a service under two different
legal regimes, one of which failed to materialise, and they have evolved
to serve different customer groups. Furthermore, following the creation
of the UK Single Pipeline, PAMRA is only marginally involved in the
collection of overseas monies, while AURA is not involved in it at all.
In view of all the above, the OFT does not believe that it is or may be
the case that the merger may be expected to result in a substantial
lessening of competition within a market or markets in the United
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.