Frontline Trenches or, Rather, Open Borders? The Multi-Territorial Licensing and Digital Export of Czech Music

To describe licensing practices in the digital distribution of music, it is first necessary to define what goods are actually being licensed and who can grant these licences. Here, it is essential to distinguish copyright and related rights. Copyright refers to the rights of the author to their copyrighted work as a unique result of their own creative activity. Here, we are mostly dealing with what is known as the right to use protected work, mainly by reproducing the work (in practice called “mechanical rights”) and communicating or making it available to the public (as part of “performing rights”). An author can exercise such rights on his or her own, but more importantly here, he or she can license them to users of copyright-protected content such as streaming platforms. Both of these rights are absolutely essential for a music platform to be able to store music or other files with protected content on its server (mechanical rights) and then make them available to its users (performance rights). These authors’ rights are then tied to the protected subject matter, which is generally the copyrighted work. In the area we are looking at, this is in particular the work of music, whose original rights holder is usually referred to as the composer, and the literary work used in conjunction with the work of music (i.e., the lyrics of the song), whose original rights holder is the lyricist.

In addition to copyright, there are also what are known as related rights. From the perspective of the area we are looking at, the rights of the performing artist to their performance and the rights of the producer of an audiovisual or sound recording are essential. A performing artist is understood to be a natural person who carries out an artistic work or expression of folklore. A performing artist primarily has the right to grant permission for the recording of their performance and, as with copyright, they also have mechanical and performance rights. Here, we are mainly interested in singers and musicians as original rights holders whose performance has been recorded on a sound recording. A sound recording is understood to be an exclusively audible recording of the sounds of a performer’s performance or other sounds or their expressions. The original rights holder here is the producer of the recording, who also has mechanical and performance rights to their recording.

Since music can also be disseminated through audiovisual content (typically videoclips or music clips), it is appropriate to mention the producer of an audiovisual recording, who is defined in the same way as the producer of a sound recording, that is, as the person who made the recording.

In the music distribution market, we observe a group of original rights holders as described above: music composers, lyricists, performing artists, producers of sound recordings (traditionally also known as labels) and producers of audiovisual recordings.

In the music rights market, however, it is common to aggregate repertoires through exclusive licensing agreements or rights management mandates. It is quite common for music composers and lyricists to enter into exclusive licensing agreements with a publisher. This refers to a person who obtains the rights to musical works and is responsible for finding opportunities for such works to be used. In the music industry, we also encounter the term “sub-publisher,” which often refers to a subsidiary of large global publishing houses or other companies tasked with performing the publishing activities of these large publishing houses’ repertoires in smaller regions based on sublicensing agreements.

For related rights, specifically the rights of performing artists and producers of sound recordings, different regulations apply, and there is also a different market constellation for linear distribution and distribution by on-demand services, as we shall discuss below. In practice, a music label has a wide catalogue of recordings, which it may not have “produced” itself, but owns by virtue of acquiring ownership rights (e.g., by purchase) from another entity, or it may have acquired these recordings through a licensing agreement from another producer and monetises the rights to them for its own profit; lastly, it is also possible that the label acts as a distributor who carries out the distribution/dissemination of recordings on behalf of the rights holder in its own name for a commission (so-called distribution deals).

In general, in the area of on-demand usage on the Internet, the rights of performing artists are commonly contractually licensed as the right to use their performances. When making a sound recording, the label typically acquires an exclusive license from the performing artists to use their performance, which includes use within on-demand services. Thus, the label is the sole licensing entity and sole recipient of royalties, who concludes individual licence agreements with specific streaming platforms, and the label either pays or does not pay the artist a share of this royalty depending on what they agreed upon in the contract.

The group of the three largest labels in the world is usually referred to as the “majors”, ⁽²⁾ and these global entities establish branches in individual countries, which are managed from multinational headquarters and manage the global repertoire in these countries. ⁽³⁾ It is estimated that the majors account for 70 percent of existing commercial recordings worldwide (Statista Research Department 2024; Stone 2020). On the other hand, if a performing artist makes a recording themselves (especially various DIY artists), they become their own producer of the sound recording. Independent labels, as variously professionalised entities with varying sizes of recording catalogues that they seek to monetise, oscillate between these two models.

Other significant entities on the market are the CMOs of copyright and related rights. By law, they are tasked with the full management of the economic copyrights of the rights holders who have entered into the appropriate agreement on the management of rights with the CMO, or whose rights are managed by law. One of the managed categories of rights is usually the right to make the work available to the public and the reproduction necessary for this purpose (sometimes collectively referred to as the category of “online rights”).

The CMO for composers, lyricists and publishers in the Czech Republic is “OSA, z.s.”. For related rights (those of performing artists and producers of sound and audiovisual recordings), the only CMO in the Czech Republic is “INTERGRAM, nezávislá společnost výkonných umělců a výrobců zvukových a zvukově obrazových záznamů, z.s.”. Although INTERGRAM manages some rights for the use of protected content on the Internet (like catch-up services of broadcasters and IPTV operators), it is understood that this scope is negligible and that the labels hold all related rights to their recordings and typically license them directly to users (here, providers of on-demand online services), completely outside the scope of collective rights management.

In the field of licensing music for online platforms, additional CMO-owned licensing hubs have emerged for the rights of composers and lyricists, or publishers respectively, known as licensing hubs (or licensing aggregators), which pool a broader repertoire for online use on a multi-territorial basis. These entities manage the repertoire either of multiple CMOs or of a combined repertoire of CMOs and certain publishers. Examples of these are ICE and Mint.

In addition, there are other entities on the market that perform collective rights management, but on a smaller scale and, unlike CMOs, also for profit. These are referred to as independent management entities (IMEs), and they also license the rights for online use of the protected content on a national or multi-territorial basis. The most significant IMEs in the market are Soundreef and Unison.

Among these groups, there are also content intermediaries in the market, often referred to as digital distributors. Their task is to facilitate the delivery of recordings to online platforms in the required technical quality and with the appropriate metadata. In practice, however, these distributors sometimes also become publishers and record labels. Examples include services such as CDBaby, Distrokid or, in the Czech Republic, the service prodejhudbu.cz by the Supraphon label.

All of these intermediaries can basically be summarised as being at the entry point, that is, delivering content to users of music in the copyright sense, that is, to entities that use protected content in the area of the digital-music market by reproducing and subsequently making it available to the public on the internet. Such users of music are further referred to in the article as online music services.

Although ordinary consumers may perceive the music market as fairly straightforward and may believe that they can easily find virtually all the world’s music on their favourite services, from the perspective of licensing, this area has undergone quite a turbulent development, leading to a situation that is far from simple. In a certain sense, this complexity is inevitably felt by the musicians themselves, whether as authors or performing artists. For this reason, it seems necessary to outline this development at least in broad terms.

Historically, the territoriality of copyright law has been strongly reflected in the practices of the affected entities and in licensing practices. In the field of collective management, especially in the area of rights to musical works, where collective management is most developed, it was generally the case that each CMO exclusively licensed and enforced the use of works within its own country’s territory. This applied to the catalogue of global repertoire managed by the CMO based on what are known as international reciprocal agreements, which are bilaterally concluded between CMOs of different countries. This model can be properly described as a mono-territorial, multi-repertoire approach to licensing.

Although this approach has numerous practical advantages for the effective enforcement of rights and had been providing for a clear and understandable licensing market for online use, it began to be disrupted in the early twenty-first century in the context of the use of protected content on the Internet, as some institutions and affected entities saw the online world as fundamentally different from the offline world, thus requiring a different approach. In 2001, the Information Society Directive 2001/29/EC was adopted in the EU, which aimed to adapt copyright law to the internet.

At the beginning of the twenty-first century, CMOs associated with two global organisations, CISAC and BIEM, attempted to modify the system of their reciprocal relationships by adding clauses to the reciprocal agreements, which were intended to more clearly define the scope of management by CMOs and to confirm the mono-territorial, multi-repertoire system of collective management by providing for exclusivity in reciprocal agreements between CMOs and prohibiting licences to users in other territories. The European Commission (EC), however, objected to these clauses and launched an investigation into all European CMOs associated with CISAC. This led the EC to conclude that competition in the area of copyright licensing was being distorted. Although the European Court of Justice later partly annulled the EC’s decision in 2013, ⁽⁴⁾ the EC investigation, along with other documents issued by the EC concerning “soft law,” led to significant changes in the licensing of musical works. It should be noted that the EC’s steps were strongly criticised by the European Parliament (Echerer 2003).

Large publishers in particular saw in this development an opportunity to directly license their repertoire for online use across multiple territories. As a result, we are seeing the withdrawal of mechanical rights for the repertoire of major publishers or associations of smaller publishers (e.g., the IMPEL association) for online use across multiple territories from the management of CMOs—resulting in the “carve-out” of their repertoire. This has primarily involved popular Anglo-American and Latin American repertoire. This repertoire then remained at CMOs primarily for music rights licensing for digital exploitation to purely national services.

Since performing rights are also generally required for online use, publishers began collaborating with major European CMOs, particularly from the United Kingdom (while it was still in the EU), France and Germany, within which they created the licensing hubs. Their task was to provide multi-territorial licences for specifically defined repertoires. ⁽⁵⁾ The beginning of this type of licensing in Europe is observable particularly from 2008 onwards with the creation of organisations such as PEDL, PAEDL, DEAL and SOLAR. The most developed entity in this area is currently the licensing hub ICE, which in broad terms licenses the repertoire of CMOs from Austria, Belgium, Germany, Ireland, Romania, Sweden, the United Kingdom and the United States, and publishers Warner Music, Peer Music and Concord Music for multi-territorial online services. In addition, however, it also provides a range of other administrative and support activities for other licensing hubs, such as ARESA and SOLAR, and for the publishers Sony Music Entertainment and BMG Rights Management.

In addition to these licensing hubs combining the repertoires of CMOs and publishers, there are also joint activities of CMOs, such as the collaboration of Nordic CMOs in the Nordisk Copyright Bureau association. These associations have, however, gradually lost significance (e.g., Nordisk does not license digital distribution anymore), and the CMOs involved are seeking other ways to license their repertoire online. One of these ways is, of course, their own licensing of their repertoire on a multi-territorial basis, which we will describe later.

After the significant developments we discussed above, the EU introduced a new Directive on collective management and multi-territorial licensing 2014/26/EU, which, in addition to stricter rules for the exercise of collective management and transparency, establishes rules for licensing online rights to musical works on a multi-territorial basis. The EU chose to regulate this through the so-called European Licensing Passport from among several possible options. Essentially, criteria were established which a European CMO must meet to license its repertoire on a multi-territorial basis—that is, to possess a licensing passport. If these rules are not followed, or if a decision is made not to issue multi-territorial licences, the organisation must allow its rights holders to entrust their online rights to another CMO for a certain period. As we have seen, however, the repertoire for online use had long been fragmented among many market entities. This option could therefore essentially only serve individual rights holders without ties to a publisher, and it is fair to say that it was not used. OSA, the Czech CMO, uses the option to provide multi-territorial licences for its direct repertoire, while other organisations have generally chosen to license their repertoire through licensing hubs (e.g., the Slovak SOZA uses the services of the Mint Digital hub). In addition, IMEs Soundreef and Unison also provide multi-territorial licences.

The licensing market for online use is thus shifting from a mono-territorial, multi-repertoire approach to a multi-territorial, mono-repertoire approach, supplemented by multi-repertoire licences for purely national online services. It is, however, important to note that this conclusion applies only to the rights of composers and lyricists—in the field of related rights, labels generally proceed individually with online services, as mentioned above. This is logical, since the platform effectively acquires not only the necessary rights from them but also actual recordings containing the affected works.

Several expert studies warn that these developments and the subsequent European regulation of the licensing market have led to unintended negative consequences for the music industry, particularly in small and medium-sized EU member states (Hellenic Foundation for European and Foreign Policy 2009; Leška 2019; Schroff & Street 2018; Street et al. 2018). The withdrawal of Anglo-American and Latin American repertoire from the management of national CMOs has weakened these organisations. Specifically, (a) their income from collecting licensing fees for the use of the majors’ repertoire has decreased; (b) transaction (administrative) costs associated with monitoring and managing rights to the repertoire of lesser-known or less-successful local artists and music publishers have increased; (c) with the decrease in income, the funds that the CMOs allocated to cultural and social services in the national territory have also decreased; (d) the majors gained a stronger negotiating position against the CMOs of copyright in terms of the scope and regime of managing their rights. In addition, there is a risk that commercial music users will be content with holding rights to commercially successful Anglo-American repertoire, or they will make agreements with large CMOs (like GEMA and SACEM) and will no longer be willing to enter into licensing agreements for local and minority repertoire managed by smaller national CMOs, or they will push for lower rates for the use of their repertoire due to its lower commercial value associated with its lower attractiveness. This poses the threat of a two-speed European music market, in which local and genre-specific music publishers or labels will be marginalised. Expert studies also warn that Europe’s cultural diversity is at risk if local, less popular or minority genre repertoire becomes less accessible in the music market (Graber 2012).

According to statements from online service providers (Bulayenko et al. 2021: 24), the newly created licensing model for multi-territorial online use of music did not lead to the desired reduction in transaction costs faced by providers of online music services under the reciprocal representation regime for managing the national repertoire of CMOs. The new system of online music rights clearance and the introduction of a pan-European licensing system replaced the territorial fragmentation of rights with the fragmentation of repertoire. Currently, there is no multi-territorial system in the EU for clearing rights to the entire repertoire (national, European, international and Anglo-American). If they want to offer a complete music repertoire, providers of online music services are forced to enter into licensing agreements with a larger number of licence holders (national CMOs, various licensing hubs holding rights to the repertoire of major music publishers, IMEs) (Leška 2020). Before the fragmentation of rights to the global repertoire, online service providers only needed to sign a licensing agreement with the relevant national CMO to use the global repertoire within a selected territory, which also represented the repertoire of all other CMOs. Moreover, digital service providers only dealt with CMOs in the countries where their service was to be available. However, if they now want to offer the global repertoire, they are forced to deal with a rather large number of licence providers (about several dozen in the field of rights of composers and lyricists, and tens of thousands when it comes to recordings and the rights to them). The number of transaction actors is in principle the same whether the online music service providers offer their service within the territory of Central and Eastern Europe or the whole continent.

Foreign studies (Schrott & Street 2018) and available statements from representatives of affected parties (Bulayenko et al. 2021) conclude that the European regulation of CMOs and their activities within the music market, guided by the principles of the internal market and competition, has indeed accelerated the regime for granting multi-territorial licences but has weakened the position of many CMOs in relation to large Anglo-American music publishers and multinational online service providers. According to its critics, it has also had a negative impact on cultural diversity and the development and support of the music industry in smaller and medium-sized EU countries, since CMOs are an important part of the music infrastructure within the national market. In addition to the economic agenda associated with simplifying rights clearance, ensuring the monitoring of the extent of the use of the managed repertoire and enforcing rights in the case of unauthorised use, these organisations also manage cultural and social agendas (Dietz 2014).

This concern about the discrimination against minority national repertoires in the offerings of global music online services is assuaged by newer international studies testing the availability of national music content in the catalogue of music online services abroad. These studies confirm a high degree (in relation to other types of protected content, such as audiovisual content) of pan-European availability of music content in the offerings of music online services intended for consumers in individual EU countries. According to a 2015 study, the international availability of music content, measured on a sample of musical works in the iTunes store, is 80 percent (Gomez & Martens 2015). According to a 2017 study, the availability of music content across the online offerings of the iTunes downloading service in individual EU member states is 90 percent, while the international availability of music content within Spotify’s streaming service offering is 96 percent (Alaveras et al. 2017). The studies also confirm that cross-border access to the offerings of online music retailers is geographically blocked based on the location where the consumer connects to the Internet. The differences between the digital music offerings in individual EU countries lie primarily in the price of the goods or services for sale. Price differences reflect the purchasing power of consumers (income per person) in a given country and, for downloaded music, its popularity in that territory. The aim of geoblocking within the digital music market is therefore not to protect the territorial exclusivity of content but the pricing policy of the online service provider.

Based on these studies of the international availability of music content in the offerings of streaming and downloading services (Alaveras et al. 2017; Broocks et al. 2020; Gomez & Martens 2015), it is reasonable to deduce that the high degree of international availability of music content also applies to Czech content. This conclusion is also supported by statements from online service providers, according to which the introduction of the new regime for clearing multi-territorial rights to digital music use has not led to the marginalisation of local repertoire from smaller member countries or minority repertoire within the digital offering (Bulayenko et al. 2021: 127; European Commission 2021: 18). Instead, online service providers face higher transaction costs associated with covering the rights to the offered repertoire to ensure the stability of the offering concerning consumers, given that rights to some of the repertoire they provide may be withdrawn by the original rights holders from the CMO and entrusted to another licence provider with whom the online service does not have a licensing agreement.

The potential Achilles heel of these empirical studies demonstrating the high degree of catalogue overlap in music online services in the EU is the structure of the research sample. The research compares the international availability of music hits identified based on a list of the best-selling or most-listened-to songs or albums, which the online service provider continuously compiles and updates. While the 2015 study (Gomez & Martens 2015) was based on a list of the 300 best-selling recordings in September 2014, the study published in 2017 (Alaveras et al. 2017) was based on a list of the 100 best-selling albums and songs in stores in the USA and the EU across 40 music genres. Therefore, the measurement is unable to capture the music content that constitutes the so-called “long tail” (Anderson 2004).

We can therefore conclude that despite a certain weakening of the position of CMOs from smaller EU member states managing national repertoires, the fears of the unavailability of national repertoires in the offerings of multinational services in other member states have not materialised. The cross-border unavailability of musical content or music online services provided in individual EU member states is rather a theoretical problem given the global reach of streaming music services and the content overlap of their catalogue offerings available in different EU countries.

In contrast to audiovisual content, music content is significantly more accessible in the offerings of streaming services across EU member states. One of the reasons for the better pan-European availability of music content, or rather its better international circulation beyond the borders of the country in which it has been produced, is the fact that CMOs and multinational licensing hubs play a central role in the rights clearance process for musical works. In contrast, relevant CMOs are not involved in the rights clearance process for the international distribution of audiovisual works. The involvement of a CMO in the licensing chain significantly reduces transaction costs (that is, the number of contracts and contractual actors) in the process of concluding licensing agreements between the provider and the licensee, thereby contributing to better pan-European availability of licensed content. Another reason for the better permeability of the European music market is that the digital music market is globalised and digital music distribution serves more as a supportive promotional tool in relation to live performances, which are the main source of income for artists. Income from digital music distribution also depends on the extent of the use of musical works, or rather on the volume of their listenership in relation to the online listenership of other tracks the streaming service offers. It is therefore in the interest of music producers and labels to ensure the widest possible (global) availability of their production in the offerings of streaming services, while it is in the interest of streaming service providers to offer listeners the widest possible repertoire, since the catalogues of these services differ only slightly (unlike the offerings of audiovisual streaming services, which differ primarily in the exclusivity of the content offered). ⁽¹²⁾

The European audiovisual market, on the other hand, is territorially fragmented, even in digital distribution. Producers typically sell the rights to use a film to a local distributor, who organises the sequential distribution of the film within a given territory. Local film distributors must carefully consider whether the consumer interest in their territory will justify the costs of localisation and promotion when purchasing the rights to distribute a foreign audiovisual work. Foreign video-on-demand service providers face similar risks and uncertainties when assembling a catalogue for a specific territory; they must weigh whether it is financially worthwhile to purchase distribution rights for a foreign (non-American) film from local distributors or aggregators, given the risk of low audience interest. Yet even domestic film producers are not incentivised to sell a completed film abroad, because the main source of their income is not the international distribution of the film, but the actual process of its development and production. This process is often supported by national film funds from public budgets (Szczepanik et al. 2015). Alternatively, the audiovisual content is thematically targeted exclusively at a local audience, and its monetisation in foreign markets is not initially planned by the producer.

It might seem that one reason for the better international circulation of music content compared to audiovisual content is the auditory nature of musical works, which can overcome the linguistic and cultural barriers that international film distribution encounters. Yet statistical surveys of cultural consumption across EU member states confirm that cultural content consumption in the EU—both musical and audiovisual—is primarily local (aside from popular Anglo-American music and audiovisual repertoire). ⁽¹³⁾ We therefore conclude that the reason for the better international availability (though not necessarily visibility or listenership of local content on global streaming platforms) of musical content is the globalised digital market and business models of the music industry, within which the collective management of rights to musical works plays a key role. Additionally, the revenue of stakeholders in the value chain of music recordings depends on the extent of their usage, which is conditioned by the sale of rights to use music recordings within catalogues managed by the widest possible portfolio of music online service providers.

In conclusion, it should be added that the main goal of EU cultural policy was to increase the international availability (primarily of European) music content within the EU. From the perspective of the cultural policies of individual states, however, it is also important to increase the consumption of national content, not only within its domestic territory but also abroad. Consumption is not solely dependent on the availability of content but also, indeed primarily, on its visibility. Further research should therefore focus particularly on the regimes of visibility and curation of music content, whether through media and marketing campaigns, music competitions, playlist curators, music criticism or recommendation or search algorithmic systems, or available metadata affecting the searchability of content within the online offerings. Another major research topic is the fair remuneration for artists for the use of their works by digital online services. ⁽¹⁴⁾