Phonographic Performance Ltd

Wednesday 6th July 2011 Westminster Hall

16:00

[Ms Margaret Ritchie (South Down) (SDLP)]

I am grateful for the opportunity to have this important debate under your chairmanship, Mr Bayley. I want to talk about the licence regime operated by Phonographic Performance Ltd, which governs copyright for musical recordings, and by the associated Performing Rights Society; they issue music licences that cover the copyright for musical and lyrical compositions. Both licences are required by businesses if they want to play music in public places or hold a live performance.

I want to draw attention to the over-complex and expensive licensing regime in this market. The problem has been highlighted by the European Union and the Federation of Small Businesses, and by various businesses and constituents throughout my constituency in Northern Ireland. The regulations impact financially on many small enterprises across Britain and Northern Ireland, which are already over-burdened by Government regulation and red tape. Broadly speaking, as we seek to develop and grow the economy in Northern Ireland, such measures can place an undue strain on businesses that already have narrow profit margins.

The Government have acknowledged that the economy in the north of Ireland needs to be rebalanced, and the proposed steps to devolve corporation tax powers to the Northern Ireland Executive are encouraging. However, it has been noted that businesses are still subject to around 60 regulations, including licensing arrangements, which cost firms throughout the UK £13 billion. Those regulations may be particularly burdensome for our small and medium-sized businesses, which may not have staff dedicated to compliance issues. It is therefore important that we pay attention to the criticism that such firms have expressed about the licensing arrangements for performance music.

I would like to draw attention to more specific issues within the broader context of the debate. In March 2009, the PRS introduced an exemption rate for businesses with fewer than four employees to cover employees playing music in private that was not audible to the public. Under that arrangement, such companies were to pay £44 a year plus VAT, and that decision has since been upheld by the High Court. Such exemptions are welcome, but unfortunately they are some way short of a classification that would help small and medium-sized enterprises, given that SMEs are classed as organisations with fewer than 50 employees. I want to encourage the Government to examine such exemptions, and to make them more consistent with the definition of a small business.

[Pete Wishart (Perth and North Perthshire) (SNP)]

After 10 years as a Member of Parliament, I have not received one complaint on the subject from an SME in my constituency, and I, too, represent a rural area. Most small businesses are content to pay a small price to enable them to use wonderful music to enhance their businesses. When the hon. Lady is talking about exemptions, is she thinking about the musicians, most of whom survive on less than £16,000 a year? If small businesses with fewer than 50 people were exempt, the impact on musicians would be massive. Does she understand that musicians are struggling, and survive on the scraps that they get from the PRS?

[Ms Ritchie]

I thank the hon. Gentleman for his welcome intervention. I recognise that in another life he was a musician, and is a member of a popular Celtic folk band in Scotland, which has played in Northern Ireland on several occasions. I recognise the musicians’ plight, and that they and the music industry are an integral part of small businesses. I am reflecting on the position of small and medium-sized enterprises in Northern Ireland, where we have a predominantly public sector-led economy, and are trying to grow our economy and encourage small businesses. Any additional taxation or fees simply imperil their financial situation.

[Mike Weatherley (Hove) (Con)]

Does the hon. Lady agree that it is a blunt instrument to use the arbitrary definition of small businesses as being those with fewer than 50 people, when radio usage in small companies is often higher than in large companies?

[Ms Ritchie]

I thank the hon. Gentleman for his intervention, but I am simply using the definitions proposed by the European Union. I accept his point, but perhaps I could continue my speech.

It is likely that many firms with fewer than four employees are unaware of the exemption, and more should be done to ensure that they are not paying excessive amounts. That brings me to a related issue: the cost of referring a case or complaint to the Copyright Tribunal can be prohibitive. As Consumer Focus highlighted, that is especially likely to be the case for small and medium-sized businesses, and even for a trade association, such as the Federation of Small Businesses. We must be especially aware of such concerns given the relative monopoly held by the collection organisations. Businesses have no alternative within the market.

In contrast with most other European countries and the US, the UK does not provide in law for the regulation of licensing collection bodies, and no authority is charged with their ongoing supervision, except in relation to the ad hoc resolution of complaints through the Copyright Tribunal. Given that somewhat unbalanced field of play, it is important to consider the charges that companies face. With reference to the PPL charges, businesses defined by the European Commission as small enterprises —including, for example, a hair salon with more than four employees and with more than five treatment or stylist chairs—that use a radio, CD player or MP3 player will have to pay PRS £169 and PPL £121 a year. An office or factory with 135 employees will pay PRS £1,142.03, plus VAT, and PPL from £113 depending on square metres. A small café seating up to 30 people will be charged for television, radio and CD. The PRS fee will be £440.72 and the PPL fee will be from £113, depending on square metres.

Set against that, I note that the PPL’s total licence fee income grew 10.7% to £143.5 million from £129.6 million the previous year. It boasts of a revenue growth from public performance of 2%, and claims that that is noteworthy. Its last press release around 8 June stated that

“it was achieved despite...extremely difficult trading conditions for many of the company’s customers and licensees.”

The fact that so many businesses are complaining about the high cost of the licences and the undue strain that it is placing on their finances indicates that there is a more draconian approach to compliance. It is vital—I say this advisedly—that PPL works closely with such businesses, and that the relationship is symbiotic rather than confrontational. Proclaiming their own revenue growth at a time of difficulty for the businesses that purchase their licences is not a step in the right direction.

As well as considering the level of charges, it is important at this stage to consider the sort of businesses that are most likely to be affected by the current arrangements. In my constituency, which is on the east coast of Northern Ireland, a large proportion of the economy revolves around the tourism and hospitality industry. The complexity and cost of requiring two separate licences, combined with an aggressive compliance regime, can put undue pressure on the bars, hotels and restaurants that form the background and backbone of our tourism industry. If those establishments are forced to cease playing music, business will suffer, customers may leave and the public’s exposure to artists’ music will be greatly decreased. As highlighted in a recent report by Consumer Focus, the European Commission commented, in reference to competition, copyright and collective rights management, that

“no other sector operates such complex licensing arrangements.”

Before concluding, I wish to raise an associated and relevant concern that relates specifically to businesses that play radio stations. Although the radio station will have paid a royalty fee for playing the music, the small or medium-sized enterprise effectively has to pay that fee again, which I consider amounts to double taxation. In a similar manner, an hotel may be faced with a double cost for playing music in separate areas. That overly severe and inflexible approach damages small businesses. If those businesses are forced to stop playing music, it will hurt not only the businesses but those artists who, as the hon. Member for Perth and North Perthshire (Pete Wishart) pointed out, may live off a small wage and rely on being played on the radio for exposure. In summary, the licensing arrangements, which in some instances comprise many different tariffs, are cumbersome and cost-prohibitive for many owners of small and medium-sized businesses.

[Mike Weatherley]

I wonder whether the hon. Lady will expand on one aspect of that argument. If music is a necessity and part of the raw material required to provide a service in a café, for example, how does it differ from any other products offered by that café, such as coffee? Does the hon. Lady suggest that the Government should subsidise all other services offered by that business?

[Ms Ritchie]

If I may, I will say with a degree of temerity that there is a major difference between paying two licence fees, and paying for coffee and other services offered by a café. I am sure that we could elaborate further in the margins of the debate.

The licensing arrangements, combined with what is perceived to be an increasingly draconian compliance regime, is putting businesses under pressure. If we recognise that, we must find a solution that protects our valuable music industry, of which small businesses form an integral part. I urge the Government to take steps to create a simpler and more effective licensing regime. It is vital that licensing requirements and costs do not disproportionately impact on small and medium-sized businesses at a time when many already face a challenging economic climate.

In Northern Ireland, all parties are collectively trying to rebalance the economy and change it from being 77% public sector-led, to a system that puts greater emphasis on the private sector and will provide opportunities for people to develop business ideas. Given the degree of compliance involved in the licensing system, and the fees that are charged in such a cumbersome way, the charges need to be streamlined so that people and businesses can enjoy greater comfort. People should be able to enjoy the music without facing difficult charges. It is vital that the licensing requirements be streamlined and reviewed as a matter of urgency, and on behalf of small to medium-sized enterprises throughout Britain and Northern Ireland, I ask the Minister to take those views on board. I recognise that we have devolved arrangements in Northern Ireland, but the responsibility for licensing lies in London.

16:14

[The Minister for Further Education, Skills and Lifelong Learning (Mr John Hayes)]

It is delightful, Mr Bayley, to speak in successive debates in this Chamber under your benevolent stewardship. I congratulate the hon. Member for South Down (Ms Ritchie) on securing this debate and on her speech, and in the short time available I will do my best to deal with some of the points she has raised.

I hope that hon. Members will join me in recognising the success of the 45,000 performers and almost 5,000 record companies that are members of Phonographic Performance Ltd. They make a significant contribution to the cultural life and economic wealth of our country. The industry of which they are part—the creative industries—acts as an important ornament to all that we are and all that we do. It is one of the big growth areas in our economy and has the support of the Government. We are working with the creative industries to develop ways in which they can grow still further. Our country is home to the largest national creative sector in Europe, and the creative industries account for 5.6% of gross value added in the UK, and provide around 2 million jobs. They are not merely ornamental but make a difference to the health and well-being of our economy and of communities up and down Britain.

Intellectual property and the copyright system lie at the heart of our creative industries. Many of those industries are small firms—the hon. Lady drew our attention to that once again in her speech. PPL tells us that the vast majority of its members are small and medium-sized enterprises. As she has said, those industries rely on copyright to survive, and it provides them with a legal framework to sustain and protect creative value. Although we are committed to minimising unnecessary burdens on small businesses, we also want to maintain a fair and balanced copyright system in which artists can gain fair rewards for creative works, and licensees can expect access to content via a licensing system that is fair, transparent, and reasonable.

As the hon. Lady has said, PPL plays an important part in that system. Like all collecting societies, it has a valuable role in managing and clearing rights. Its collective licensing activities mean that users do not have to approach every single rights holder for permission, which helps to reduce transaction costs. As a collecting society, PPL is a private commercial organisation that manages the rights of its members. The collecting society functions of PPL and all other collecting societies are not specifically regulated by the Government. PPL acts on the basis of mandates given to it by its members, which it uses to license those rights—the exclusive rights that the international and domestic legal framework gives to copyright owners—for those who want them.

The licensing system in the UK is relatively unregulated compared with other jurisdictions. Our system expects the licensor and the licensee—or their representative body or trade association—to negotiate freely and agree a market rate for the licence. If negotiations break down, the licensee or their representative can refer the matter to the Copyright Tribunal. The collecting society has no corresponding right. That is intended to act as a check on the power of what is effectively a monopoly supplier when dealing with, for example, the kind of small businesses championed by the hon. Lady.

As the hon. Lady will know, Professor Hargreaves has reviewed these matters. In his work, he noted that collecting societies in the UK fulfil a valuable role in licensing markets, but that they are also effectively unregulated natural monopolies. Licensees do not generally enjoy the protections that are available to consumers when dealing with broadly comparable organisations such as utility companies. Professor Hargreaves recommended that collecting societies should be required by law to adopt codes of practice approved by the Intellectual Property Office and UK competition authorities to ensure that they operate in a way that is consistent with the further development of efficient, open markets.

Following that inquiry and review, the Government are considering their response to Hargreaves’s recommendations, which will be made public in the near future. The hon. Lady’s Adjournment debate could not be timelier, because the Government are open-minded about this issue, mindful of the recommendations and anxious to move forward. The constraints within which we work are, of course, international and European obligations. The hon. Lady will be familiar with those, too. None the less, I think that further progress can be made, and I will say a few words about that in the time available to me.

[Ms Ritchie]

rose—

[Mr Hayes]

The hon. Lady wants to intervene to inform my brief contribution with her expertise.

[Ms Ritchie]

I thank the Minister for his answer and his speech so far. He has referred to the Government response to the investigation and report by Professor Hargreaves. Can he provide an estimated timetable for the Government response? Is it likely to be produced in the next month, the next two to three months or the next six months?

[Mr Hayes]

I shall deal with that specific question before I finish speaking. No doubt inspiration will wing its way to me to inform my response—the hon. Lady knows what I mean by that. She has made it clear that there are areas in which we can make improvements, notwithstanding the constraints to which I have referred. Ah! Inspiration may already have reached me, but I want—not tantalisingly, but temptingly—to delay what I say about that for a few moments.

[Pete Wishart]

I am very much looking forward to the Minister’s reply to tomorrow’s debate on the Hargreaves recommendations. He knows that nothing in the Hargreaves report suggests or recommends exempting small and medium-sized businesses with fewer than 50 people, so can he now rule that out and ensure that musicians continue to get fair play from the wonderful recorded works that they provide, which enhance so many businesses up and down the country?

[Mr Hayes]

We will not exempt small firms. That is the answer to the question. The hon. Gentleman has raised the issue, and there is a case for exempting small firms, but the frank answer to his question and the question asked by the hon. Lady is that the UK would almost certainly be in breach of its international and European obligations if it did so. I can be very clear about that.

Let me deal with the hon. Lady’s intervention. Within the next month, she will learn more—because I will insist on it—about the Government’s response and thoughts on how we can take forward the review’s recommendations, where we feel that it is appropriate to do so.

I want to say more about what further progress can be made. First, we need to ensure that people understand the law and understand what not only PPL but all collecting societies from whom they need a licence are doing. We know from the ministerial postbag and from our constituency postbags and surgeries that many small businesses are unaware that they need a licence for the activities that we are discussing. The hon. Lady has made the point clearly. Many businesses question why they need a licence from PPL and PRS for Music to have the radio on in business premises when the broadcaster has already paid for a licence. Many ask why they need a licence at all. Where they do require licences from both PRS for Music and PPL, some businesses query, reasonably enough, why they are not told clearly that they need two licences and why joint licensing is not used to cut costs and the time that they have to spend on that.

PPL tells us that it is doing more to raise awareness among licensees and potential licensees. As a result of this debate, our further consideration and representations made to us from outside this place and within it, we will continue to press PPL to fulfil that commitment. Indeed, as a result of the debate, I will ask Baroness Wilcox, who is the Minister with responsibility for this area, to meet representatives of PPL to talk about how they can make the commitment real and what further steps they will be taking to address some of the questions that I have raised. Trade associations, too, must continue to build on the work that they do to raise awareness among their members. We will certainly involve them in that discussion.

Secondly, where charges are justified, they should be applied in a clear, unambiguous and efficient manner. Those wanting to start new businesses must not be deterred by uncertainties about charges that have no bearing on their core business. Thirdly, inquiries suggest that not all trade associations are aware that they can have a role in negotiating the terms and conditions of the licence for their sector. Some trade associations and licensees are even unaware that they can take a case to the Copyright Tribunal, if they are unhappy with the terms and conditions. They simply do not know their entitlements. The tribunal secretariat is working to raise awareness in those areas. It hosts regular user group meetings, which are aimed at making the tribunal more accessible by familiarising users, especially SMEs, with its procedures and giving them an opportunity to meet the chairman and lay members. The secretariat also hosts regular meetings of collecting societies to discuss, among other things, concerns raised by licensees.

I will also ask Baroness Wilcox to advance our work with trade associations. Of course, we do not exert executive power in that respect, but we will take the work further to ensure that all the steps are accelerated. It seems to me that a seminar might be appropriate. I am thinking of a seminar in which the interested parties are brought together to talk through what further steps might be taken to deal with some of the specific issues relating to small businesses raised by the hon. Lady. Perhaps my ministerial colleague will write to her and other interested hon. Members, addressing the possibility of just such an initiative.

I have heard much in this debate that provides food for thought. We do not take these matters lightly. In relation to charities, PPL has agreed to joint licensing with PRS for Music, which should reduce administrative burdens. The hon. Lady will know about that. We might be able to discuss, at the type of event that I have described, further steps along those lines, because there are community organisations—some of them are very small—that struggle to deal with some of these matters, not least in terms of information and understanding. On that basis, I welcome the agreement that has been reached and encourage exploration of other areas for joint licensing, notwithstanding the point that I made about exemption and the perfectly proper point that the hon. Gentleman has raised.

We will reflect carefully on these matters before responding formally to the recommendations of the review. We will continue to work to ensure that the framework is explicable and accessible and that it operates fairly. There is a balance to be struck between the interests of different parties, as I think has been made clear in this brief debate. Those parties have a legitimate expectation that the system will work fairly. The regulation should certainly not be burdensome, and we need to ensure that we have some understanding of the costs of the regulation. When we promote steps that are designed to ensure that a system is operating fairly, we should always do so on the basis of understanding the cost burden that it creates. We also feel—I am sorry; I am using the royal “we”. I also feel that measurement of the function of these agencies is important, so having proper lines of accountability to ensure that what is being done is working as it should be is important.

This has been a useful albeit short debate. As I have said, it is remarkably timely. I hope that I have made reasonable commitments to the hon. Lady as a result of it. She will hear more very soon about our further reflections.