Summary

The Copyright Tribunal had erred, in determining the terms on which a broadcaster should be licensed to use a licensing body's music video repertoire in the operation of its television music channels, in reaching a decision on royalties without considering a relevant comparable licence. That was contrary to the correct approach, which involved starting with the most relevant comparable and adapting it to the circumstances of the particular case.

Facts

The appellant licensing body (V) appealed against a decision of the Copyright Tribunal in respect of the terms on which the respondent company (C) should be licensed to use V's music video repertoire in the operation of its television music channels. V was a licensing body within the meaning of the Copyright, Designs and Patents Act 1988 s.126 whose members were the owners or exclusive licensees of the rights to broadcast certain music videos. V licensed broadcasts of music videos on behalf of its members in return for a royalty calculated by reference to the gross revenue that would be received by a licensee in respect of the broadcast of the television channel, pro-rated by reference to the channel's usage of V's repertoire. Their licensees were generally broadcasters of television music channels. C, which operated seven music channels, had effectively been licensed by V under the terms of a written licence which provided for the payment to V of a pro-rated fee based on the headline rate of 20 per cent of gross revenue ("the 2003 licence"). That licence was never signed and it expired in September 2005. Thereafter, C had been licensed under the terms of an extension letter whose purpose was to give the parties three months in which to negotiate new terms. C made an application to the tribunal under s.126 of the Act to determine the appropriate terms. Before the tribunal, C's position was that the royalty rate should be eight per cent of gross revenue, pro-rated for usage, whilst V's position was that it should be 20 per cent (also pro-rated). The tribunal found that (i) the royalty rates for commercial radio stations spanned two to five per cent, and that music video could not reasonably be said to be worth four times that of commercial radio; (ii) a change in the market in favour of Internet usage had affected advertising on music video channels, which greatly diminished the value of the older licence agreements with V as comparators; (iii) the effect which the broadcast of pop videos had on the sales of recordings, the "pop promo effect", served to reduce the royalty rate. In the light of those factors, the tribunal concluded that the reasonable royalty rate should lie within a 10 to 15 per cent "diminished window". It set the rate at 12.5 per cent and backdated the commencement of the licence to 2006. The parties were agreed on the way in which the pro-rating should be done, which was based on a formula which differed from that contained in C's 2003 licence. At the end of its decision, however, the tribunal expressed dissatisfaction with the formula and replaced it with that found in the 2003 licence. V contended that the tribunal had erred in (1) its determination of the royalty rate by failing to take any account of relevant comparators as required by s.129 of the Act, in particular, that of another television music channel (B) which had, on its face, agreed to pay royalties of 20 per cent with limited pro-rating; (2) altering the agreed pro-rating formula.

Held

(1) The tribunal had come to a concluded view that the royalty should lie within the 10 to 15 per cent diminished window without consideration of B's licence and had fixed the diminished window by reference to a comparable (radio) which was less relevant. That was contrary to the correct approach, which involved starting with the most relevant comparable and adapting it to the circumstances of the present case, AEI Rediffusion Music Ltd v Phonographic Performance Ltd (No2) (1998) EMLR 240 Copyright Tr applied. Further, the rate being demanded by V was not four times the commercial radio rate, given that V's rate was subject to pro-rating, and the tribunal's assessment of the worth of the product in the hierarchy of entertainment did not seem to be based on any evidence or reasoning. The other two factors, the "pop promo effect" and the changing market, were factors exerting a downward pressure on royalty rate to which the tribunal was perfectly entitled to have regard. However, the right place in principle to consider those matters would be in adjusting, to the extent it was appropriate to do so, any comparable royalty rate. That was an exercise which the tribunal had not performed. The tribunal's decision was, accordingly, set aside and the matter remitted for rehearing before a differently constituted tribunal. (2) There was no proper or rational basis for the tribunal to have departed from the agreed formula for pro-rating. When the matter was remitted to the tribunal, it should consider the parties' evidence and arguments on the basis of the agreed formula.

Appeal allowed