We recently interacted with an expert in the music segment to gauge an understanding of the royalty structure for artists/composers. Enclosed below is our view/impact and KTA of the same.
Radio royalty pay out may increase further due to IPRS charging an author/composer royalty; global avg for artist royalty is 1%-3%.
IPRS has been able to successfully increase its royalty share from TV channels and live events in the recent past; may replicate that model in radio segment too.
Music label royalty which is currently fixed at 2% is set to expire in 2020, post which the music labels plan to charge a higher percentage as radio segment stabilises as compared to what it was in 2010.
As per our sensitivity, every 1% increase in royalty will have a negative impact of 3% on earnings.
Detailed write up as follows:
Indian Performing Right Society’s (IPRS) royalty business model
In terms of a global model, the royalty remains to operate on two types the sound recording and author/composer royalty who are paid separately. IPRS, which is the association for royalty collection for the authors/composers, was able to receive a registration certificate under the Copyright Act which makes it possible for them to separately charge music royalty from TV, radio and live performances.
Efficient distribution of royalty to the artists
Due to the active engagement over the last few years, the amount of royalty income has increased almost four times by charging royalty on live performance and TV. IPRS has also managed to get royalty also from retrospective effect from some avenues like selective TV channels etc. There is an efficient data management system based on which the royalty is passed on to the authors and music composers based on the number of songs each one has on their name
Incremental royalty pressure for radio
As of now, the music royalty for radio companies has been capped at 2% which is provided to PPL/music labels for the music played on radio stations. However, as per the Copyright Board order, this is expected to expire in 2020, post which new terms may emerge. PPL (Phonographic Performance Ltd) and music labels are already in talks with radio companies and are demanding a royalty pay out of almost 5%-6%; IPRS too is on the verge of demanding royalty from radio companies which can mount added pressure for the former.
Existence of Copyright Board
The Copyright Board currently does not exist in the country and is merged with Intellectual Property Appellate Board (IPAB) in India, which will come out with new norms of royalty post 2020. Sound recording royalty for radio companies remains fixed at 2% up to 2020; however, there is still uncertainty on the royalty part of music artist/composers as they demand a share too in the same.
Artist royalty estimated to be 1%-3%
The average music royalty globally does operate upon a model of sharing ~1%-3% for the artistes; expect a similar outcome in India too. IPRS is also in favour of the model of charging a differential royalty model under which the larger network stations would bear a higher royalty pay out vs the smaller and single station entities.