pcr | Digital Music Observatory

Valuing Music

Thu, 12 Nov 2020 11:00:00 +0100

The copyright and neighboring right royalty is the wage-like earning of the music performer, the composer and producer. In popular music performers usually play their own composition and sing their own lyrics. If the musician is self-published, all the three royalties directly pay the artist’s work. If a professional publisher is helping the artist as a composer, or a record producer as a recorded performer, they usually share the respective royalty revenues. In emerging markets fewer, in mature markets more composers are represented by publishers and performers by record labels.

International Comparisons

The CEEMID international comparison models are based on the implicit econometric model set out in the AKKA/LAA vs Konkurences padome case which goes far beyond the regional comparison suggested by the earlier Czech Léčebné lázně Mariánské Lázně v OSA case for comparing royalty tariffs in the European Union.

The EUCJ declared that “it is appropriate to compare its rates with those applicable in neighbouring Member States as well as with those applicable in other Member States adjusted in accordance with the PPP index, provided that the reference Member States have been selected in accordance with objective, appropriate and verifiable criteria and that the comparisons are made on a consistent basis.”

In our view, setting a royalty tariff, especially when comparison of other market prices is taken into consideration, should follow the principles of the IFRS 13 Fair Value Measurement international accounting standard. This accounting standard was endorsed as an official interpretation of accounting principles by the EU Commission Regulation 1255/2012, which is in turn a binding interpretation in the light of the directly applicable 1126/2008 EC Regulation. This document gives a practical guidance on how to use objective data in valuations. Although the language of the standard is mainly aimed at large corporation with heterogeneous balance sheets, as a canonical, cross-country reading of sound accounting principles it is applicable for establishing the fair value of an assets or liabilities, including intangible assets such as royalty-earning copyright and neighboring rights.

On the top level of the hierarchy we find publicly observable prices in frequently traded assets, which is not applicable in our case. The second level of the hierarchy contains more reliable, publicly verifiable data sources and the third level of the hierarchy non-public information that is objective. Whenever possible, publicly available and verified information should be used.

The structure of the music and audiovisual industries makes the use of Level 1 input data almost impossible in a European context, because the vast majority of the industry players are microenterprises and sole solicitors, and even larger entities such as collective management societies and TV stations usually fall in the scope of the EU small- and medium size enterprise category. With few exceptions, this is the case with HORECA tariff payers, i.e. restaurants, pensions, hotels and other similar establishments. Micro-, small and medium sized enterprises are usually subject to simplified and limited financial reporting, tax reporting rules and mandatory official statistical reporting rules. Most of the EU economic statistics are created from tax and financial reports, and in other cases from mandatory statistical reports. Because creative and cultural enterprises usually do not fall into the threshold set for most enterprise statistics data collection, and because of the simplified tax and accounting reports, less official statistics can be created.

In the absence of high-level valuation input data, we must use level 2 (public) and level 3 (private) data sources that are by nature subject to interpretation. Such interpretation is subjective in the language of the standard because it is personally made by an objective analyst. The reliability of the valuation depends not only on the quality of the data, which is the case with level 1 data, but on the sound analysis of a competent analyst.

CEEMID made a large effort in the last 5 years to use high quality, publicly observable data and private data to create meaningful and objective social, economic and cultural indicators as set out in the EUCJ preliminary decision.

Market Comparators

The best models are based on market data and use information on prices and quantities agreed by independent, arms-length contractual partners. Our market comparator models process all collectively managed and estimated individually licensed uses of music and audiovisual content in a country. It is than possible to compare private copying values, value transfer to media platforms, or individual uses such as radio or television to the total market value of music listening per hour or film watching per hour. These models require the most data input.

We used such estimates in the Slovak Music Industry Report, in the calculation of private copying benefits to consumers and value transfer to YouTube in Hungary and Croatia.

Direct Estimates & Hypothetical Evaluations

Direct estimates are measuring quantities of unknown uses and they relate them to known market prices. Hypothetical evaluations ask the willingness of users to pay for uses. These models are easier to create, require less information, but they can be more easily challenged by regulators, licensees or auditors, because they do not rely only on independent and arms-length transaction data.

Hedonic Pricing

Hedonic price models are econometric price models that establish the residua value of music in complex services like hotel or restaurant services. We have used hedonic price modelling to establish the value of music use in the HORECA sector. Technically these models could be used to evaluate the use in television or radio but the data requirements are extensive.

Private Copying in Croatia

Thu, 31 Oct 2019 12:00:00 +0100

After much delay, the first measurement of licensed use of music, audiovisual content, home copying and value transfer to media platforms in Croatia for a practical update of the private copying remuneration in the country.

You can find the whole study in English, a Croatian language summary and a press release in the Publications section.

The models presented are simplified models of the Hungarian and Slovak models, with less detailed data. However, they show clearly that in less developed markets, compensation for unlicensed use remains a key issue. Only a very small fraction of households pay for music and film, and creators, performers, film writers are massively undercompensated in the Croatia, Bulgaria, Romania, Poland or the Baltic states of the EU.

My study, Private Copying in Croatia, argues that the cultural and welfare benefits of this private copying regime are enormous and important to create a good quality of life in Croatia for all age groups, but especially for young people, and it must be maintained. Furthermore, it is very advantageous for the tech sector, because their products are mainly used with unlicensed music and film copies, given that only a very small portion of the population pays for downloads, or subscribes to services like Spotify, Deezer or Netflix.

Even for those who are not interested in royalties, the first 3 chapters offer a very interesting introduction on how people listen to music, how musicians make music and how people copy it in the 21st century.

This project was a continuation of the mapping of the Croatian music sector. I have created more detailed valuation and use studies of private copying and YouTube in Hungary (2015, 2017, 2018, 2019) and currently preparing similar studies in other countries, including Slovakia, as a continuation of the work started with the Slovak Music Industry Report and generally my home copying work started in 2012 with Value added by music in public performance and home copying: economic theory and empirical applications for tariff setting.

Private Copying in Croatia

Thu, 31 Oct 2019 12:00:00 +0100

Press release: Studija: Naknade za privatno kopiranje (BTL) u Hrvatskoj drastično ispod prosjeka EU

Short summary in Croatian: Privatno kopiranje u Hrvatskoj Full text in English: Private Copying in Croatia

Value added by music in public performance and home copying: economic theory and empirical applications for tariff setting

Mon, 18 Nov 2013 00:00:00 +0100

You can review the slides below.

Value added by music in public performance and home copying: economic theory and empirical applications in tariff setting from Dániel Antal

Contents: 2. Private copying: blank carriers, technology-driven challenges

Technological changes coupled with arbitrage opportunities on the Single Market undermine revenue collection in some jurisdictions
Benchmarking breaks down if race starts to the bottom. You can adjust your tariffs to the neighbor without in-depth analysis as long your neighbor charges the right amount. ght) owners. Instead of simple benchmarking of fees, basic market variables such as quantities (number of tracks copied in homes), price variables, artist incomes should be compared in an economically meaningful way.
Estimating quantities, methodology, survey design Consumer surplus estimate requires reliable quantity estimates that can be best collected on an international basis.
Private copying: various challenges make economic assessment unavoidable. Value of intellectual property changes: technological and cultural changes modify the use of private copies. Economics deals with subjective value that is not indifferent of use. Compensation estimates must be updated when you blank carriers or copying technology enters the market.
CVM, choice modeling and hedonic pricing results Well designed economic estimates not only justify tariffs, but can create better value proposition for royalty payers. CVM surveys result in well-behaved demand curves for music in public places. Tariffs can be directly validated. Choice modeling reveals that consumers demand music and are rather insensitive to its price. Tariff levels are generally approved. Hedonic pricing reveals the different value added by different restaurants, bars, etc. – crucial for good value proposition and risk sharing with differentiated tariffs. Source: Various surveys designed by Visegrad Investments, conducted by Gfk Hungary, Universitas and Artisjus territorial representatives.
Econometric analysis differentiates high- and low-willing-to-pay customers Improving existing tariff differentiation can lead to a win-win situation. The same amount of royalty can be collected with less pain and less risk of loosing royalty payers, or even increase the number of customers who can experience high-quality 9 Economic analysis helps to create better tariff differentiation that is more accepted by payers without changing the average level of royalties, leading to less loss to royalty-free or cheap repertoire alternatives. Willingness-to-pay survey based on new hypothetical offerings reveal that better differentiated tariffs can significantly improve value proposition.
Public performance: changes in the restaurant, entertainment, retail outlet industry makes periodical tariff review necessary. The structure of restaurant, leisure and retailing changed significantly over two decades, creating chains of restaurants or retail outlets that have significant bargaining power and professional purchasing management.

There is a lot more information on the slides.

Read more in the Use cases of this website.