The Power Game . . .
By Director Wayne Hall

May 31, 2009

My apologies in advance for this article, as it does at times get into a little bit of detail - but necessarily, I feel. I had hoped to avoid ever writing about licensing issues because:

(i) I have noticed a definite correlation between the word “licensing” and people’s eyes glazing over, and
(ii) it meant we simply didn’t have issues worth writing about - which in the music game is a good thing.

But that’s all changed recently, and I feel it is important - vital, in fact - that as many people as possible get an appreciation of where some areas of music licensing are headed and the impact it will have on our businesses. The greater the awareness, the greater the likelihood of achieving a fair, balanced outcome . . .

Picture this . . . You own a restaurant. It’s going OK, but like most restaurants, it’s hard work, and in times of recession . . . well . . . it’s tough.  Even so, you weren’t expecting this in the mail . . .

Dear Sir/Madam,

Plug In Power (formerly called The Power Company) have decided to change the way we calculate your fees. We will be introducing the new fee regime on the 1st August this year. The way it works - and you need to stay with us on this - is that you will now pay each month the higher of:

(i) an amount that we have chosen for you and which is about twice as much as you have been paying to date (we’ll let you know what this amount is soon), and
(ii) an amount that is a percentage of the value of the gross revenue you make from your establishment - we’re still working on a “fair” percentage and as with the value in point (i) we’ll let you know soon.

There are a few critical things you should realise upfront as well, because we don’t want you thinking that you can avoid this regime. Firstly, you can’t do anything to reduce your fees once you sign up for the term (yes, there is a term). For example, if you install your own solar generator to reduce your usage of our power, or run your own generator, it simply won’t make any difference to our charges. In fact, if you don’t use any of our power at all in a given month, or you don’t sell anything because you’ve gone on holidays, you can see quite clearly that the above “higher of” calculation will still result in you being charged. We call it the “beauty of the blanket license” . . . and we love it. We appreciate that we’ve called it a blanket usage fee and it doesn’t necessarily relate to usage . . . but we figure that (a) you mightn’t notice this, and/or (b) if we persist with it then we’ll get it through.

Secondly, you’re probably wondering how it is that we have had the audacity to come up with a calculation which takes a percentage of your total gross earnings. Well, we figure that if we can get away with it, why not?  Sure, we understand that the value you get from your food and beverages is a function of your resourcefulness ie. your presentation, staff training, cooking and all round business ability . . . but let’s face it, you couldn’t do any of it without the magic of electricity, right?

I think it’s fair to say that you can throw that ol’ electricity meter out right now . . .

Now, I’m sure you noticed the change of name in the first sentence. Well, actually, we’ve restructured the business. In addition to Plug In Power (PIP) we’ve formed another business called Light In Power (LIP).

LIP service works like this (and before you go running off complaining, please note that the right to charge for this service has been sanctioned by law):

Whereas the (PIP) service is based around usage of power, the LIP service is based on the “expression” of that power - most notably in the form of light and air-conditioning - in your restaurant space. We have to admit that for a while we were really stumped on how to charge you for this, so we engaged some experts to research the value of electricity in restaurants (and cafes) and they’ve come up with some really interesting findings. Well, we figure they are interesting . . . you might have another term.

Anyway, we’ve done up a fancy matrix which arbitrarily classifies restaurants into different sizes, then throws in some variables like “the number of servings a day”, “seating capacity” and “average price of a meal”. It’s pretty complex so we won’t bore you with the detail, though we figure that it’s not going to take you long before you realize that as with the PIP service, we are looking to link your LIP fee with your turnover.

You can calculate your LIP service fee for the year in advance by using this matrix. At this stage all we’ll say formally is that “most restaurants and cafes captured by this regime will pay more than they have paid in the past for this type of service” . . . Hopefully if we say this enough, the general public and other business people won’t notice those restaurant owners and managers who complain that the resulting fees are as much as twenty-fold those paid to date for this type of service.

So, in conclusion, we’d like you to get your head around this stuff and send in your feedback. We appreciate your busy and probably out of your depth on this one, but written advice only please. And good luck . . . (you’ll need it).

The Licensing Person
at PIP and LIP
“Where we take our power to the limit . . .”


OK . . . There is simply no way a power company would get away with introducing this type of billing criteria to it’s customers, more-so in the context of current market conditions . . . right? 

Well . . . let’s substitute the word “music” for “power” . . .

It pains me to say it, but the PIP usage regime described above is the equivalent to that which ARIA (the Australian Record Industry Association) - which provides licenses for the copying of music - is looking to impose on B2B music suppliers such as ourselves. Their blanket license and gross revenue criteria for calculating license fees will result in significant increases in music supply costs - as much as a 1000% (not a typo) in some instances.
For example, they believe that music license fees should be a percentage of the gross revenue received for a “system” that plays music, despite the fact that music is often not the dominant reason for the system being in place. Music suppliers need to charge their customers fees which recoup components such as their investment in software & hardware applications, maintenance programs, other licensing costs, and features such as digital signage.

Incredibly (well, I find it incredible), the fee calculation proposed is not in any shape or form based on the music used. The result . . .? The licensing costs associated with the supply of music programs to a customer who rents a system (the rental being part of the monthly gross revenue) will be higher then those who own their system - despite the fact that the programs are identical. Go figure . . .

At the same time, ARIA’s sister company, PPCA (Phonographic Performance Co. of Australia) is looking to introduce a new public performance licensing regime to restaurants and cafes, based on the LIP-style regime.
The new regime effectively categorises these establishments as “venues”, setting up the rationale for charging fees on a per-head or seating-capacity basis (which in turn ties it to turnover). It has already introduced these per-head regimes to the fitness and night club industries – the difference being that these businesses are users of foreground music ie. music played through systems designed to actively drive behaviour and be heard at all times.

It doesn’t seem to matter to PPCA that you play 100 songs or 10,000 songs throughout the year, just as it doesn’t seem to matter that music in these establishments is predominantly used in a passive way (hence the term background music) as an atmosphere-filler during quiet times - it usually can’t be heard once there’s a reasonable crowd. What matters to them is that they attach a “value” for music to the restaurant’s seating capacity. Once this is done, it’s not too difficult to get a set of “numbers” which work nicely for you (number of people served per day multiplied by a “value” per head) in order to build up a fee that is significantly more then that which was being paid to date - even with a “we’ll throw in a 50% discount acknowledging that on average you’re not always full”. For many restaurants, the cost of their public performance licenses will increase significantly - as much as twenty-fold.

Of great significance is the blurring here between the impact of background and foreground music - in particular the emerging use of the term “venue” to describe any place where music is played in public.

If ARIA win the day, it will result in cost increases and a restructuring of the way music suppliers do business . . .

If PPCA win the day, then all background music users (retail, offices, lounge bars, factories . . . why not elevators?) which play recorded music could be subject, eventually, to the revised “head count” based regime. They will have become a venue.

(the term “venue” is now being used by ARIA in it’s correspondence to business music programmers - such as ourselves - when describing what in the past have been called background music customers - a shop, a café, a foyer. If we were to settle on this terminology without thinking, then it would follow that we would play a strategic role in accepting that all of our customers are venues, thereby softening the introduction of PPCA’s per-head count public performance regime within these markets.  ARIA paving the way for it’s sister company to introduce a raft of more expensive licensing regimes - they would never do that, would they . . .?)

I’ll be the first to admit that this stuff can seem a little daunting - we are dealing with organisations who’s sole function is to introduce and manage the pricing, collection & distribution of money for a product they don’t touch, and who hold strong market positions. Not your typical supplier situation . . .

However, this is something that is NOT going to go away, while it has the potential to impact all business that supply and use music. During the next few months we will be putting to ARIA and PPCA our rationale for re-assessing and changing their planned regimes. We’ll keep you informed on our progress.

Finally, as much as we have tried to see it from their (ARIA/PPCA) perspective, we believe - and other suppliers are with us on this - their new regime criteria to be unreasonable, and flawed. Whether you have the same or a differing view, it would be great to hear from you. Express it to:

wayneh@sbamusic.com.au

. . . and if you’ve made it this far, thanks for reading through. Yep, it’s going to be an “interesting” year alright . . .

 

 


Wayne Hall
Director

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