Compulsory Licensing of Music: An Analysis of the Copyright Board Decision

We bring you a detailed analysis of the decision in the big ticket copyright compulsory licensing dispute (sound recording companies vs radio stations) by Karthy Nair, a sparkling 4th year student of NUJS. Prashant had already introduced this decision on the blog.

The recent judgment of the Copyright Board in Music Broadcast Pvt. Ltd vs. Phonographic Performance Ltd seems to suggest that the Buggles may have been a tad too hasty in predicting the untimely demise of the radio. In an order that covered nine cases, the Board held in favour of granting compulsory licences under Section 31 (1) (b) of the Copyright Act, 1957 to complainants FM radio providers against music providers such as Phonographic Performance Limited (PPL). Section 31 (1) (b) which was primary section in question reads as follows:

“31. Compulsory licence in works withheld from public. (1) If at any time during the term of copyright in any Indian work which has been published or performed in public, a complaint is made to the Copyright Board that the owner of copyright in the work-


(b) has refused to allow communication to the public by broadcast, of such work or in the case of a sound recording the work recorded in such sound recording, on terms which the complainant considers reasonable, the Copyright Board, after giving to the owner of the copyright in the work a reasonable opportunity of being heard and after holding such inquiry as it may deem necessary, may, if it is satisfied that the grounds for such refusal are not reasonable, direct the Registrar of Copyrights to grant to the complainant a licence to re-publish the work, perform the work in public or communicate the work to the public by broadcast, as the case may be, subject to payment to the owner of the copyright of such compensation and subject to such other terms and conditions as the Copyright Board may determine; and thereupon the Registrar of Copyrights shall grant the licence to the complainant in accordance with the directions of Copyright Board, on payment of such fee as may be prescribed.”

[the above clause will likely make it to the Guinness book as the worlds’ longest sentence]…

Thus Section 31(1) (b) confers on the Board the power to grant compulsory licenses in works if it is satisfied that the copyright owners has refused to allow communication to the public of the work and such refusal is not reasonable. The licensee then will have to pay compensation and follow such terms and conditions as determined by the Board and pay fees to the licensor as prescribed.

In this case, the issue in question was that whether the FM radio industry could claim compulsory licensing on music owned by music providers such as PPL. This was based on the argument that the latter were being unreasonable in charging exorbitant royalties of FM radio channel providers for music owned by the latter which in turn was affecting public interest at large.

The argument regarding public interest was drawn up by pouring over government’s policy regarding the involvement of private sector in FM radio broadcasting over the years since the launch of the First Phase of privatisation in 1999. It was seen that the government has wanted to help develop the private FM radio broadcasting as a tool of engineering social development by which information, education as well as entertainment could be disseminated to the remotest corners of India. Interestingly, the Board concluded that FM radio broadcasters, though organized as business enterprises, thus now owe a social obligation towards nation building. With a view to promote the industry, the government itself had shifted from the burdensome fixed licence fee system to a revenue sharing model wherein 4% of the gross revenue was to be given to the government.

The fact that the radio stations broadcast were of public interest being established, the issue of whether the royalties charged by the music providers was reasonable came into question. In considering the issue, the Board reviewed and subsequently rejected many of the respondent music providers’ arguments. The Board firstly held that comparing the cost of content for radio service providers and TV Broadcasters was erroneous. While the former was bound by government directive to be a ‘free to air’ service (wherein It cannot charge any subscription from the public), the latter could and did charge the viewers. Also there were many other restrictions regarding content aired on radio broadcast as opposed to the television which again made comparing the incomes and costs over these two different mediums, as the respondents had wanted to do, difficult.

Furthermore, comparing the royalties charged on All India Radio (AIR), a state owned enterprise and private sector FM radio providers was again held to be wholly flawed. AIR had for decades enjoyed a virtual monopoly in the radio industry and could afford to make the royalty payments. The nascent FM industry, on the other hand, already running in loss, was hard pressed to cough up the high royalty payments demanded by the music providers of 14%-15% especially since its main content had to be music as it had too many restrictions on the type of content it aired unlike AIR.

It was also strenuously sought to be advocated by the music providers that playing their content over the radios was damaging their sale of music in physical formats such as CDs and cassettes. However the Board rightly pointed out that the respondents had not sought to assess how much of the loss was a result of newer digital formats such as IPODs, mobile phones, TVs etc and even piracy. In fact the counter argument raised by the complainants seemed to suggest that the popularization of music by the radio stations would only boost the music industry.

Given the fact that the radio service providers are running in losses, and have due to restrictions few income generating avenues – the fixed royalty system of the music providers, the Board found, would result in diminishing access of the work to the public. Using a ‘needle per hour’ concept wherein the prize of the license is fixed irrespective of the size of the radio service providers and its reach (listeners and advertisers) was ineffective and unreasonable. The Board concluded that the ability of the licensee to pay should be assessed on the advertisement revenue that it generated.

The Board held that keeping in mind the fact the radio service providers, though private commercial ventures, worked within the social development plan of the government, the only reasonable license fee model was wherein the music providers charge a fixed percentage of the net advertisement revenue. In fact the Board reasons that this would generate far more income for music providers as more broadcasters would be willing to come into the foray throughout the country which would generate further income. Based on the reasoning provided above the Board developed a set of terms and conditions under which it directed the Registrar of Copyrights to grant licenses to the complainants based on a revenue sharing model wherein 2% of the net advertisement earnings of each FM radio station would be set apart to pay the music providers.

Though the judgment is a definite positive for the FM radio industry, there still remains the question of whether it will help serve the very purpose on which the judgment hinged – that of public interest. Sure the average city dweller will be able to get his regular dose of ‘top ten 90s singles’ on his way to work, but it remains to be seen as to whether it would really help incentivise greater expansion of the private radio industry in tribal or remote areas wherein the revenue earned is likely to be less.

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