Did the big music companies on IPRS & PPL collude to deny lyricists and composers crores of rupees in ‘ringtone royalties’ – An investigation

This is the first in a series of post on the state of affairs at the Indian Performing Rights Society Ltd. (IPRS).

Pursuant to our last few posts on IPRS and Phonographic Performance Ltd., available over here and here, I’ve spent several more fascinating hours, over the last three days, poring over documents that were obtained from the Copyright Office, under the RTI Act and downloaded from the Ministry of Corporate Affairs website. The results of this amateur investigation, carried out with only a debit card, the Ministry of Corporate Affairs website and the internet are absolutely intriguing, throwing up more questions than answers.

I think I may now have a more complete picture of why the Registrar of Copyrights asked IPRS the questions that he did. If my analysis of the matter is right it would appear that the managements of IPRS and PPL have actively colluded to deny lyricists and composers their share of royalties, especially the monies derived from ringtone royalties, which as we discussed earlier amounts to Rs. 360 crores over the last 6 years (plus some from before the 6 years). In achieving this goal, it appears that IPRS has deliberately, or otherwise, misled the Registrar of Copyrights. There also seems to have been an active effort to ensure that only music companies have control of IPRS and there have been several amendments to its articles to ensure such a setup. Once a favourable management structure was achieved it appears that IPRS and PPL colluded to ensure a greater flow of royalties to music companies and not lyricists or authors.

Given the nature of some of the allegations in this post, it is only fair that IPRS and PPL be allowed to reply. Hence nothing in this post must be taken as the absolute truth. It is only one side of the story and most likely incomplete. However in the interests of ‘scientific journalism’ I have provided a link to each and every document that I have depended on so that our readers may verify the contents of the same. At the end of the day you guys have to take the call on the merits of the matter.

(i) Introduction to IPRS and PPL: The Indian Performing Rights Society (IPRS) is the designated copyright society for administering all performing rights associated with the underlying works such as musical works and lyrics. The Phonographic Performance Ltd. (PPL) is the designated copyright society for administering all public performance rights associated with sound recordings. Therefore if a restaurant was playing music it would have to take one licence from PPL for the sound recording and another licence from IPRS for the underlying works. However if it was a live band performing only a licence for the underlying work is required and hence only IPRS would be required to grant a licence. While both PPL and IPRS are incorporated under the Companies Act, 1956 they are required to be registered as a Copyright Society with the Registrar of Copyrights before they can start collecting royalties on behalf of their members.

A. The ‘ringtones’ controversy – how the ringtone revenue just disappeared from IPRS’s balance sheets

In our earlier post we covered the contents of 15 letters exchanged between the Registrar of Copyright and IPRS, regarding the non-payment of royalties owed to the lyricists and composers. In his letter dated the 5th of October, 2009, (available over here) the Registrar of Copyrights asked IPRS as to why they had stopped collecting royalties for mobile ringtones. In the year 2003-04 the Annual Report for IPRS (available over here – p.11) shows that IPRS was earning a reasonable Rs. 3.65 crores from ringtones even when mobile penetration was relatively poor. The profit and loss account for the year 2005-06 shows that IPRS was still collecting revenues for mobile ringtones at just Rs. 10 lakhs. (Accounts available over here) The profit and loss account for the subsequent year has a heading for ringtones but with ‘nil’ amount collected (Accounts available over here). By 2009 the entire heading of ‘ringtones’ itself is deleted (Accounts available over here).

The reason for this can be found in PPL’s Annual Reports. For example in PPL’s Annual Reports (available over here – p.18), PPL clearly mentions that for certain categories of ringtones royalties are being collected through a ‘single window’ i.e. on behalf of even IPRS. I reproduce the pertinent part over here: Mobile Polyphonic Ringtones – Indian repertoire: “Tariff same as last year – 25% of end-user-price, subject to a minimum of Rs.2.50 per tone (inclusive of performance royalty to IPRS Society, as this licenced as single window).”

Surprisingly PPL’s accounts (available over here and here) do not show any outflow to IPRS for ringtone royalties. It’s possible that I may have missed it. Similarly IPRS’s accounts do not show any inflow of royalties from PPL for ringtone royalties.

Where then is the money going? As discussed earlier, we are talking about Rs. 360 crores over here. Was there an agreement between IPRS and PPL to this effect on mobile ringtone royalties? If there is no agreement then is it not the ‘fiduciary duty’ of the IPRS directors to intervene and take appropriate actions against PPL? Was IPRS hampered by the fact that most of its directors are also directors of PPL? There happens to be a startling coincidence in the AGMs held by both IPRS and PPL. If you click here (p.4) for the minutes of the 39th AGM of IPRS, you will note that it was held on the 30th September, 2009 at 12:00 PM at Mumbai. Now click here (p.3) for the minutes of the 68th AGM of PPL and you will note it was also held on the 30th of September, 2009 at 2:00 PM. You will then note that in effect IPRS’s management is a mere-subset of PPL’s management. The IPRS AGM records the following members/directors as being present (IPRS has over 2000 composers or lyricists present):

(i) Mr. G.B.Aayeer on behalf of Saregama India Ltd.
(ii) Mr. Kumar Taurani on behalf of Tips Industries Ltd.
(iii) Mr. Rajat Kakar on behalf of Universal Music India Ltd.
(iv) Mr. Ganesh Jain on behalf of Venus Records and Tapes Ltd.
(v) Mr. Sridhar Subramanian on behalf of Sony Music Entertainment Ltd.
(vi) Mr. T. Suresh on behalf of Virgin India Ltd.

The PPL AGM has the same people present in addition to representatives of several other music companies. The first order of business in this AGM was to re-appoint as directors the following persons:
(i) Mr. Ganesh Jain;
(ii) Mr. T. Suresh;
(iii) Mr. Kumar Taurani;
(iv) Mr. Apurv Nagpal on behalf of Saregama;
(v) I’m guessing that Mr. Rajay Kakar & Mr. Sridhar Subramanian were already Directors because that’s what the PPL report states.

When these Gentlemen sat for that IPRS meeting they sat as Directors of IPRS, not Directors of their respective companies. They were under an obligation to best represent the interests of IPRS. Which brings us to the question – why didn’t they intervene to ensure the ringtone royalties reached IPRS? Did they even try?

B. The legality of IPRS allowing PPL to collect ringtone royalties on its behalf

Under Section 33 of the Copyright Act, 1957 the Registrar of Copyright had authorized IPRS and PPL as copyright societies for two distinctly different classes of rights and each Society can collect royalties for only those specific rights and no other rights. In this case when only IPRS has been recognized for collecting royalties for underlying works, PPL cannot collect such royalties on IPRS’s behalf and IPRS cannot authorize PPL to collect such rights. If PPL and IPRS wanted permission to enter into such an agreement they would necessarily have to take permission from the Central Government. Section 34 of the Copyright Act is also clear on the fact that members of Copyright Societies cannot assign their rights away to Copyright Societies. Therefore the contract between Copyright Societies and their members are essentially non-exclusive licences, which begs the question, as to whether IPRS can licence these rights away to PPL?

C. What is the role of Select Media Holdings Pvt. Ltd.?

Another very pertinent question asked by the Registrar of Copyrights in his letter dated 5th of October, 2009 is whether IPRS authorized Select Media Holding Pvt. Ltd. & Label Music India Pvt. Ltd to collect royalties on its behalf. While I couldn’t locate the details for the latter on the MCA website, I did manage to download some of the documents on Select Media Holdings Pvt. Ltd. I didn’t find anything overtly incriminating and I’m still clueless as to why the Registrar of Copyrights asked this question. However there are a few notable observations in regards Select Media Holdings Pvt. Ltd. Firstly the ‘Notes to the Accounts’ (available over here) for the year 2008-09 for this company suggests that it is an entertainment company, looks like a distribution company for movies. However in one segment it notes its activity in the following manner: “Revenue from Mobile enabled services includes revenues for grant of licences/rights relating to tracks and cinematograph films to be embedded on video playback devices. Such revenue is recognized based on the number of devices sold by the customer to end users, as intimated by the customer”. The turnover of the company (available over here – last page) is recorded at a stunning Rs. 126.74 crores with profits of only Rs. 4.9 crores. Surprisingly the company does not even have a website!? Also interesting is the fact that PPL and Select Media Holdings Pvt. Ltd. share the same auditor and by that I mean the same partner in the same auditing firm. There seems to be interesting coincidences over here but the question is why did the Registrar of Copyrights even ask this question in the first place?

D. The implications of PPL collecting ringtone royalties instead of IPRS – The story of how lyricists and composers were denied crores in royalties

The membership patterns of both PPL and IPRS are completely different. While PPL consists of only 160 music companies who are the producers of sound recordings, IPRS consists of over two thousand plus members, consisting of music companies, lyricists and composers, a lot of them own the rights to the underlying works themselves. Therefore while the music companies of IPRS are also usually members of PPL, the individual lyricists and composers are members of only IPRS. According to the letter from IPRS to the Registrar dated 12th August, 2009 (available over here) an MoU was entered into, in 1993, with the members whereby 50% of all royalties collected by IPRS, would be shared with composers and lyricists, with the remaining 50% of royalties going to the producer music companies.

Although the actual text of the MoU is not available I’ve managed to find an amendment to IPRS’s AoA in the year 2000 which incorporates this MoU directly into the AoA. (The full text of the Special Resolution can be found here.) The new Article 4(e) of the AoA states that the question of ownership of works in any cinematograph work will be determined as per the contract or agreement between both parties. However it also states the terms of royalty sharing for all those works for which there were no contracts. It specifies the rates at 50% for publisher, 30% for composers & 20% for artists. It also states different terms in case of exploitation through an audio-visual publisher. Now this does look like a reasonable sharing, right? Not really because under Section 19 of the Copyright Act, 1957, a copyright can be assigned only through a written agreement. Therefore if there was no written agreement the lyricist or composer would himself be the owner under the Copyright Act and be entitled to 100% royalty collection.

Irrespective of the MoU and the Supreme Court decision in the 1977 Eastern Motions Picture case, it is now beyond doubt that IPRS was paying atleast 16 composers and lyricists, royalties until 2007-08 after which they stopped payments. This list of 16 was appended to one of the letters in the exchange between IPRS and the Registrar. (The entire bunch of letters can be accessed over here – p. 14) Now if IPRS was making royalty payments for the last dozen years, they are estopped under contract law from suddenly stopping payment. They cannot change their minds one fine day. The fact that they continued to make payments for so long means that irrespective of the SC decision in Eastern Motion Pictures, some of the composers and lyricists continued to have royalty rights which had been recognized by IPRS. This is exactly why IPRS wanted these 16 artists to sign contracts giving up their rights to the producers.

Now if ringtone royalties were collected directly by IPRS, the producer music companies, as per the MoU, would have got only 50% of the royalties (atleast for those for which there were no written contracts), with the remaining going to composers and lyricists. In case lyricists and composers owned their compositions they would own get 100% of the royalties. However if only PPL was collecting the royalties and not transferring it to IPRS, then the booty would have to be divided only amongst the producer music companies. Therefore while the size of the pie remained the same, and in fact grew, there would be fewer people eating it. Would the producer music companies of IPRS be prejudiced? Not really, the biggest ones were anyway members of PPL, so they would easily get their cut at PPL. The crucial question over here is why have IPRS members kept quiet for so long? Why haven’t they taken their directors to task? Well I think I may have the theoretical answer to the same, although I cannot vouch for whether it is ‘actual’ reason. The answer in my opinion is the gradual changes in the governing structure of IPRS.

This will be the subject of a different post. It may be safe to conclude that this obvious mismanagement is probably one of the main reasons for the reasons that the Government, in the latest Copyright Amendment Bill, 2010 wanted to hand over control of Copyright Societies to authors and not owners.