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