We've discussed GEMA's antagonistic attitude towards, well, pretty much everyone other than itself. In addition to turning the German YouTube experience into a farcical collection of "Sorry" faces and demanding fees for music it doesn't even control, GEMA has also been in the news due to its rollout of a "streamlined" fee structure that threatens the existence Germany's underground club scene with unsustainable licensing rates.
Luis Manuel Garcia at Resident Advisor has put together a very thorough and excellently written rundown of the recent events, covering GEMA's attempts to "streamline" its licensing fee structure (and its adverse effects) and explaining some of the organization's idiosyncrasies. (This is a very nice word for GEMA's thuggish tactics that go beyond villainy to cartoonish supervillainy.) There are a few differences between GEMA and other performance rights organizations (BMI, ASCAP, PRS, etc.). Much of this has been covered here before at Techdirt, so I'll give you some of the high/low points of GEMA's services, with some added details from Garcia.
Rather than being limited to "public performance rights," GEMA handles "collective rights management" for its 64,000 German members and 2,000,000 worldwide members. GEMA still collects licensing fees from businesses but its power goes much, much further than ASCAP's or BMI's.
GEMA decides how to distribute your work... and at what price.
This means that music-makers don't sign over ownership of their music upon joining GEMA, they sign over their usage rights—the right to legally manage and collect licensing fees for playback, reproduction and broadcast of their music. This is a convenient arrangement when you're a small-time musician who doesn't have the time or money to manage your catalogue; but these management decisions are taken out of your hands. If you want to grant a free license to a charity event or offer a reduced fee for a career-advancing event, you'll find that decision isn't yours to make.
All music is assumed to be under GEMA's control unless the artist can prove otherwise. Unlike ASCAP, BMI, PRS, etc., GEMA isn't opt-in. And it's pretty tough to opt out. GEMA tends to "play it safe" by claiming music
it doesn't own.
Like other PROs, GEMA distributes licensing fees to top-selling artists. This distribution scheme is unlikely to change in the hands of GEMA. Its so-called "full members" (members who have achieved over €30,000 in GEMA revenue over a five-year period) are the
only members allowed to vote on issues or hold controlling positions. Any artist not within this elite group has to watch his or her fees being redistributed to already wealthy artists while being prevented from attempting to effect any change in the prevailing structure.
GEMA assumes (like other PROs) that every venue plays only music from top-selling artists. For underground music venues that mainly feature non-mainstream and independent artists—like many dance music clubs—this means that a portion of the fees collected for these events will likely find their way into the bank accounts of mainstream artists and advertising jingle writers, whose music was never played during the event, while some artists will never see a single cent for their music, however popular it may be.
GEMA splits music into three categories which affect rates collected and royalties paid and arbitrarily decides for the artists what category their music falls under. It classifies music into three categories: entertainment [Unterhaltungsmusik], serious music [Ernste Musik] and functional music [Funktionsmusik]. It then subjects these categories to different fee rates, membership requirements and weighting in the points system they use to calculate royalties. Unsurprisingly, U-Musik gets the worst of this arrangement, having the highest membership requirements, the highest fee rates and the lowest values for royalty calculations
Unlike other PROS, GEMA is a "for-profit" organization that enjoys a government-granted monopoly and legal powers. Making all of this worse is the fact that GEMA is a private interest "for-profit" organization, unlike most PROs which operate under a "non-profit" status. GEMA also operates as a monopoly, a problem made worse by the German government's decision to grant it legal power to "protect" the rights of its members.
How GEMA went from bad to worse For years, the German government seemed to have no problem with
GEMA's tactics and monopolistic operation. In fact, its only complaint was directed at GEMA's complex fee structure. GEMA responded to this by streamlining its rates with a clear eye on maximizing income. It was required to negotiate these changes with club owners and other affected parties, but its monopoly position basically turned the discussion into GEMA stating, "Here are your new fees," and walking away from the table.
Negotiations broke down sometime in late 2011, however, and an attempt to initiate legal arbitration failed as well. GEMA therefore decided to go ahead without the negotiations or arbitration and published a new tariff structure in the Bundesanzeiger (Federal Gazette) in April 2012, which effectively made the new tariffs legally-binding.
Now, the venues being hit hardest were nightclubs, especially underground clubs that catered to non-mainstream crowds and played non-mainstream music. GEMA's "streamlined" fee structure was built from the sort of opportunistic math that could only come from a self-interested monopoly. Any concessions to reality were thrown out the window in search of higher fees.
GEMA's opportunistic math First, GEMA killed off yearly flat rates and replaced them with "per-event" charges. Supposedly, this was to "balance" fees between large and small venue owners. GEMA even claimed this would
reduce fees for 60% of its "customers." But once it applied its GEMA-friendly calculations,
everyone was guaranteed to see an increase in licensing costs.
GEMA calibrated the new rate for dance clubs (Tarif M-V) with the goal of charging approximately 10% of the gross income for a music event. Of course, they don't trust organizers to self-report their revenues accurately, so they estimate the gross income based on venue size and price of entry, and then charge 10% of that.
This estimation is based on three assumptions: 1) the capacity of a venue is one person per square-meter, measured wall-to-wall (i.e. beyond the dance floor and ignoring solid objects like furniture); 2) the event is full to capacity; 3) everyone is paying full price for entry.
This sort of mathematical assumption would ruin any normal business. Fortunately for GEMA, it's a government-ordained monopoly which exists solely to extract fees. The more it extracts, the healthier it is. Under the old flat-rate structure, a 500 square meter club would have paid around €7,800 annually. Under GEMA's new plan,
this leapt to over €78,000.
When club owners complained about this
exorbitant rate hike, GEMA responded (belatedly) with a nominal attempt at "fairness."
In answer to complaints about these distorted results, GEMA later introduced the Angemessenheitsregel (appropriateness rule), which allows promoters to apply for a partial refund if GEMA fees are well over 10% of actual gross income or if the venue's capacity is well under GEMA's one person / m2 ratio.
In other words, club owner would still need to pay up front and hope GEMA would cut them a (
partial) refund check sometime in the next several months. Seeing as GEMA doesn't trust club owners to honestly self-report revenues (hence the lousy fee structure), it wouldn't be surprising if it decided these refund requests were dishonest as well, and rejected a majority of them.
This rate hike hit underground clubs hardest, but GEMA wasn't done punishing them yet. GEMA also levied a rate hike based on the length of the event, jacking the rate up by 50% once the event passed 5 hours and adding another 50% hike every two hours after that. This led to astronomical charges for clubs that routinely ran 10-hour-plus events or operated around the clock. As more outrage poured in, GEMA dialed this back to a 25% increase every two hours after the 8-hour mark -- not as bad, but still unaffordable.
GEMA tacks fees on hardware and data Obviously, GEMA felt it still wasn't making enough money from these events, so it decided to
start double-dipping by cramming its hands into the DJs' pockets.
[I]n late November GEMA announced another tariff, VR-Ö, which became known as the "laptop surcharge." It applied to all music performances that use blank media such as CDs, tapes, USB sticks and hard-drives. This already existed in the past as an automatic 30% surcharge on the entirety of GEMA music licensing fees if any of the DJs used mp3s or burned CDs. Now, the surcharge would no longer be a percentage of the fees, but would instead be calculated at 0.13€ for every mp3 file on the DJ's computer. Every song over five minutes costs an extra 20% per minute. Performers and promoters all over Germany were not pleased, especially since the rate appears to charge all files on a DJ's performing device, regardless of how many songs they actually play.
The backlash All of this led to protests against GEMA and its club-killing license fees. A petition managed to gather enough signatures to get the government's attention. The German government looked into GEMA's fee structure and its opportunistic club revenue calculations. GEMA reentered negotiations with artists' representation and rolled back its fee structure to its pre-"streamlined" levels. It also adjusted its "laptop surcharge" to a flat rate of 50 euros per 500 songs, making this more affordable for DJs, if not actually any less presumptuous and stupid. (RA says some Germans feel this is nothing more than an opportunity for GEMA to jack the rates later on its newly collected list of registered DJs.) There's also been a call for German legislators to craft policies to regulate GEMA's actions.
The outcome of this controversy has been a little better than expected, considering GEMA's horrible track record. Still, as is evidenced by GEMA's ongoing battle with Google/YouTube, the rights organization still has a long way to go before it will be considered anything other than predatory and overbearing. German artists should at least be given the chance to opt out without having to jump through GEMA's hoops.
And all rights organizations should start making an honest effort to track actual usage, rather than simply throwing more money at those artists who already have plenty. It's 2013 and the technology exists to make this possible. PROs (and GEMA) are simply being willfully obtuse by pretending they can't do anything better than cut checks while eyeballing the latest Billboard chart.
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