A guest column from Gregor Pryor, co-chair of Reed Smith’s global Entertainment and Media Industry Group

As one of the chief Leave campaigners, former secretary of state for culture, media and sport John Whittingdale was always likely to be of the view that the departure of the UK from the European Union would have limited impact on the music industry, and he said as much at a House of Commons event for the UK music industry.

Unfortunately, 91% of the UK music industry disagreed with him when asked before the Referendum whether they would rather Remain or Leave. For the most part, the reaction from those working in the sector has been negative.

There are two reasons for this. First, UK music is heavily reliant on international trade. Second, legal and contractual arrangements concerning music and its exploitation are already complex. Brexit will likely add many more layers of challenge and complexity, for artists, rights holders and music users.

Pan-European music licensing arrangements

Collective licensing arrangements have been almost entirely shaped by European law over the last 10 years. Since the European Commission’s Recommendation on the management of online rights in musical works in 2015, both the music publishing and sound recording industries in Europe have plotted a course towards pan-European licensing.

This includes not only contractual arrangements which contemplate the grant of licences under homogenous terms applicable to the European Economic Area (such as PRS For Music/GEMA/STIM joint venture ICE), but also the formation of ‘option 3’ pan-European licensing vehicles whose structure, both from a corporate and operational perspective, is predicated on the UK being part of the EU.

There has been speculation about the extent to which Brexit could put an end to these forward-thinking initiatives. In the absence of trade arrangements and in a worst case scenario, UK labels and publishers could be faced with tariffs on their digital exports, and cultural quotas concerning the amount of European music that should be played on radio stations or other services could be applied, to the detriment of British music.

Pan-European licensing will likely not be affected in the immediate future. However, currency fluctuations affecting cross-border licensing arrangements cannot be ignored, either by digital music users who struggle to make a profit or by rights holders who rely on processing and licensing structures, which include the UK as part of the EU.

Should currency fluctuations continue so that sterling remains adrift of the Euro, we may see downward changes to pan-European licensing rates for the UK.

In recent years, the differences between US and EU laws affecting digital content distribution and, particularly, music, have been stark. This has led to certain music services (most notably, Pandora) failing to launch in Europe.

Although there continues to be statutory and regulatory divergence on core licensing principles (mandatory licensing of musical compositions, rights attached to sound recordings, remuneration for performers) across the Atlantic at the present day, it remains to be seen in the longer term whether Brexit could have the effect of allowing the UK to forge a closer alliance with the US on core music licensing law issues.

Copyright law and policy

There are no obvious immediate drivers for drastic changes to existing UK copyright legislation post-Brexit. However, we do foresee a period of lobbying, advocacy for change, and perhaps even litigation. It will be important that the digital music industry makes its collective voice heard during the Brexit negotiations.

In circumstances where the UK is no longer part of the EU, some might seek a departure from existing Europe-friendly legal positions. The counter-balance is that the views of the UK may hold less weight in the ongoing debate surrounding the Commission’s Digital Single Market (‘DSM’) strategy, which is intended to enable the free movement of digital content around the EU. This will not be good for the digital music industry.

In circumstances where the UK retains access the EU single market, it seems likely that UK copyright laws will continue to mirror EU legislation, either as an outcome of the Brexit negotiations or as part of stimulus measures to enable ongoing pan-European trade and access to content (ie. the DSM).

A more radical outcome might be that in an effort to boost the UK creative economy, the UK government’s policy on copyright legislation could veer more toward that of other trading countries (such as the US) or be more generally favourable to rightsholders and creators. An example of this might be the creation of additional copyright protections for songwriters and content owners.

Safe harbour and the value gap

There have been disputes and litigation concerning the reliance on so-called ‘safe harbour’ laws by user-upload services in many countries in Europe. In the UK, E-Commerce Regulations 2002 implement these laws.

Although safe harbour has only been partially disputed in the UK through the courts (most notably in the case of PRS v SoundCloud, which settled), there has not yet been a clear court decision concerning the manner in which user-upload and social media services may operate.

Post-Brexit English courts would not be forced to follow EU laws and decisions, UK judges will have greater freedom to create their own precedents. However, unless the Regulations are amended by the UK Government, it is likely that the campaign by the music industry to close the “value gap” will continue to be hard fought.

What next?

The full impact of Brexit on the digital music scene will remain unclear until Brexit negotiations have been concluded. If the UK retains access to the European single market, there may be little change from a legislative viewpoint.

On the other hand, the UK might choose to gradually move away from European regulation and follow its own path on legal developments affecting the industry.

It will be critical that companies acting in the sector carefully consider the ramifications of the changes ahead, taking advice and making themselves heard by lobbying where necessary.

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