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Broadcasters & Theatres' Music Costs Could Double To Recoup CD Sales Drop

Originally published 2 February 2004

Research by Dr Andrew Burke of Warwick Business School at the University of Warwick has concluded that the broadcasters and theatres could see the licenses which they pay to the music industry increase by up to 287%. Similarly, cinemas, nightclubs and retail outlets could encounter price increases for music licences in excess of 1000%.

The research looked into the impact of the electronic distribution of music on price regulation of composer/publisher royalties. The analysis indicates that the advent of the online market for music poses a threat of significantly reduced revenues, higher risks together with unchanged costs for composers and publishers.

This reduction in revenues is confined to the private user markets which have accounted for an average of 49% of royalty income in the UK between 1976 and 2002. Although growth has been consistent during most of this time, the last two years have seen royalties from CD and record sales falling.

Dr Burke’s economic model demonstrates that a reduction in revenues in one set of markets for music (private users) tends to push up regulatory prices in other markets for music such as BBC, night clubs and other commercial users of music. Nightclubs could face an increase in the price of music licences by a multiple of 23 (from 7 pence to £1.60 per customer) while Cinema music licences could potentially increase by a multiple of 16 (from 1% to 16% of box office revenue).

Dr Burke argues that regulators are likely to realise that they need to undertake a review of the rates charged across all markets for music. Not doing so could cause the burden of compensating for a drop in royalties from CDs being imposed on a single, or narrow range of commercial music users which would be excessive. If regulators adopt such a grand scale review of music royalties across all music markets – which has never been attempted before for any form of copyright – royalty rate increases would be much less but still very significant. For example, a 90 % decline in the CD market would imply a 62% (or multiple of 1.62) increase in music licences across each group. Alternatively a 30% decline in the CD market would cause a 20% (multiple of 1.2) increase in the price of music licences for commercial users (such as the BBC).

Dr Burke of the Centre for Small and Medium Sized Enterprises (CSME) at Warwick Business School, says. “The size of these possible price increases are associated with a seismic shift in the music industry, from an era where private consumers are the greatest single market for music to a possible scenario where they may even pay nothing at all. In effect, the industry looks destined to be funded almost entirely from commercial music users.”

Further information please contact:

Dr Andrew Burke
Warwick Business School
University of Warwick
Office: 024 7652 2073

Vin Hammersley
024 76 524124