• Removing PPL exceptions (Section 67 and 72)
• Access to finance
• Communications Bill
• Implementing the Copyright Directive
• Kitemark for using music
• Campaign on VAT
• GATS
• Consumers Call the Tune
• Parallel imports
• US Office
• Government affairs in Europe - IMPALA
• Reform of entertainment and liquor licensing

a) being SMEs, they rely on the fact that income which is expensive or difficult to collect can be done so on their behalf through collective licensing;

b) the "genre factor" means that independents are more at risk. This is particularly the case considering revenue from student unions which use a substantial amount of alternative repertoire. Independents operate at the cutting edge, experimenting in genre-specific and often completely new styles of music from jazz, to hip-hop, asian, black and urban.

This culminated in a report called Banking on a Hit. At the same time, we took the opportunity to lobby hard to include music businesses in the government's Corporate Venturing tax benefits. In October 2001 the Department of Culture, Media and Sport (DCMS) published Banking on a Hit, a report addressing these issues. To get a copy of the executive summary, contact the AIM office, or follow this link:

http://www.culture.gov.uk/creative/index.html and go to music for a download.

Recommendations include a review of the way in which copyright is - or rather isn't - valued, possible new sources of government support and ideas for improving understanding between the finance and music sectors.

As a follow up, AIM has been meeting with the Institute of Chartered Accountants (ICA) and the DCMS (Department of Culture, Media and Sport) to examine how Statements of Standard Accounting Practice (SSAP's) treat intellectual property. A revision is long overdue and will have a significant impact on small music companies.

We have also been looking at how the film industry works on these issues and the tax breaks it benefits from. We are presenting a paper to government drawing on the parallels.

Finally, we have participated in a number of events geared to help labels and other music businesses avoid some of the pitfalls of obtaining finance.

Corporate Venturing
The Enterprise Investment Scheme was set up to help small companies raise start up and expansion finance. Individuals who wish to invest in these companies are eligible for a number of tax reliefs. Up until April 2000, the music industry was excluded from this scheme which had become the lifeline of the vibrant British film industry.

After a year of continuous lobbying from all industry bodies, we succeeded in changing the way the government views record companies. The change in corporate venturing criteria is only the first step. The independent market is nowin a much better position to attract millions of poundsof investment funds.


Communications Bill

The Communications Bill will transform the structure, ownership and governance of UK media. It will create a new body called OFCOM. We have emphasised the importance of ensuring that the interests of the music industry are properly represented and implemented in OFCOM and on the Content Board. Apart from this, AIM has particular concerns: media ownership and local radio.

Media ownership
The Bill proposes to open up ownership of the UK media. The proposal not to limit ownership to EU nationals and non-EU nationals on the basis of reciprocity is of fundamental concern because of the impact it will have on broadcasting and radio in the UK.

The main concerns are economic, commercial and cultural. The businesses that stand to benefit most from a relaxation of UK media ownership rules are predominantly US owned, vertically integrated media companies. Vertical integration would lead to broadcasters using their channels to leverage their own content. This already happens in the USA. This would naturally discriminate against UK creators and creative industries that rely on the domestic market.

We are also naturally extremely concerned that consolidation in the media sector (radio and television) will lead to a reduction in opportunity for record companies to develop artists at local level with local media to ensure access to the airplay lists crucial for record companies to get their music and artists heard by consumers as their artists' careers develop.

Local radio
Regarding local radio, much of our industry is regionally focussed - it is a misnomer to call the industry a national product generator. There are many companies whose businesses are entirely concentrated on local markets. In the last twelve months, in response to the sweeping changes anticipated by the new communications bill, local radio stations have already been reducing opportunity in this key area.

If the Communications Bill does not ensure that local diversity is maintained, music companies will suffer and revenue will steeply decline. It cannot be stressed enough that a strong partnership between local radio and local artists and music companies is essential to ensure the continuance of a thriving music industry, providing fair access for young artists and the risk taking entrepreneurs who finance their creative development.

Whilst it is widely acknowledged that speech content must maintain local relevance, AIM believes that music's local requirement has not been understood or recognised, and is in danger of being swept away in the face of commercial and economic pressures arising from corporate radio ownership.

It is essential to the continuing health of the record industry that special measures are introduced to ensure that a further consolidation in ownership does not lead to a further loss of musical diversity, as it surely will without such controls. The UK music industry is widely acknowledged as sustaining one of the richest and most diverse music businesses in the world, and it is paramount that the DCMS moves to ensure its continued access to local media, regardless of ownership.

In this context, we have urged the Government to introduce measures into the bill that will preserve access to local markets for music.


Implementing the Copyright Directive in the UK

The UK government is implementing this EU Directive, which is intended to modernise EU member states' copyright rules. It is very important to the independents. Being natural early adopters, they are keen to take advantage of vital new markets and services. That is why AIM set up its Internet Trials to allow users of music to deal with 25% of the market under a one stop shop. The Directive is also important for licensees as it will assist the development of the market for these new transmissions.

The implementation of the Directive is vital to ensure that rights are properly defined and delineated so that we can license effectively, with the right to negotiate fair remuneration. Without this and collective representation, the independents are locked out of a market perfectly suited to their specialist repertoire. Our submission emphasised again, the unfairness of the statutory licence and the fact that it should not apply to new transmissions. In this respect, it is vital to ensure that the definitions of the new rights reflect commercial reality.

What AIM wants the government to understand is that if the competitiveness of the independents and performers is severely challenged, not only does the traditional music industry suffer but the related industries as well, e.g. manufacturers, distributors, promoters etc.This is also bad news for consumers alike, who will ultimately pay more for less.

AIM also repeated our arguments for removing PPL exceptions (Section 67 and 72).


Kitemark for using music

In April 2000 the UK Government Department of Culture Media and Sport (DCMS) produced a report titled The Consumer Calls The Tune (CCTT) that examined the impact of new technologies on the music industry. This report made 14 recommendations including one on the need for the creation of a music trust mark to indicate the legitimacy of music in new media technologies.

AIM and Musicindie agreed to develop a proposal for this mark. After analysing the issues Musicindie saw that the trustmark had to have a real business element. It was clear that a trustmark that was just a glorified sticker would not last long. The Licensed Copyright (LC) mark was therefore developed with a supporting code of conduct that anyone displaying the mark was claiming to be properly licensed.

The benefits of the LC Mark are many. It is simple, consumer and licensee friendly and allows it to serve many different rights and industries from one mark. Ultimately, there should be virtually no web-sites that do not carry it. Certainly, any web-site trading or using intellectual property rights and not carrying the mark will stick out like a beacon and would clearly be worth investigating. If a site did use the mark but did not have the rights, or fraudulently claimed them, then they would be in breach of the LC Mark as well as the appropriate copyrights.

It is important to note that the LC Mark is not saying that a company is licensed. Where the normal copyright symbol can be used to claim that you own something, and the trade mark symbol is used to acknowledge ownership, the LC Mark will be used to claim that you are licensed to use a copyright. The LC Mark is not intended to solve all the licensing and infringement problems of the creative rights industries. Rather, it is a new practical and simple tool that will support the development of new business models and allow legitimate businesses to differentiate themselves from those that do not respect copyright.

The UK government and the Copyright Directorate have welcomed the initiative. With industry backing, AIM and Musicindie will be able to deliver this and the whole music industry will be able to demonstrate that they are being proactive and responsive to the needs of new market operators and consumers.


Campaign on VAT

AIM strongly believes that sound recordings should benefit from the reduced VAT rates currently applied to other cultural products. It is illogical for sound recordings to be classified differently from other cultural goods and services that currently benefit from reduced VAT rates. At the moment, when people buy a book of John Lennons writings they either pay no VAT (e.g. in the UK) or they pay a low rate of VAT, but when they buy one of his CDs they pay a high rate. The rates of VAT on sound recordings currently range from 15% in Luxembourg to 25% in Denmark and Sweden.

The discrepancy between the treatment of recorded music and other cultural products should be corrected as a matter of urgency when the European Commission carries out its review of the 6th VAT Directive in 2003. A number of EU governments have expressed the wish to treat sound recordings as a cultural good (and therefore be placed in Annex H) from a VAT viewpoint.

We have asked the UK government to support a move to put an end to the discrimination between cultural products by allowing sound recordings to benefit from the reduced VAT rate that is already applied to books, cinema tickets, concert performances, museums and cartoons among other "cultural goods". Unanimity by the Member States will be required to amend Annex H. Member States are not obliged to grant a reduced VAT rate even if the good or service is listed in Annex H. However, unless sound recordings are listed in this Annex, the governments that wish to cut VAT on recorded music will not have the option to do this in their own country.

Given the flexibility, we can see no downside to agreeing to its inclusion as it is then a matter for individual Member States to decide what they will do. Our priority is, of course, for a harmonised lower rate across the whole of Europe. If that is not possible, we would urge the UK government to apply a lower rate for recorded music. We believe that the British government will be able to do this and keep the exemptions that apply zero vat to certain products (foods, children's clothing, books, sheet music etc). Other Members States may seek to raise the issue but we believe that they will not push for the British zero vat derogation to be removed if the British government supported getting music into Annex H.


GATS

GATS is an international agreement covering trade in services among member countries of the World Trade Organisation ("WTO"). GATS stands for the General Agreement on Trade in Services. It is the sister agreement to international agreement on trade in goods. GATS is currently being renegotiated with a view to further liberalisation.

Currently the audiovisual sector is carved out from further liberalisation and it is our view that music should continue to have the same treatment. We have urged the UK government to refrain from an agenda which is too liberal.

The main barriers faced by the industry are piracy, concentration and structural barriers that cannot be addressed by GATS. Whilst the independents acknowledge that legal barriers may restrict access to some markets, they believe that further liberalisation is not a priority. Such liberalisation is unlikely to increase UK music industry market share in vital markets such as the US, which is the largest in the world, due to the prevalence of other, more fundamental and structural concerns.

In order to tackle structural deficiencies the independents in the UK and elsewhere in Europe are working on the adoption of support policies to reinforce the sector competitively. These include support for artists touring, better training, better access to capital for SMEs etc, export bureau, trade missions with representatives of the independent sector and many other initiatives designed to strengthen the UK music economy. The idea of further liberalisation, which will enable the US to compete ever more aggressively for European market share which will disadvantage small companies, is not appealing at the moment.

The other issue is that independents do not rely on distribution networks in third countries. Only the majors do. Independents require a network of business contacts (licensees). European music accounts for a third of world sales because it is popular in Europe, not because Europe is a net exporter of music to third countries.

We do not see the need to be classified separately from the other audiovisual services. Like other cultural sectors we want Europe and the UK to keep its ability to support the sector if needed in the future. We do not want the sector to be held hostage to other service industry interests (financial sectors, transport etc). We would also require the right to create new support programmes as opposed to maintaining existing ones. It is important that such programmes would be allowed to benefit European companies as well as artists.


Consumers call the tune

In April 2000 on the "Impact of New Technologies on the Music Industry", a report called "Consumers Call the Tune" was published. This was an important step towards realising the opportunities offered by digital distribution for both the industry and government. Chaired by Martin Mills and supported by an industry committee including Gavin Robertson of AIM/Musicindie, the report offers a clear and concise overview of the challenges and opportunities for the industry.

The report also made recommendations to government to ensure that the UK plays a dominant role in the emergence of digital distribution. It was prepared under the auspices of the Music Industry Forum. The conclusions were very important and we repeat them here as a reminder of the priorities of industry and government.

The main conclusions reached were:

• The real choice available to consumers will be subject to the "balance of power between gatekeepers and the regulatory regime"
  
  
• Creators of music must be rewarded and the importance for this must be relayed to online providers and consumers alike
  
  
• Government should support a healthy competitive online environment by "creating a common regulatory framework". The music industry, on the other hand, should "promote a contractual and licensing framework for streaming and downloading music"
  
  
• The Government should urge the financial sector "to introduce a secure online micro-payment system for adults and teenagers"
  
  
• The Government and the music industry should commission "ongoing research into consumer behaviour online and market statistics about music e-commerce".
  
  

• Pubs that provide occasional live performances by one or two musicians.
  
• Private events, hitherto exempt, that will become licensable if for consideration and with a view to profit.
  
• Private performances raising money for charity.
  
  Third, under the current version of the Bill, broadcast entertainment such as satellite or terrestrial TV is to be exempt from licensing, while the provision of live music entertainment is not. Given that one of the reasons for introducing the Bill was to protect public safety by ensuring that venues do not become overcrowded, this represents a serious anomaly. How come Murdoch has so much influence over this government?