IMPALA recommends sports style development fees and other revenue sharing measures as part of its finance plan voted in Cannes
Press Release 26th January, Midem Cannes
European music companies are launching a financial blue print for music. The ten point plan includes football style compensation and revenue-sharing mechanisms, new accounting standards to value copyright properly, and a range of national and EC investment measures for SMEs.
The plan was partly inspired by what happens in other sectors with parallels to music. Football and other sports, for example, are also driven by talent. They also live with a huge divide between the big clubs and the small. IMPALA believes the music sector should organise itself along the same lines, with measures to benefit smaller clubs.
IMPALA also reviewed other parallels, including with innovation and R+D sectors, as well as film. Excellent investment schemes exist at national and EC levels for these sectors. IMPALA is asking governments to open up these schemes to include music and other innovative cultural sectors. The independents also suggest zero VAT for the online market to match the USA. The plan also proposes reworking EC funds to make sure they can be properly accessed by music SMEs, who currently slip through the net too often.
Helen Smith, Executive Chair of IMPALA said:
“This is a call for action, not only to European and national decision makers but also to the music sector itself. Football and other sports compensate small clubs for two reasons. First, to help them compete because of the huge gap with the big clubs. Second, to reward them for their investment in discovering and developing talent. It’s a perfect model for music.”
IMPALA calls for a 10-point financial tool kit with:
- 5% compensation fee on all future revenues of artists developed at a smaller label and later signed by a major.
- Revenue sharing system where a percentage of revenues is re-allocated within the sector on a solidarity basis to fund new music and help SMEs compete.
- New international accounting standards to ensure proper valuation of copyright as an intangible asset.
- 1.5bn euros EC investment for culture per annum with new cultural industry EC programme especially for SMEs.
- “Virtual creative industries bank” by remoulding EIB/EIF instruments, in particular to provide support through the digital shift.
- Zero VAT rate for culture online to match the USA and allow governments to boost access to culture by reducing VAT rates for culture offline.
- At least one public/private option for cultural SMEs to get their loans guaranteed in each country.
- National SME-friendly growth finance to be delivered by opening up R&D and other tax schemes to music and cultural industries and adopting specific fiscal incentives such as music tax credits.
- Pan-European experts working group to bridge the gap between investors and cultural SMEs in terms of communication and expertise.
- EC intervention to resolve double taxation and withholding tax problems.
A compensation system exists in other industries to recognise and support the importance of the investment by smaller players in new talent. For example in football, there is the classic transfer fee system and a solidarity mechanism whereby the club(s) that helped train young players receive 5% of future transfer fees.
The English Premier League distributes TV rights monies (50% equally, 25% based on TV appearances, 25% based on league position (the EC says that competitions concerns due to dominance by big clubs can be resolved where the distribution mechanism creates more solidarity)). In France 75% is shared equally among all clubs. In order to enhance competition the US national baseball league sees the wealthiest teams put money in to a pot for distribution to less successful teams and the US National Hockey league shares ticket revenues between all clubs.
In France 10.72% of cinema tickets and 3.5% of concert tickets goes to national bodies which fund further creation.
In music we would suggest the revenue sharing percentage is re-allocated not in proportion to earnings but in proportion to the number of releases registered, or other criteria, eg similar to those used to allocate the French cinema tax or live music tax to encourage new production or certain sports leagues to encourage investment and solidarity.
Intangible assets are not generally capitalised in the balance sheet. If they can be properly valued, banks have more elements to guarantee their assessment of the financial situation of cultural SMEs. We need a concrete solution that would increase investors’ confidence in cultural SMEs.
The Small Business Act called on Europe to “think small first” because SMEs are our backbone, providing 80% of Europe’s jobs. Europe’s leaders officially recognise that cultural and creative SMEs in particular are drivers of “growth, job creation and innovation”. The same leaders also acknowledge that these SMEs need specific support measures. (Conclusions of the main EC Council (meetings between the Heads of State of all EC members), as well as Culture Council, of March, May and December 2007. Today this is more true than ever. We now also have new evidence of the power of cultural SMEs outside their own sector. The EC’s recent study on Culture and Creativity found that culture based creativity (as opposed to technological based creativity) makes Europe a more creative and innovative place generally – a valuable multiplier effect from investment in the cultural industries.
This is also one of the key priorities of the EC’s Agenda for Culture. It seeks to unlock the potential of culture and the cultural industries, in particular SMEs.
In music, 99% of all operators are SMEs and micro-actors, producing over 80% of all new releases. SMEs are the norm, not the exception and the EC needs to legislate for them first, with exceptions for the bigger players. Concentration in cultural markets creates severe market access problems. For example, in music, four companies create less than 20% of the music produced in Europe today, yet control over 95% of Europe’s hits and main airwaves. Furthermore, the gap between the majors and the independents means the majors are able to leverage their power and squeeze the independents’ space more and more. The biggest major now controls over 50% of the world’s music while only a handful of the biggest independents have more than 1% and only one has 1.5%. Appropriate SME friendly growth finance is absolutely essential.
In early 2010 the EC Green Paper on cultural industries is expected to set out a blue print to unlock the potential of Europe’s cultural industries, in particular SMEs. This IMPALA Action Plan identifies the concrete financial measures required. Other measures are also necessary. IMPALA’s experience (the only pan-European association dedicated to cultural SMEs) shows that SMEs can only deliver their potential if three key conditions are met: i) financial viability and independence; ii) market access to give SMEs space to compete on their own merits and counter chronic concentration; iii) properly functioning copyright systems and digital market in Europe.
In her former role as Competition Commissioner, Neelie Kroes recognised that preferential treatment for SMEs is fully justifiable “economically and politically”. She acknowledged, “… we must give SMEs an extra boost to help them overcome the gaps” (speech on SMEs, November 2007). In culture, SMEs make a disproportionate contribution (80% of all new releases in music are from independents). New competition guidelines are another support measure needed to set out an approach which is better adapted to the cultural and creative sectors with respect to cultural economics, mergers, merger remedies, state aid, dominance and anti-competitive agreements.
Culture contributes 2.6% of the EU’s GDP (bigger than chemicals, automobiles or ICT manufacturing) but receives less than 0.05% of the EU’s budget (862.3b€, 2007 to 2013, of which 400m€ for cultural programmes which do not even support the industry). This is not a balanced investment in culture. In 2008 the total EU budget was 129.1b€, of which 58b€ was spent on competitiveness, knowledge based economy and social cohesion. 2.6% of that budget would be 1.5b€ per annum.
The new Lisbon partnership prioritises the environment as well as employment, innovation and the digital agenda. The additional advantage of investing in cultural SMEs is that this is a naturally low carbon economy sector. It would also implement the UNESCO Convention on cultural diversity, securing one of the fundamental principles of the convention - fair and equitable access for all actors to the means of creation, production and distribution of cultural expressions.
Europe’s digital market is struggling to take off. SMEs need focussed support to help them invest in the digital shift and continue to take new risks and innovate in terms of their cultural output.
Regrouping EU schemes is essential, including culture, research, structural and innovation funds. In addition, structural support measures through regional funds should target cultural SMEs to grow and develop sustainable activity. An EC programme on cultural industries should encompass a series of support measures focusing on A&R (the research and development part of the cultural sector), production, promotion and distribution. We need to end EC discrimination between film and other cultural industries, in terms of funding and other regulatory measures.
There is a lack of expertise on the characteristics of cultural SMEs which creates a gap between the EU policy initiatives proposed and the functioning of the cultural sector. Operational schemes have to be set up to bridge the gap between the funds available and the needs of cultural SMEs.
There are financial tools established at national level that could be disseminated amongst other member states such as the scheme used by IFCIC in France, Cultuurinvest in Belgium and ICO in Spain. These financial mechanisms have an important impact on the viability and independence of cultural SMEs.
The working group should bring together professionals from the cultural industries, the finance sector and the EC to recommend concrete practices, change the ‘high-risk’ perception of the cultural sector, and build consortia to access the funds where intermediaries are required, eg with the European bank.
Withholding tax and double taxation are examples of trade barriers that need to be abolished as part of cutting red tape for SMEs in Europe. Lowering the fiscal burden for small cultural actors would be an incentive to investment in culture.