TONO’s distribution model is being modernized to meet the requirements of the new Collective Management Act, as well as other demands and expectations from the external environment that TONO is obliged to address.
/ 30/05/2024 / Kristian DugstadThe new distribution model is simpler and easier to understand. It also provides a more direct relationship between collected and paid TONO royalties to the rights holders.
The TONO board decided on a new distribution model at the board meeting on May 7. The decision was made subject to the approval of the overarching principles of the model at the TONO annual meeting on June 11.
The framework conditions for TONO’s operations have changed significantly in recent years. The Collective Management of Copyright Act came into force in July 2021. It imposes strict requirements on the management and distribution of royalties and sets guidelines for the ability to conduct cultural policy through the distribution of royalties. Royalties must be distributed “… to the rights holders in a secure and accurate manner …” (§ 21 of the Collective Management Act). The law further requires equal treatment of all rights holders.
CISAC, the umbrella organization for collective management organizations worldwide, also imposes requirements on its members for efficiency, transparency, and equal treatment of rights holders (both nationally and internationally), and obligations for statistically representative distribution of royalties where information about specific rights holders is lacking. Rights management is also characterized by increasing internationalization and stronger competition, both between management organizations and with other entirely new types of management actors.
Creators and music publishers choose a collective management organization based on quality, precision, and efficiency. TONO also often meets the expectation from both rights holders and licensees that there should be as strong a one-to-one relationship as possible between usage and the collected and paid royalties.
The sum of these framework conditions—legislation, international regulations, and the competitive situation—means that funds can no longer be redistributed across or within settlement areas as they were before.
TONO must proactively meet all these demands. Otherwise, we risk breaking the law or the rules we are bound by through agreements, falling behind in the face of competition from other management organizations, and losing partners and members.
With the distribution model adopted by TONO’s board on May 7, 2024, and presented to the annual meeting on June 11, TONO aims to establish a distribution practice that is easy to explain and understand, and that meets the various requirements TONO must adhere to. A fundamental principle here is that the royalties collected by TONO should specifically go to the owners of the repertoire that was used in the situation where the royalties were collected. For example: The money a concert organizer pays TONO for a specific concert should, after deductions and costs, be paid to the creators and music publishers who have rights to the music performed at that specific concert.
TONO’s previous practice, where funds from non-programmed areas (such as stores, hotels, and gyms) were allocated to the broadcasting and concert area, can no longer continue as before. It is not precise enough, because the concert area does not constitute a statistically representative basis of rights holders who have been used in the situation that led to the payment. It is also worth noting that TONO currently receives reports from 1 in 4 stores and 2 in 10 gyms. These non-programmed funds are being reduced, as technological developments mean that more and more is distributed based on specific reports, finding their way to the correct rights holders.
The development is rapid, but it does not happen overnight. Royalties that cannot be directly linked to reports will therefore be distributed based on the most representative data possible. Existing reports from the same and similar areas will form the basis for the distribution of these funds in a new model.
In certain areas, such as broadcasting, TONO receives a so-called lump sum that must be distributed for extensive music use of various kinds across a wide range of platforms and channels. In such cases, the new model aims to treat all types of performances equally, calculating royalties based on factors such as the channel’s market value and the amount of music used.
The aim of the new model is to create the highest possible precision and traceability. For example, it should become easy to understand the relationship between the royalties paid in and the royalties paid out for concerts.
As mentioned earlier, this means an end to allocations across distribution areas. Most distributions in the concert area have been artificially high due to the allocation of non-programmed funds. In the concert area, this has resulted in a minimum royalty payment of just under NOK 800 resulting in a payout of NOK 1500.
In the new model, cultural funds and other expenses will be deducted directly from the payment from the organizer before the net amount is settled to rights holders. With today’s minimum royalty, this means that the payout in the concert area will decrease from approximately NOK 1500 to NOK 500.
The effect on the broadcasting area is similar to that of the concert area. The total amount distributed for music use has been much higher than what has been paid in. Removing the allocation of non-programmed funds under the current arrangement will affect the distributions in this area as well. The model also treats all types of performances equally.
This means that the existing arrangement, which gives certain types of performances a higher payout than others (live performances), will be removed. However, a reduction factor will still be applied to channel vignettes and advertisements because the number of performances of these is significant and would take an unreasonably large share of distributions from customers who pay a single lump sum, such as larger broadcasters.
The funds previously used for the original performance supplement have been sourced from revenue areas such as concerts, broadcasting, and cinema. According to the Collective Management Act, we can no longer do this in the same way. The arrangement will be replaced with an original performance boost funded by undistributed funds, meaning funds where TONO, despite all efforts, cannot identify rights holders within three years. The argument for establishing such an arrangement is that it aligns with TONO’s statutes §3e “to work for the innovation of music”.
It is important to be aware that all the money distributed in the current model should also be distributed in the new model. At the same time, there is no doubt that these necessary changes will have dramatic consequences for many Norwegian rights holders. Lower payouts to TONO’s members are not a desired situation.
The board’s decision assumes that the model will be phased in over several years from 2025. The new model will be fully implemented in 2029 for the performance year 2028.
The new distribution model should be possible to explain and understand for TONO’s members, customers, and sister companies. By removing allocations and redistribution of funds, which have artificially inflated payouts compared to what TONO’s customers actually pay, we have also highlighted a challenge. In some areas, there is a need for increased revenue to justify a fair remuneration.
At the same time as the new distribution model is phased in, the new pricing model for the concert area will also be phased in. The model is not introduced to counteract the consequences of the distribution model but because it is principled correct in isolation. However, it will to some extent counteract the effect described for the concert area.