Mechanical rights body on track with music royalties
Although mechanical royalties are diminishing, a fortune in musicians’ money has been invested to influence the market. Mechanical rights arise from the mechanical process of copying a musical or literary work onto a sound recording.
Mechanical rights in SA were established in 1963 by George Hardy of the South African Recording Rights Association (Sarral) and South African Music Rights Organisation (Samro) founder Gideon Roos.
Their gentlemen’s agreement was put into a contract in 1966, with Roos agreeing not to enter into mechanical rights and Hardy not to enter into performance rights.
They were following an international model, led by the likes of the Performing Right Society, UK’s leading collective management organisation that administers public performance rights, and the Mechanical Copyright Protection Society that administers composers’ mechanical rights.
In 1970, the National Organisation of Reproduction Rights was formed as a publishers’ association, primarily representing the interests of multinational and foreign publishers. Hardy was its chairman until 1992.
At the turn of the millennium, Sarral was defrauded by six composers who had rigged a system that ensured they took 63% of all the SABC’s income. The royalties were licensed as commercial music paid at five times the going rate. Together, the composers took R32m over six years, an unheard of amount for mechanical royalties. Usually, about R3bn in sales would account for such high revenues.
Board member and audit committee chairman Colin Shapiro received R10.3m in five years. Sarral won a R4.7m claim against him, but the money was not recovered.
In 2002, the National Organisation of Reproduction Rights successfully petitioned the SABC, M-Net and e.tv to licence with them and within a year Sarral lost 50% of its income.
Also in 2002, the Samro board approved their entrance into mechanical collection. The organisation began calling in the mechanical rights deeds that had been forced on composers since the 1990s.
Nichals Motastse, Samro CEO in 2006, explained at the time this was the "conclusion of a number of bilateral agreements for reciprocal representation on mechanical rights with major societies around the world".
"That was an important catalyst in ensuring Samro’s entry into the administration of mechanical rights"
The organisation went on a membership drive, asking members of rival bodies to "cross the floor and join Samro", a committee report in 2007 noted.
In 2009, Samro made an offer to take over Sarral, with the condition that it remain in the mechanical sector.
In response, Sarral decided to enter the performance rights market and compete with Samro, which was more than 10 times its size.
Samro responded by using its relationship with the International Confederation of Societies of Authors and Composers and BIEM, the international organisation representing mechanical rights, to ask them to terminate reciprocal rights with Sarral.
Faced with the prospect of destruction, Sarral appealed to the Competition Commission for urgent intervention on the grounds of restrictive horizontal and vertical practices, price discrimination and abuse of dominance. They did not succeed in securing protection from the commission.
The organisation was battered by many legal attacks and by 2005 had been reduced from an annual turnover of R25m to only R4m.
In 2009, after a series of claims and counterclaims, Shapiro’s representative, now deceased criminal attorney Owen Bloomberg, was instructed to liquidate the organisation, which was concluded in 2010.
The association was granted leave to appeal to the Supreme Court of Appeal against its liquidation and was refused the costs of R80,000 by the liquidators. In November 2012, the Samro board took the unanimous decision for the organisation to quit the mechanical sector.
Samro had spent more than R10m on its bid to enter mechanical rights administration. Sarral is mentioned 58 times in the Copyright Review Commission’s report, which recommended that Samro mechanicals and the National Organisation of Reproduction Rights merge. The organisations had never worked together.
In a response to Trade and Industry Minister Rob Davies’s stated satisfaction with the commission’s report, copyright lawyer Graeme Gilfillan wrote that "there emerged the allegations, during the last Samro strike in 2013 that made the rounds, that all member[s] on the Copyright Review Commission were retained and paid by Samro as consultants or in some or other capacity.
"Whilst this has been raised with Samro since 2014, with the knowledge of the Department of Trade and Industry, there has never been a rebuttal put forward by either Samro or the department."
The Composers, Authors and Publishers Association was born out of a merger between the National Organisation for Reproduction Rights in Music and Samro mechanicals.
Samro CEO Nothando Migogo was the first CEO of the merged organisation. "It is widely spoken of in the industry that the South African Recording Rights Association used a hybrid of assignment and agent in its accounting, which ultimately led to material financial flaws and difficulties," he said.
The Composers, Authors and Publishers Association has no CEO at the moment and its business affairs manager, Wiseman Ngubo, is at the helm. The Copyright Review Commission was particularly scathing on the content management organisations at the time, with specific reference to the Recording Rights Association," he said.
"The new association represents both composers and publishers, with a board representing both and an outlook to try and change."
The Composers, Authors and Publishers Association is a nonprofit organisation owned by its 3,000 members and is registered at the Companies and Intellectual Property Commission, but is not yet accredited nor regulated.
In 2017, it collected R79m and distributed 73% of income in royalties.