The Parliamentary Standing Committee on Commerce published a report on recommendations to overhaul India’s intellectual property regime on 23 July 2021. Among other things, the Committee suggested broadening the scope of statutory licensing for broadcasting under Section 31D of the Copyright Act, 1957, to include the internet.
In its current form, the provision grants broadcasters on television and radio an automatic license to air published musical or literary content on their networks. Broadly, the process involves broadcasters requesting a commercial court to fix royalties for a statutory license. Once the rates are fixed and notified, broadcasters issue notice to a content owner that they will use their work.
The original objective behind introducing Section 31D in the 2012 amendment to the Copyright Act, was to help broadcasters grow by granting them easier access to published content. It would allow them to short-circuit a seemingly cumbersome negotiation process with creators.
A problematic move
The Parliamentary Standing Committee was in favour of including internet and digital broadcasters under the provision’s scope to catalyse the success of a burgeoning Indian over-the-top content streaming sector by streamlining its access to content. However, the move is problematic for three key reasons and may dampen the prospects of India’s digital economy in the long run.
One, Section 31D dilutes the exclusivity granted to creators over their works under the Copyright Act. Exclusivity, better known as the ability to ringfence content from unlawful exploitation, is the central value proposition of intellectual property. It affords creators the ability to monetise their works while preventing others from attempting to do so. Extending 31D to the Internet diminishes the value proposition of copyright considerably as it denies creators the opportunity to license works on their own terms on a medium where most music is consumed. Streaming accounts for 70 per cent of the Indian music market, according to a report by Goldman Sachs.
Two, extending 31D to the digital realm whittles away the negotiating power of creators against large streaming companies. Creators are given the option to collectively bargain under the Copyright Act, to help them secure their interests more effectively against large entities. But provisions such as 31D render such safeguards moot, as they enable large streaming companies to opt for a statutory license if negotiations are not going their way. This is broadly how the story unfolded the last time the applicability of 31D to the internet, was agitated in a dispute between Tips, one of India’s largest music labels, and Wynk Music, Airtel’s music streaming service.
Once Tips’ license agreement with Wynk expired in August 2016, the two companies entered discussions for renewal. Wynk requested Tips to extend the agreement for a period of two months, till 31 October 2016, to which Tips obliged, provided their new agreement was closed by the end of that period. In March 2017, both companies allegedly agreed that Rs 4.5 crore would be paid to Tips upfront for a two-year deal. Wynk contended that it never accepted the figure. Negotiations broke down, and Wynk ignored two requests from Tips to take down its music as they failed to reach an agreement. Finally, in November 2017, Tips sent Wynk a legal notice to remove the former’s music from its service. Gallingly, Wynk responded stating that it was invoking Section 31D, claiming it was entitled to do so. The matter went to court and Tips emerged victorious.
Three, it damages the prospects of a music industry reeling from the pressures of online piracy. According to a report in the Economic Times, the Indian music industry loses Rs 1,000 crore a year to piracy, which accounts for 67 per cent of the market. A concomitant reality is that content is increasingly consumed online. On broadcast mediums, there is limited scope for royalty payouts due to technological constraints, which only allow music to be played a certain number of times due to fixed time slots. However, the revenue generation potential is much greater on a digital medium, because royalties are payable on a per-stream basis. As such, online streaming proffers a way for creators to recover some digital ground lost to music pirates over the years.
Content drives subscription
Content is the lifeblood of online streaming, and indeed, all-digital networks. It is what drives subscription to these platforms. Music contributes Rs 8,660 crore to partner industries such as television, radio, and streaming according to a 2019 report by Deloitte. Further, networked industries such as online streaming sites, which aim to be the primary beneficiaries of 31D, are much larger players than publishers across content value chains. For instance, Tips has a market capitalisation of Rs 1,722 crore or $234 million. In contrast, Gaana.com’s most recent valuation was $570 million.
Content creation is risky and often cost-intensive. According to a report by the International Federation of the Phonographic Industry (IFPI), signing a major new artist costs anywhere between $50,000 and $2 million. Diminishing the ability of content creators to realise the returns on their effort decreases the appetite for investment in the future. It bodes ill for both content quality and diversity. A good example is the news production industry, which had to cut costs due to its decreased ability to garner returns because of competition from digital platforms for ad money – its main source of revenue. According to a report by Newslaundry, over the last few years, the Deccan Chronicle shut down its Bengaluru and Kochi editions, as well as the Kolkata edition of the Asian Age. Further, data collated by Cyril Sam, an independent journalist in Delhi, revealed that the Economic Times shut down its Gujarati edition in 2020.
Globally, the music industry currently invests 33.8 per cent of its revenues back into production every year – higher than any other R&D intensive industry. As such, if decision-makers want to boost the worth of their network economy, they should enable music creators to maximise their earning potential, rather than create avenues to legitimise the expropriation of their work.
India must decide whether it seeks to encourage creation or intermediation. Does it want to be a country where those who invest in making art are rewarded, a place where creativity is valued? Or does it want to empower an already powerful set of conduits that help the content get from the creator to the consumer? Both are important. But given the difficulty of monetising content today, coupled with the importance of content as a driver of value in the digital world, it would seem that the creators are the ones that need an economic impetus. If the content is the fuel of the digital economy, one cannot expect the latter to get very far when its tank is running empty.
Meghna Bal is a consultant for Koan Advisory on emerging technology and intellectual property. Views are personal.
This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India’s technology sector. Read all the articles here.
(Edited by Srinjoy Dey)