} me AVIV NO. veal eoaf eovcoensenee | ry COMMONWEALTH OF AUSTRALIACOPYRIGHT ACT 1968 IN THE COPYRIGHT TRIBUNAL NO. 1A OF 1980 APPLICATION UNDER S. 152 OF THE COPYRIGHT ACT 1968 BY WEA RECORDS PTY. LIMITED ASTOR RECORDS PTY. LTD., R.C.A. LIMITED, POLYGRAM RECORDS PTY. LTD., C.B.S. RECORDS AUSTRALIA LIMITED, FESTIVAL RECORDS PTY. LIMITED THE TRIBUNAL: ~ EMI (AUSTRALIA) LIMITED, LOCKHART J. Deputy President R.M.J. PURVIS Esq., Q.C. . D.K. MALCOLM Esq., Q.C. Applicants STEREO F.M. PTY. LIMITED Respondent 17 MAY 1983 REASONS FOR DECISION WEA Records Pty. Limited, EMI (Australia) Limited, Festival Records Pty. Limited, CBS Records Australia Limited, Polygram Records Pty. Limited, RCA Limited and Astor Records Pty. 'Limited ("the record companies") and Phonographic Performance Coe of Australia Limited ("PPCA") have applied to this Tribunal under s. 152 of the Copyright Act 1968 ("the Act") for orders determining the amounts payable to each of them as the owners of copyrights in published sound recordings by the holders of Licences for commercial FM broadcasting stations in Australia ("the broadcasters"). The broadcasters are Stereo FM Pty. al -2- Limited ("2MMM"), Sydney FM Limited ("2DAY"), Broadcast FM Pty. Limited ("3FOXK"), Adelaide Stereo FM Pty. Limited ("5SSA"), New Broadcasting Pty. Limited ("6NoOWw"), Melbourne FM Radio Pty. Limited ("3EOM") and Stereo FM. Brisbane Limited ("4MMM"). Each of the broadcasters is the holder of a commercial radio broadcasting _Licence under the Broadcasting and Television Act 1942 which entitles the holder to broadcast by means of FM rather than the , conventional AM. FM broadcasting by commercial radio commenced in 1980 with the granting of licenses on 22 August 1980 by the Australian Broadcasting Tribunal. PPCA was incorporated in New South Wales in March 1969. Each of the record companies is a member of PPCA. PPCA also represents ten other record manufacturing companies whose business activities are smaller in scale than those of any of the record companies. We shall refer later in more detail to PPCA and its. activities, but it is sufficient for present purposes to say that the primary ebject for which PPCA was formed was to provide a central administrative organisation for the issue of licences to broadcast or perform in public sound recordings in which sound recording copyright is owned by the respective members. PPCA also arranges for the payment to it on behalf of its members of fees or royalties for the use of copyright material and for the Maintenance and processing of log reports which record the broadcasting of records in which sound recording copyright subsists. The same counsel and solicitors represent the record companies and PPCA. Actors' and Announcers'! Equity Association of Australia and the Musicians' Union are parties to the applications but have played no role in the hearing of them. At their request they were given leave to withdraw from the hearing when it commenced. The period specified in each application as the period to which the orders sought should apply is from 1 October 1980 to the 30 June next succeeding any order made by the Tribunal. The parties requested the Tribunal to determine a preliminary question of law before embarking on the substantive hearing of the applications themselves. Counsel informed the Tribunal that the determination of this question would considerably facilitate the preparation by the parties of their respective cases for hearing, probably enable agreement to be reached as to facts and documents and thus substantially shorten the length of the ultimate hearing. The Tribunal acceded to this request and heard by consent argument on a question formulated by the parties in these terms:- "Whether in fixing. any amount pursuant to the powers conferred by s. 152, particularly sub-s. 7, the Tribunal, in taking intc account the extent of use of records as prescribed in that sub-section, should have regard only to the use by a broadcaster of records with respect to 8609which the applicant's sound recording copyright inciudes the exclusive | broadcasting right referred tc in s. 38 (oc) of the Act. Or should the Tribunal nave regard to the use Dy a oroadcastsr of ali records in which their subsists in favour of she copyright Owner any of the svecies 3f sound a ~4- recording copyright defined in s. 85, other than copyright arising solely by virtue of first publication of a sound recording in Australia". On 20 November 1981 the Tribunal gave its decision (Re WEA Records Pty. Limited & ors. (1981) 40 A.L.R. 111) and : expressed its conclusion (at p. 124) as follows:- "In the result, eur conclusion on the preliminary points which have been argued is that:- (a) The amount payable under s..152 (2) is in respect of the broadcasting by broadcasters of published sound recordings in respect. of which the copyright includes the exclusive right to broadcast under s. 85 (c) which would be infringed by the broadcaster, unless an order is made under s. 152 or an undertaking given in accordance with s. 109 (1). (bo) The amount so payable is to be determined by the Tribunal taking into account all relevant matters in accordance with s. 152 (7); but that sub-section, whilst excluding therefrom the extent to which the broadcaster uses recordings in relation to which s. 105 applies and including. therein the extent to which the broadcaster uses sound recordings in which copyright subsists, does.not limit the class of relevant matters to the use made of recordings in respect of which the copyright includes the exclusive right to broadcast under s. 85 (c) and which attracts the amount payable under s. 152 (2). , At the request of the parties we make no determination or order at this stage;. but will adjourn the further hearing of the matter to a date to be fixed, so that the parties may consider what we have said and then bring in short minutes of the appropriate determination or order." -S- After we gave this decision the parties requested that we make no consequential orders other than directions for the hearing of the application. Following our decision on the preliminary question of law the parties requested the Tribunal to hear only the first application (1A of 1980) in'which the respondent is 2MMM and to stand the other applications over so that they may be restored to the list and heard in the light of our findings in 1A. We took this course. Hence it is only application lA which has so far been heard by us. In our decision on the preliminary question we considered various matters including questions of law which are relevant to the issues now before us. We do not propose to repeat what we said there except where repetition is necessary to deal with the issues currently before us. To that extent repetition is inevitable. A proper understanding of our decision here, however, does require reading our earlier reasons for decision. Application may be made to the Tribunal pursuant to sub-s. 152 (1) of the Act for an order determining the amount payable by a broadcaster to the owners of copyrights in published sound recordings in respect of the broadcasting of those recordings by that broadcaster. The Tribunal cannot make an order requiring a commerciai broadcaster 20 pay an amount -6- exceeding 1% of the amount determined by the Tribunal to be the gross earnings of the broadcaster during the relevant period in which the order applies (sub-s. 152 (8) ). The Australian Broadcasting Commission cannot be required to pay an amount' exceeding an amownt assessed on a population basis (sub-s. 152 (11)). Sound recordings are themselves. the subject matter of copyright under the Act and this species of copyright exists independently of any copyright subsisting in the literary, dramatic, musical or artistic works embodied in the records. Infringement of the copyright in a sound recording may also consititute infringement of, for example, the copyright in music embodied in a record but this will not necessarily be the case. Each copyright is independent and questions of infringement in each case depend upon the provisions of the Act relating to each separate subject matter of copyright. ' For the purposes of the Act, copyright in relation to a sound recording is the exclusive right to do all or any of the following:- (a) to make a record embodying the recording; (b) to cause the recording to be heard in public; (c) to broadcast the recording : (s. 85). There are important Limitations on the exclusive rights of the owner of copyright in a sound recording, the most important of which are the compulsory Licensing provisions for the public performance and broadcasting of records... These strike 'a balance between the claims 'of the record producers for an adequate return for their skill and effort in making records and the claims of the broadcasters and those interested in the performing rights. Compulsory licences for the broadcasting of sound recordings are dealt with by s. 109. The essence of the scheme is that it is not an infringement of copyright in a published sound recording to broadcast it without.the consent of the owner of the copyright in the recording if the recording has been released in Australia or the prescribed period has elapsed since first release overseas and royalties are paid in accordance with the requirements of the Act. Sub-sections 109 (1), (2) and (3) provide as follows:- "(L) Subject to this section, the copyright in a published sound. recording is not infringed by the making of a broadcast of that recording if - (a) where there is no order of the Tribunal in force under section 152 applying to the maker of that broadcast in relation to the time when that broadcast was made - the maker of that broadcast has given an undertaking in writing to the serson who is the owner of the copyright in that recording to pay to him such amour: ile any) as may be specified or determined in accordance with, an der ef the Tribunal made cinder that 5 Lon in respect of the broadcasting by the ~8=- maker, during a period within which that broadcast was made, of published sound recordings in which the copyrights are owned by that person and which include that recording; . or (b) where there is an order of the Tribunal in force under that section applying to the maker of that broadcast in relation to the time when that broadcast was made- (i) the copyright in that recording is owned by a person who is specified in the order as one of the persons among whom the amount specified in, or determined in accordance with, the order is to be divided and the maker of the broadcast makes payments to the person in accordance with the order; or (ii) the copyright in that recording is owned by a person who is not so specified in the order. (2) The last preceding sub-section does not apply in relation to a broadcast of a sound recording if the broadcast was made in accordance with an agreement between the maker of the broadcast and the owner of the copyright in the recording. : (3) Sub-section (1) does not apply in relation to a broadcast of a sound recording that has -nmot been published in Australia if the broadcast was made before the expiration o£ the prescribed period after the date of the first publication of the recording." The prescribed period is seven weeks (see Reg. 19 of the Copyright Regulations 1969). The general effect of this provision is that after a record has been released in Australia, subject to complying with the requirements of the Act it may be broadcast subject to payment of appropriate royalties and otherwise complying with the Act. If the recording has not been published ~9- in Australia, a prescribed period of seven weeks must elapse after the date of first publication before the licence provisions can be invoked. Section 152, which is the key section in relation to the questions which we have to consider, provides:- "152. (1) In this section, unless the contrary intention appears - "Australia" does not include the external Territories; "proadcaster" means - (a) the Australian Broadcasting Commission; (aa) the Special Broadcasting Service; (b) the holder of a licence for a broadcasting station; : (¢) the holder of a Licence for a television station; or : (d) a person prescribed for the purposes of sub-paragraph 91 (a) (iii) or 91 (b) (iii). (2) Subject to this section, an application may be made to the Tribunal for an order determining, or making provision for determining, the amount payable oy a broadcaster to the owners of copyrights in ° published sound recordings in respect cof the proadcasting, during a period specified in the application, of those recordings by hat broadcaster. (3) An application inder the Last preceding sub-section may be made by the orcadcaster or by the owner of a copyright in a published sound recording. (4) The parties to an application under sub-section (2 - (b) (6) (b) (c) -10- the person making the application; and such organizations or persons as apply to the Tribunal to be made parties to the application and, in accordance with the next succeeding sub-section, are made parties to the application Where an organization (whether claiming to be representative of broadcasters or of the owners of copyrights in published sound recordings or not) or a person (whether a broadcaster or the owner of a copyright in a published sound recording or not) applies to the Tribunal to be made a party to an application under this section, and the Tribunal is satisfied that the organization or person has a substantial interest in the matter that is the subject of the application, the Tribunal may, if it thinks fit, make that organization or person a party to the application. The Tribunal shall consider an application under sub-section (2) and, after giving the parties to the application an opportunity of presenting their cases, shall make an order - determining, or making. provision for determining, the amount payable by the broadcaster to the owners of copyrights in published sound recordings in respect of the broadcasting, during the period to which the order applies, by the broadcaster of those recordings; specifying as the persons among whom that amount is to be divided such of the persons who were, or were represented by, parties to the application as the Tribunal is satisfied are the owners of copyrights in published sound recordings; and specifying as the respective shares in that amount of the persons among whom that amount is to be divided and as the times at which those shares are to be paid such shares and times as those persons agree or, in default of agreement, as the Tribunal thinks equitable. -ll- (7) In so making an order in relation to a proadcaster, the Tribunal shall take into account all relevant matters, including the extent to which the broadcaster uses, for the purposes of broadcasting, records embodying sound recordings (other than recordings in relation to which section 105 applies) in which copyrights subsist, -being copyrights ewned by persons who are, or are represented by, parties to the application. (8) The Tribunal shall not make an order that would require a broadcaster being the holder of a licence for a broadcasting station to pay, in respect of the broadcasting of published sound recordings during the period in relation to which the order applies, an amount exceeding 1% of the amount determined by the Tribunal to be the gross earnings of the broadcaster during the period equal to the period in relation to which the order applies that ended on 30 June last preceding the date of commencement of the period in relation to which the order applies. (10) Sub-section (8) does not apply to an order in relation to a broadcaster unless - (a) the broadcaster establishes to the satisfaction of the Tribunal the amount of the gross earnings of the broadcaster during the period in respect of which those. earnings are to be determined; and (b) the broadcaster carried on the transmission of programmes by way of sound broadcasting throughout the whole of that period. (ll) Where an application is made to the Tribunal under sub-section (2) in relaticn to the Australian Broadcasting Commission, the Tribunal - (a) shall make separate orders in respect > sound broadcasts by the Commission o Cc pat (t thth published sound recordings and in respe of television oroadcasts oy nn Commission of such recordings; and o ~l2- (db) shall not make an order that. would require the Commission to pay, in respect of sound broadcasts of published sound recordings during the period in relation to which the order applies, an amount exceeding the sum of - (i) in respect of each complete year : included in that period - the amount ascertained by multiplying one-half of One cent .by the number equal to the number of persons comprised in the estimated population of Australia. as last set out in statistics published by the Commonwealth Statistician before the making of the order; and (ii) in respect of each part of a year included in. that period - the amount that bears to the amount ascertained in accordance with the last preceding sub-paragraph in relation to a complete year the same proportion as that part of a year bears to a complete year. (12) A person who is not specified in an order in force under sub-section (6) as one of the persons among whom the amount specified in, or determined in accordance with, the erder is to be divided may, before the expiration of the period to which the order applies, apply to the Tribunal for an amendment_of the order so as to specify him as one of those persons. (14) The Tribunal shall consider an application 'under 'sub-section (12) for an amendment of an order in force under - sub-section (6) (in this sub-section referred to. as "the principal order") and, after giving the parties to the application an opportunity of presenting their cases, shall, if it is satisfied that the applicant is the owner of the copyright or copyrights in one or more published sound recordings, make .an order amending the principal order so as to - -13- (a) specify the applicant as one of the persons among whom the amount specified in, or determined in accordance with, the principal order is to be divided; and (b) specify as the share of the applicant in that amount and as the times at which that share is to be paid such share and times as the applicant and the other persons among whom that amount is to be divided agree or, in default of agreement, as the Tribunal thinks equitable and make any consequential alterations in respect of the shares of those other persons. (15) An order of the Tribunal made under sub-section (6) in relation to a broadcaster applies in relation to the period commencing on the date specified in the order and ending on 30 June next succeeding the date of making of the order. (18) Where an order of the Tribunal is in force under this section, the broadcaster in relation to whom the order applies is liable tO pay to each of the persons specified in the order as the persons among whom the amount specified in, or determined in accordance with, the order is to be divided the share so specified in relation to that person and is so liable to pay that share at the times so specified and that person may recover any amount that is not paid in accordance with the order in a court of competent jurisdiction from the broadcaster as a debt due to the person. (19) For the purposes of this section, the gross earnings of a proadcaster in respect of a period are the gross e@arnings of the broadcaster during that period in respect of the broadcasting by him of advertisements or other matter, including the gross 2arnings of the broadcaster during that period in respect of the provision by him of, or otherwise in respect of, matter oroadcast cy nin ~l4—. (20) Where, in connexion with a transaction, any consideration is paid or given otherwise than in cash, the money value of that consideration shall, for the purposes of the last preceding sub-section, be deemed to have been paid or given." Although s. 152 may be invoked without any undertaking "having been given under sub-s. 109 (1), once an order is made under s. 152 it follows that sub-s. 109 (1) is brought into play. The remuneration to be fixed under s. 152 is an amount payable by the broadcaster to the owner of the copyright in a sound recording who has the exclusive right to broadcast that recording by virtue of s. 85 (c). The determination of this application necessarily involves deciding certain questions relating to the construction and operation of s.152. It is to these that we now turn. COPYRIGHT OWNERS AND REPRESENTATIVES INCLUDING PPCA It was. conceded by 2MMM that each of the record companies was the owner of the copyright in at least one sound recording. 'It follows that each of them had the standing required by sub-s. 152 (3) of the Act to make the application. The subject matter of the application contemplated by sub-s. 152 (2) and the nature of the order required to be made by sub-s. 152 (6) is an order:n- | -15- "(a) determining, or making provision for determining, the amount payable by the proadcaster to the owners of copyrights in published sound recordings in respect of the broadcasting, during the period to which the order applies, by the broadcaster of those recordings; (bo) specifying as the person among whom that amount is to be divided such of the persons who were, or were represented by, parties to the application as the Tribunal is satisfied are the owners of copyrights in published sound recordings; and (c) specifying as the respective shares in that amount of the persons among whom that amount is to be divided and as the times at which those shares are to be paid such shares and times as those persons agree or, in default of agreement, as the Tribunal thinks equitable." It is common ground that on the proper construction of sub-s. 152 (6) the Tribunal was required:- (a) to determine or make provision for the determination of a global amount payable by the broadcaster to the copyright owners (this amount was referred to in the proceedings as "the cake"); (bd) to specify the persons among whom the cake is to be divided: and a ~16~ (c) to specify the respective shares of such persons in that amount and the time of payment. "The Tribunal must be satisfied that such persons were "owners of copyrights in published sound recordings" and were parties or represented by parties to the application. On its face sub-s. 152 (6) postulates that all interested copyright owners will be before the Tribunal. Sub-section (12), however, recognises that this may not be the case and makes provision for an application to be made to the Tribunal. by a person not specified in an order under sub-s. (6) for an amendment of the order so as to specify him as one of those persons. Sub-section (14) provides that the Tribunal 'shall, if it is satisfied that the applicant is the owner of copyright or copyrights in one or more published sound recordings, make am order amending its original order so as to enable the applicant to participate in the division of the amount previously determined, and "make any consequential alterations in respect of the shares" of the other persons entitled. It is apparent that a question of refunding could arise "on such an application . if sub-s. (14) is read in isolation from the remainder of s.152. These difficulties were clearly recognised by the draftsman of s. 152 and steps were taken to meet them to ensure that any amendment had only 'a prospective operation. By sub-s. 152 (2) a period for the operation of the. order may be -~l7- specified in the original application. By sub-s. (15) an order under sub-s. (6) applies in relation to the period commencing on a date specified in the order and ending on the 30th June next succeeding the date of making the order which, it is anticipated, will be 30 June 1983. It was not disputed by 2MMM that it was appropriate for the period to commence on 1 October 1980, as specified in the application. The Tribunal accepts that any erder it makes should apply to a date commencing on 1 October 1980, bearing in mind that the initial application was made on 15 September 1980, following the commencement of broadcasting on 22 August 1980 by 2MMM. In the event of an application being made under sub-s. (12) after the Tribunal has made its order, sub-s. (17) provides that any subsequent order made under sub-s. (14) amending the principal order will apply in relation to the period "commencing on the date of making of the amending order and ending on the date of expiration of the period in relation to which the order that is being amended applies". Thus, at least so far as the Act is concerned, no question of refunding will arise. So far as 2MMM is concerned the results of the Log analyses and the play list analyses carried out on behalf of the record companies show that the vast bulk of all protected sound recordings broadcast by 2MMM during the relevant period were recordings in respect of which the Australian borceadcasting copyright is owned or controlled by one or other of the record companies. The record companies nave in cwirn granted exclusive ~18- authority to PPCA to act as collecting agent and to grant licences to third parties in respect of the broadcasting J copyrights owned or controlled by them. PPCA On 9 October 1980 PPCA applied to the Tribunal to be made a party to the record companies' application pursuant to sub-s. 152 (5) of the Act which provides:- r "Where an organization (whether claiming to be a representative of broadcasters or of the owners. of copyrights in published sound recordings or not) or a person (whether a broadcaster or the owner of a copyright in a published. sound recording or not) applies to the Tribunal to be made a party to an application under this. section, and the Tribunal is satisfied that the organization or person has a substantial interest in the matter that is the subject of the application, the Tribunal may, if it thinks fit, make that organization or person a party to the application." On 14 October 1980 the then President of the Tribunal- (Bowen C.J.), being satisfied that PPCA had a substantial 'interest in the matter that 'was the subject of the application, ordered that it be. made a. party to the application. It does not follow that PPCA is entitled to be specified as a person to receive a share of the cake on behalf of the copyright owners it represents. PPCA could only be so specified under sub-s. 152 (6) if the Tribunal were satisfied that it was the owner of copyright in at least one published sound recording. It is, however, implicit from para. 152 (6)(b) that PPCA, as a party to the application, may represent owners of copyright in published sound PPCA was incorporated in New South Wales on 27 March 1969 for the purpose, among others, of exercising the copyright in sound recordings under para. 85 (b) and (c) of the Act on behalf of the owners of those rights. owners of copyrights in a large number of published recordings. -19- The specific objects for which PPCA was established include the following:~ "(1) To be or become by grant transfer assignment agreement licence or otherwise the owners of or otherwise entitled to the benefit of or interest in the copyrights in any sound recording (hereinafter called 'recordings') and to exercise perform and enforce all rights and remedies by virtue of the Copyright Act 1968 of the Commonwealth of Australia or any statutory modification amendment re-enactment or consolidation thereof or any enactment replacing the same for the time being in force (all of which are hereinafter included in the expression 'the Copyright Act') in respect of the broadcasting of recordings or of causing the recordings to be heard in public (hereinafter jointly called the 'performance') and to restrain or prevent by legal process or otherwise any unauthorised performance. To exercise perform and enforce on behalf of the owners of or persons otherwise entitled to the benefit or interest in the copyrights in recordings (all such owners and persons being hereinafter called the 'proprietors') all rights and remedies of the proprietors by virtue of the Copyright Act in respect of the performance and to restrain or orevent dy legal process or otherwise any unauthorised ocerformance. PPCA now represents the sound -~20— (3} In the exercise performance or (4) enforcement of any such rights and remedies as aforesaid to grant licences and to enter into any licensing schemes agreements or other arrangements or to obtain or seek to obtain any order from the Copyright Tribunal. with respect to the performance or to the amount agreed or determined to be payable in respect of the performance and from time to time to rescind alter or vary any such licences licensing schemes agreements or arrangements or to obtain or seek to obtain any variation of any Order of the Copyright Tribunal and to collect and receive and give effectual discharges for all royalties, fees and other monies payable under any such. licences licensing schemes agreements arrangements or Orders or otherwise in respect of any performance by all necessary actions or other proceedings and to recover such royalties fees and other monies and to restrain and recover damages for the infringement by means of any performance of the copyrights in recordings or of any other rights of the Company or of the proprietors or of the Company on their behalf in respect of such recordings and to release compromise or refer to arbitration any such. actions or proceedings or any other disputes or differences in relation to the premises. To aequire from any person owning or having the right or power to grant the same rights in respect of the performance of recordings whether or not any copyrights shall subsist in relation thereto and to exercise and perform those -rights and by way of licence agreement or. ather means permit the per formance thereof and to enforce by all lawful means any such licence or agreement." number of agreements described as "Input Agreements" record In furtherance of its objects PPCA has entered into a with the companies and certain other companies. The Input Agreements are exemplified by an agreement dated 31 August 1970 -21- petween PPCA and Warner Bros. Records Pty. Limited (now called WEA Records Pty. Limited and to which we shall refer as "WEA"). Input Agreements in the same terms have been entered into with the following: APOLLO SOUND ASTOR RECORDS PTY. LTD. AVAN-GUARD MUSIC PTY. LIMITED CARINIA COMPANY PTY.LTD. CBS RECORDS AUSTRALIA LTD. CBS RECORD & CASSETTE CLUB PTY. LTD. EMI (AUSTRALIA) LTD. FESTIVAL RECORDS PTY. LTD. MOVE RECORDS POLYGRAM RECORDS PTY. LTD. RCA LIMITED SUMMIT RECORDS AUSTRALIA UNIVERSAL RECORD CLUB PTY. LTD. WORLD RECORD CLUB PTY. LTD. WEA is referred to in the Input Agreement as "the Company". The agreement recites that:- ",..The Company claims and represents that it is the owner of and/or controls or is otherwise entitled to an interest in or the benefit of the per forming right (as hereinafter defined) in sound recordings..." The performing right includes the broadcast copyright in respect of a protected recording in respect of which remuneration 'ls payable for the broadcast of the recording in Australia, including any amount payable by the Tribunal under s. 152. Clause II para. 1 of the Input Agreement provides:- "The purposes of this Agreement are to enapl PPCA, for the period of this Agreement, + exercise the exclusive right and authority <t do in Australia for and on venalf of the Company all or any of the following acts or things in relation to the recordings of the Company, that is to say..." Ww ~22- Various things are then set out including the licensing of broadcasting by third parties; the making of applications. to the Tribunal in respect of the broadcasting of protected recordings of WEA and others; che collection and recovery of amounts payable by any third party or parties pursuant to any 'order of the Tribunal; and the institution and conduct of enforcement proceedings. The expression "the recordings of the Company" is defined by Clause I para. 3 in terms which include all recordings the performing rights of which are from time to time owned or controlled by WEA or to the benefit of which it is entitled. Clause I para. 2 (a) provides that a person shall be deemed to control the relevant right where that person is an "exclusive licensee" for the purposes of the Act. £ Clause I para. 2 (b) provides that a person shall be " deemed to be entitled to the benefit of the relevant right where that. person (not being the owner of or the person controlling the 'copyright in the recording) is entitled, pursuant to the terms of an agreement with or instrument of the owner or of the person controlling the copyright in that recording, to confer on PPCA power and authority to do in relation to the recordings of that person the things set out in Clause II para. 1 of the Agreement. -23- By Clause II para. 2 provision is made for PPCA to be constituted the attorney of WEA for the purposes specified: in Clause II para. 1. By para. 4 of the same clause WEA agrees, at the request of PPCA, to assign the performance and broadcast copyright in any of the retordings of WEA where WEA is the owner and to procure such an assignment from the owner where WEA merely controls that copyright. There was no evidence before the Tribunal that either WEA or any of the other record companies had assigned or procured the assignment of the performance and broadcast copyright to PPCA. Clause III para. 3 makes provision for WEA to provide PPCA with lists and other information concerning the titles of all recordings of WEA and details of ownership and control of the copyright in them, together with other information which will enable PPCA to determine whether a recording is protected. Clause IV para. 1 contains a covenant by PPCA that it will not:- "Ci) enter into any agreement with any third party relating to the use by that third party of recordings including recordings of the Company for the purpose of performance; or (ii) grant any licence to any third sarty for the cerformance of any recordings including recordings of the Company (whether pursuant to any Licence scheme or otherwise} -24- unless that agreement or licence shall be terminable by PPCA at any time within a period not more than twelve (12) months after the date upon which from time to time this Agreement may be terminated in accordance with paragraph 1. of Clduse VI. hereof." Paragraph 3 of Clause IV provides that PPCA may mix the funds representing its collections on behalf of WEA with eollections on behalf of any other company or person and lists the expenditures which may be made from such payments. Paragraph 4 of Clause IV provides for the preparation of an account showing the net receipts available for division among the persons who have entered into Input Agreements with PPCA. Paragraph 6 of Clause IV provides that the net receipts shall be divided among the parties entitled:- ".,..wherever possible, on the basis of the extent of the use made of protected recordings of the respective grantors for the purpose of performance or, where the extent of such use cannot be. reasonably ascertained, on the basis of a formula which shall be determined from time to time by a resolution of the Directors of PPCA..." The distribution is in fact made on a basis of statistical material relating to extent of use provided to PPCA om a confidential basis by Australasian Performing Right Association Ltd. ("APRA"). ~25- By a power of attorney dated 3lst August 1970 WEAappointed PPCA its attorney to act on its behalf either in the name of WEA or in the name of PPCA in relation to the performance and broadcasting copyright in respect of recordings of WEA as defined. These powers include the Licensing of any third party, whether pursuant to a licence scheme or otherwise; the making of an application to the Tribunal; and the prohibition or taking such steps as may be available to prevent the unauthorised performance or broadcating of recordings. PPCA is also authorised to collect and recover any moneys due in respect of the broadcasting or performance of recordings of WEA and other incidental matters. The power of attorney specifically extends the delegation to the person for the time being appointed by the directors of PPCA to be its general manager the power to "exercise and perform in the name of and on behalf of PPCA any 'power or authority hereby conferred upon PPCA". The effect of these documents is that PPCA is the agent and attorney of WEA for the purposes of, inter alia, the exercise of the rights incidental to the broadcast copyright in relation to certain sound recordings. PPCA is not itself vested with any ownership rights with regard to such copyright. -26- 2MMM'S UNDERTAKING At. a very early stage in the hearing of the application, counsel for 2MMM outlined the correspondence between 2MMM and PPCA between 16 May 1980 and 1 October 1980 concerning the grant of a licence by PPCA of a licence to broadcast sound recordings. By letter dated 15 August 1980 PPCA informed 2MMM that it was prepared to license it to broadcast sound recordings on. payment of an annual fee representing 1% of the station's gross earnings. In its reply dated 25 September 1980 2MMM said that it considered - "itself entitled to an arrangement in respect of broadcast copyright on the same terms as the agreements. which had been made with the AM stations. 2MMM did, however, give to PPCA the following undertaking:- , < "Pursuant to section 109 (1) (a) of the Copyright, Act, this Company gives to PPCA, on behalf of: the owners of the copyright in certain recordings, an undertaking (limited as -herein stated) to pay to PPCA (or to such owners) such amounts (if any) as may be specified in, or determined in accordance with, an order of the Copyright Tribunal made under section 152 of the Copyright Act in respect of the broadcasting by this Company, (during a period within which any broadcast is made by it) of published recordings in which the copyrights are owned by those owners and which includes those first-mentioned recordings. ~27- COPYRIGHT OWNERS Drawing on the terms of the Input Agreements and the qualifications contained in the undertaking, counsel for 2MMM submitted that the undertaking was given to PPCA only in its capacity as agent for copyright owners. Further, it was submitted that only those recordings in respect of which the copyright owners were parties or represented by parties were relevant for the purposes of s. 152. If and to the extent that PPCA was the agent for copyright owners there was no difficulty in the way of such owners being regarded as ""parties" or "represented py" a party for the purposes of para. 152 (6) (b). It was contended, however, that a distinction had to be made 'between the owners of the broadcasting copyright, on the one hand, and persons who merely controlled that right or were entitled to the benefit of it, on the other. The distinction was made in the terms of the Input Agreements. A similar contention was made with respect to the record companies. 2MMM's contention was that the record companies were the owners of copyright in some sound recordings but were merely the licensees of the copyright of others under the terms of licences which were both exclusive and non-exclusive. it was o only in the former capacity that they could ce regarded as the Ur N owners of copyrights for the purposes of s. L aa -28- A distinction is made in s.119 between an exclusive Licensee and the owner of the copyright. Section 119 provides:- "Subject to the succeeding sections of this Division - (a) except against the owner of the copyright, the exclusive Licensee has the same rights of action as he would have, and is entitled to the same remedies as he would be entitled to, by virtue of x section 115 if the Licence had been an assignment, and those rights and remedies— are. concurrent with the rights and remedies of the owner of the copyright under that section; (b) except against the owner of the: copyright, the exclusive, licensee has the - same rights of action as he would have, and is entitled to the same remedies as he would be entitled to, by virtue of section 116 if the Licence had been an assignment; and (c) the owner of the copyright does not have any rights of action that he would not have, and is not entitled to any remedies that he would not be entitled to, by virtue of section 116 if the Licence had been_an assignment." By s. 117 the expression "if the licence had been an assignment" means:- ",..1£, instead of the licence, there had been granted (subject to conditions corresponding as nearly as practicable with those subject to which the licence was granted) an assignment of the copyright in respect of its application ° to the doing, at the places and times authorised by the licence, of the acts so 'authorised; " -29- It is made clear by sub-s. 196 (1) that copyright is personal property and 'ig, inter alia, transmissible by an assignment. By para. 196 (2) (a) an assignment of copyright may be limited in any way including a limitation to one or more of the classes of acts which, by virtue of the Act, the owner of the copyright has the exclusive right to do. Thus, a broadcast copyright recognised by para. 85 (¢) is capable of assignment either with or without the performance copyright recognised by 'para. 85 (b). In our opinion, upon the proper construction of these various provisions, an assignee of the broadcast copyright would fall within the description of "owner" of that copyright for the purposes of the Act. The effect of s. 119 is that an exclusive licensee of the broadcast copyright in a sound recording is entitled to the same rights of action and remedies as if he was an assignee of that copyright. Thus, the Act confers upon the exclusive Licensee the same rights and remedies he would have if he were the owner of the copyright, except as against the actual owner. Sections 115, 117 and 119 appear in Part V of the Act which is concerned with remedies for infringements of copyright. By sub~s. 114 (1) the word "action" as used in Part _V means "a proceeding of a civil nature detw Oo @o or 'G ray) Ny ct fe wo iw ey) Db ie} t rsrc » [e) oO a iv) counterclaim". It is necessary to determine, therefore, whether oe -30~ a proceeding by way of an application under s. 152 is "a proceeding of a civil nature between parties". If it is, it would appear to have the effect that an exclusive licensee of a copyright would be regarded as the owner both for the. purposes of s. 109 and for the purposes of s. 152. If it is not, an exclusive Licensee could not be treated as a copyright owner for those purposes. Section 109 provides a defence to an action for an infringement under certain circumstances, including the giving of an undertaking to the owner of the relevant copyright to pay an amount determined by the Tribunal. It would be an odd circumstance if this defence were available against the owner properly so called but not against an exclusive Licensee. Section 121 specifically provides that any defence available against an. owner is likewise available against an exclusive licensee. In the light of that provision and. the intention of $.109, we are of the opinion that in the application of ss. 109 and 152 the phrase "owner of the copyright" may be taken to include an exclusive licensee of the owner of the copyright. An application to the Tribunal under $s.152 is "a proceeding of a civil nature .between parties" for the purposes of Part V of the Act. If and to the extent that all of the owners of the broadcasting copyright in protected recordings are not before the Tribunal, that does not prevent the Tribunal from making a determination in favour of such of those persons as are owners of copyright in sound recordings broadcast by 2MMM as are before the ~31- Tribunal. It is only necessary for the Tribunal to be satisfied that the persons specified under para. 152 (6) (b) are persons who own a copyright in a sound recording which was proadcast: by 2MMM . PPCA produced an updated list of labels of records the subject of Input Agreements as at 4 November 1982 showing the company to which PPCA regarded each label as attached. There are approximately 630 such labels. The evidence before the Tribunal dealt with the ownership and licensing arrangements with respect to 457 of such labels. Each of the record companies produced to the Tribunal as a confidential exhibit copies of ail relevant licence agreements in its possession. While each of these agreements contain individual variations, the vast majority of them confer an exclusive licence with respect to the broadcast copyright. Of these 457 labels, 162 were owned directly by one or other of the record companies; 254 were the subject of an exclusive licence of the broadcasting copyright to one or other ef the record companies; and 41 were the subject of a non-exclusive licence of the broadcasting. copyright to one or ether of the record companies. None were the subject of an assignment of the broadcasting copyright. In' some cases the licensor is the copyright owner in respect of all or some of the relevant recordings and, where it is not the owner, the licensor claims to be entitled to control that copyright oy virtue of an agreement with some further person entitled. Tt world be an impossible task for the record companies to compiete the chain of title in every case. ~32- During the course of the proceedings, the recordcompanies took steps to obtain from certain of the Licensors under the various agreements confirmation in the form of telexes of the following: - (a) That the applicant was the exclusive licensee in Australia of the licensor. (bd) The applicant was licensed exclusively to represent the licensor in the Licensing of the broadcast of the licensor's sound recordings in Australia. (¢) Ratification of the appointment of PPCA as the representative of the licensor "for all purposes associated with the broadcast copyright in sound recordings owned by us including the current and any related proceedings pursuant to section 152 of the Copyright Act before the Copyright Tribunal". (a), Agreement by the Licensor: that any moneys ordered to be paid by the broadcasters pursuant to the Copyright Act be paid to PPCA on behalf of the licensor. ~33- None of the evidence contained in these varicus documents was contested by 2MMM although it expressed a desire that telexes of this kind should be confirmed by writing under the hand of the officer of the company named in the concluding paragraph of each of the relevant telexes. In the opinion of the Tribunal such confirmation is not necessary. In all the circumstances, having regard to the provisions of s. 164 of the Act, the Tribunal is prepared to accept that the effect of the telexes is to confirm the exclusivity of the Licence granted by the said licensors to the companies concerned, the representation of the licensor by the applicant and the ratification of the appointment of PPCA as the representative of the licensor for the purposes of s. 152. In our Opinion, there is sufficient evidence before the Tribunal of the aqwnership by the record companies of copyrights in. sound recordings owned by them or by. persons from whom they hold licences and who are represented by PPCA for the purposes of these proceedings. The log and play list analyses carried out on behalf of the record companies and PPCA indicate that an inconsequential handful of recordings fall into the unassigned" category, in that their ownership has not been verified. Results of che play list analyses illustrate the point. There wera 603 recordings on the olay lists ~34- relating to the period 1 May 1981 to 31 December 1982 and 1 January 1982 to 10 August 1982. These recordings comprised approximately 42% of all recordings broadcast by' 2MMM in the latter period. Of: the 603 recordings 384 were protected according to the evidence of Mr. Glenn Baker, a freelance journalist, writer and consultant in the field of popular music, and 371 were protected according to the record companies. There was an identity of views between the record companies and Mr. Baker in 580 of the 603 recordings. There was disagreement as to 17 and the record companies had not been able to respond in relation to 6 entries. Except for these 6 entries every protected recording on the master list was one in respect of which the record companies either owned or controlled the broadcasting copyright and which was the subject of an Input Agreement with PPCA. In the case of licensors from overseas, the agency of PPCA has been confirmed -and ratified by the overseas. copyright owner/licensor. In the light of the documentary evidence and as there was no real challenge to Mx. Baker's encyclopaedic knowledge of relationships in this area, we are satisifed that each of the record companies. is the owner of the copyright in published sound recordings for the 'purposes of para. 152 (6) (b) and that PPCA. represents all but an inconsequential haridful, of copyright owners whose position is uncertain. For the purposes of para. 152 (6) (b) we are satisfied: that each of the licensors who claimed either to be an owner of or to control the broadcast copyright in recordings should be held to be the owner of copyrights in published sound recerdings for the purposes of para. 152 (6) (b), while recognising that such persons may in some if not most cases also be a mere licensee. ~35-+ In our opinion, it is not necessary in proceedings under s. 152 for the record companies or any other party to necessarily prove strictly the ownership of the broadcast copyright in every sound recording in order for it to be protected. We are satisfied with the evidence which has been given concerning those recordings which. are said to be protected. The result is, therefore, that we are prepared to specify as the persons among whom any amount determined in accordings with s. 152 is to be divided the record companies and all of those other persons, who have executed agreements in favour of one or other of the necord companies which contain a recital, representation or claim that such other person is the owner of the broadcast copyright in sound recordings, notwithstanding that such persons may also themselves be mere licensees. Those persons are parties to a number of the agreements which were in evidence. The following schedule sets out details of the licensors who ratified the appointment of PPCA as their representative for the purposes of the proceedings and the applicant who was their Licensee: -36-— Licensor Licensee Motown Record Corp. USA Polygram Records Pty. Ltd. Phonogram International BV . Polygram Records Pty. Ltd. Polydor International GMBH Polygram Records Pty. Ltd. Cold Chisel Pty. ltd. WEA Records Pty. Ltd. INXS WEA Records Pty. Ltd. M-Rock Pty. Ltd. WEA Records Pty. Ltd. Midnight Records Pty. Ltd. WEA Records Pty. Ltd. WEA International. Ink ; WEA Records Pty. Ltd. Chrysalis Records Ltd. Festival Records Pty. Ltd. Elcotgrange Ltd. Festival Records Pty. Ltd. Mushroom Records Pty. Ltd. Festival Records Pty. Ltd. This Record Co. Ltd. Festival Records Pty. Ltd. Zomba Productions Ltd. Festival Records Pty. Ltd. Ariola Records Ltd. RCA Ltd. Bocu. Music Ltd. RCA Ltd. Tembo Records Ltd. RCA Ltd. Noeland Productions Ltd. EMI (Australia) Pty. Ltd. Wheatley Records Pty. Ltd. EMI (Australia) Pty. Ltd. EMI Records Pty. Ltd. EMI (Australia) Pty. Ltd. ATV Northern Songs Pty. Ltd. EMI (Australia) Pty. Ltd. Capitol Records Inc. EMI (Australia) Pty. Ltd. Liberation Records Pty. Ltd. EMI (Australia) Pty. Ltd. In case there are any additions. or deletions which should be made to or from that List we are prepared to hear the parties further on that point. Pending clarification of the list and further submissions we propose to defer specifying the time of payment and the respective shares of the persons entitled in accordance with para. 152 (6) (ae). In view of the fact that, on the material before us, PPCA is not the owner of a copyright in any published sound recording it does not seem that, having regard to the provisions of para. 152 (6) (ce) ~37- and sub-s. 152 (18) that it is open to the Tribunal to order payment to PPCA on behalf of the persons specified as those among whom "the cake" is to be divided. It would seem that this is a matter which may only be achieved by agreement between the parties, so that an order could then be made by consent. VALUE TO THE BROADCASTER OF THE USE OF THE COPYRIGHT - EQUITABLE REMUNERATION TO THE OWNER The nature of the order to be made by the Tribunal is "an order determining the amount payable by a broadcaster to the owners of copyright in published sound recordings in respect of the broadcasting of those sound recordings": sub-s. 152 (6). Sub-section 152 (7) provides that in making an order under sub-s, 152 (6) in relation to a broadcaster:- "...the Tribunal shall take into account all relevant matters, including the extent to which the broadcaster uses, for the purposes of broadcasting, records embodying sound recordings (other than recordings in relation to which section 105 applies) in which copyrights subsist, being copyrights owned by ovoersons 'who are, or are represented by, parties to the application." As we said earlier the Tribunal cannot make an order requiring a commercial broadcaster to vay an amount exceeding 1% of the gross earnings of the preadcaster during the relevant period to which the order applies: sub-s. 152 (8). In the case of the Australian Broadcasting Commission there is a Limit axpressed in terms of a population basis: sub-s. 152 {11}. -38- The basis upon which the amount payable is to be fixed is not specified in the Act. In a number of other provisions in which the Tribunal is given jurisdiction to determine amounts payable, reference is made to "equitable remuneration" to the owner of the copyright: see, for example, sub-ss. 107 (3) and 150(1); 108 (1) and 151(1). In these cases provision is made for use of sound recordings: to make another record or for causing a sound recording to be heard in public not to constitute an infringement of copyright if an undertaking is a given to pay the amount determined by the Tribunal. Sections 109 and 152 stand in the same relationship as these other provisions, but contain only a reference to the fixing of the amount and no reference to "equitable remuneration". The effect of s. 109 is that, if a . broadcaster gives an undertaking to pay to the owner of copyright in a protected sound recording the amount determined by the Tribunal Pursuant to s. 152, the broadcasting of the recording without the owner's. consent will not constitute an infringement. N x Both parties agreed that the inquiry to be undertaken by the Tribunal under s. 152 was to determine, after considering all relevant matters, the value to 2MMM of the right to broadcast protected recordings. The record companies' original contention was that this value was to be determined by looking at the amount by way of an account of profits which would be payable in an infringement suit at the instance of the copyright owner. At a later stage in the hearing the contention was that the amount payable should represent reasonable remuneration fixed by the Tribunal having regard to the extent of use -39- of protected recordings. It was contended in this context that there was a direct relationship between broadcasting of recordings and advertising revenue or gross earnings. 2MMM's answer was that the account of profits approach was inappropriate and that the damages approach was more appropriate. 2MMM's primary contention was, however, that the value of the right to broadcast was the amount which the parties would have agreed in "arm's Length" negotiations. This "notional bargain" approach drew heavily on the assessment of value in cases of compulsory acquisition, such as Spencer v. The Commonwealth "of Australia (1907) 5 C.L.R. 418. A similar approach was followed by the Tribunal in the determination of an equitable royalty under s. 58 of the Act in the context of the compulsory licence conferred by s. 55; see "Report of the Inquiry by the Copyright Tribunal into the royalty payable in respect of records generally" published 24 December 1979 ("the 1979 Report") at pp. 97-99. In the 1979 Report an equitable royalty was equated with equitable remuneration to the copyright owner. This was consistent with the provisions of the international copyright conventions to which Australia is a party. The amount represented by equitable remuneration could not, of course, be greater than the amount of damages for infringement. If it were, there would be no incentive zo give any undertaking under s. '109. The relationship between equitable remuneration and damages in infringement cases was considered at op. 99-101 in the 1979 Report. The measure of damages in such cases nas deen. the amount of royalty which the infringer would nave nad to oay for a Licence, had ne acted lawfully instead of ovinlawfully: Stovin-Bradford -. Veolpoint -40~ Properties Ltd. (1971) 3 W.L.R. 256; Interfirm Comparison (Australia) Pty. Ltd. v. The Law Society of New South Wales (1975) 6 A.L.R. 445; Australasian Performing Rights Association v. Grebo Trading Co. Pty. Ltd. (1979) 23 A.C.T.R. 30. . These cases apply to copyright cases the principles developed and applied in patent cases: see General Tire and Rubber Co. v. Firestone Tyre and Rubber Co. Ltd. (1976) R.P.C. 197 per Lord Wilberforce (at pp. 212-215). In those cases where the infringer diverts sales from the owner the measure of damages will usually be the profit which would have been realised by the owner had the sale been made by him: ibid at p. 212. In other cases the measure of damages will be the sums he would have paid by way of royalty for a licence if he had acted lawfully and not unlawfully: ibid at pp. 212-213. In such a case evidence of the royalty paid by others: who negotiated "by way of free bargain" to establish a "going rate" is relevant, provided the circumstances are comparable: cf. Aktiengesellschaft Fur Autogene Aluminium Schweissung v. London Aluminium Co. Ltd.(No. 2) (1923) 40 RPC 107. In the absence of a normal rate of profit or a "going rate" royalty a Court is required to apply the notional bargain approach referred to in Meters Ltd. v. Metropolitan Gas Meters: Ltd. (1911) 28 R.P.c. 157 per Fletcher Moulton L.J. (at pp. 164-165) referred to with approval by Lord Wilberforce in the General Tire Case. Lord Wilberforce said (at p. 214):- "AK proper application of this passage, taken in its entirety, requires the judge assessing damages to take into account any licences actually granted and the rates of royalty fixed by them, to estimate their relevance and comparability, to apply them sc far as he can to the bargain hypothetically to be made between the patentee and the infringer, and to the extent to which they do not provide a figure on which. the damage can be measured, to consider any other evidence, according to its relevance and weight, upon which he can fix a rate - of royalty which would have been agreed." ~41- The hypothetical or notional bargain referred to by Lord Wilberforce is not necessarily that which would be struck by the hypothetical vendor and purchaser in a compulsory acquisition case. This point is clearly made by Lord Wilberforce (at p. 221) after citing the following passage from the judgment of the Court of Appeal in the General Tire Case:- "In our judgment, a distinction must be drawn between commercial considerations or other matters affecting the value of the subject matter of the supposed negotiations on the other hand and circumstances which have a direct bearing upon the relevant bargaining powers on the other. When using the royalty method to assess (the value of the use) we must assume that the hypothetical negotiations take place between parties bargaining on equal terms; in other words, there must be eliminated from the circumstances of the supposed market those elements of the circumstances of the actual market which would in any way distort the bargaining powers of the hypothetical negotiators. Lord Wilberforce then said:- "My Lords, this passage is, in my opinion, unsupportable in law or in fact. In law it rests upon the hypothesis that what has to be considered, in measuring the.loss a patentee sustains through an infringement, is some bargain struck between some abstract licensor and some abstract Licensee uncontaminated by the qualities of the actual actors. ° But this is not so. The 'willing licensor' and 'willing licensee' to which reference is often made (and i do not object to it as long as we do not import analogies from other fields) is always the actual licensor and the actual licensee who, one assumes, are each willing to negotiate with the other - they bargain as they are, with their strengths and weaknesses, in the market as it exists. It 1s one thing (and legitimate) to say of a particular dDargain that it was not comparable or made in comparable circumstances with the bargain which the court is endeavouring to assume, so as, for example, =o reject as comparable a bargain made in settlement of Litigation. It is quite another thing to reject matters (other than any doubt as ~42= to the validity of the patent itself) of which either side, or both sides, would necessarily and relevantly take account when seeking agreement." No question of assessing loss of profit arises in this case. In our opinion the amount the Tribunal should determine as the amount payable by the broadcaster should represent equitable or fair and reasonable remuneration to the copyright owner for the broadcaster's use of protected recordings. For this purpose s. 152 assumes a collective bargain by the broadcaster on the one hand and ail identifiable copyright owners on the other, each exercising their actual bargaining power. The only assumption which is made is that they are each willing to negotiate and conclude an agreement. Counsel for the applicants pointed to the distinction drawn by Lord Wilberforce (at p. 221) in the General Tire Case between loss or damage and "what the infringer ought fairly to have paid". The difference is between what. the infringer should have paid and what he would have paid had he negotiated a licence. The rejection of the former reflected a policy to exclude any element of punitive damages. The task of the Tribunal is to determine what 2MMM would have paid had it negotiated 'a licence in 1980, instead of merely giving: an undertaking to pay the amount, determined by the Tribunal. Adopting the approved formulation of Fletcher Moulton L.J. in the Meters Case the relevant amount should represent what "could have reasonably been charged" for a- licence in the actual circumstances prevailing, the only assumption being that the parties were willing to negotiate and conclude a bargain. It is in this context that the Tribunal must -~43- consider the evidence concerning the activities of broadcasters in the market place which was adduced as being relevant to the respective bargaining powers of the broadcasters and the copyright owners. THE BANS ~- 1970 AND 1982 THE 1970 BAN: Following the enactment of the Act in 1968, including the provisions of s. 152, 13 Australian record companies and one British company formed PPCA in March 1969. One of the purposes for which PPCA was formed was for the exercise of copyrights in sound recordings under paragraphs (b) and (c) of s. 85 of the Act on behalf of the owners of those rights by the granting of licences. As already described, PPCA entered into a number of "Input Agreements" by which the record companies and certain other companies conferred on PPCA full powers to act on their behalf to negotiate Licence agreements and to collect and recover licence fees payable under such agreements. In the months following the enactment of the Act, negotiations took place between representatives of PPCA and the Federation of Australian Commercial Broadcasters ("FACB"), the predecessor of the Federation of Australian Radio Broadcasters ("FARB"), with a view to the conclusion of an industry wide licence agreement for the broadcast of sound recordings in the context of s. 109 of the Act. In Cctober 1969 the Annual Convention of FACB passed a resolution to the effect that, if the record companies insisted cn the dayment of any licence fee, member radio stations would not b>brceadcast freacords manufactured in -44~— Australia. FACB also resolved that, in the event that a fee was insisted upon, FACB members would broadcast records from the United 'States which were "unprotected records" or set up their owf record manufacturing organisation. ' In the result, from 16 May 1970 the member radio stations of FACB imposed a ban on the broadcasting of Australian, British, and other "protected" recordings. The ban ended with the conclusion of an Agreement dated 2 November 1970 between FACB and PPCA ("the FACB Agreement") which provided for the grant of individual licences to the 115 radio stations then comprising the FARB membership. The consideration for the licences was the grant to PPCA . during the term of the agreement of advertising credits for use on each station on the basis of three 30 second. announcements per week scheduled in prime time, or the equivalent, as agreed between PPCA and the individual station. .PPCA was entitled to use the advertising credit or assign it to any member of PPCA as it thought fit. Provision was made for PPCA to restrict or, at its discretion, to prohibit the broadcasting by the station of any particular record. Such a restriction could limit the broadcasting of the record to one record in any period of 24 hours during an overall period not exceeding two. months. The FACB Agreement was for a term of five years commencing on 2 November 1970 and thereafter subject to termination upon 12 months ' notice. The value of the advertising credits determined at stations' card rates was the equivalent of $119,421.00 in the first year. This value was reassessed on the Ist July each year at the card rates then applicable. Because of the difficulty of the record companies making use of the various advertising credits PPCA entered into an agreement with EMI (Australia) Limited ("EMI") -45- dated 18 Pebruary 1971 whereby PPCA in consideration for payment by FMI assigned the advertising credits granted to it by each station to which PPCA granted a licence. While from time to time PPCA has given consideration to the termination of the FACB Agteement it still _ remains in force. It was submitted by 2MMM that the terms of the FACB Agreement: were a relevant matter for the purposes of s. 152 and indicated the sort of terms which the record companies and/or PPCA would expect to negotiate in a free bargaining situation. The record companies submitted that the FACB Agreement had not been freely negotiated and was irrelevant. So far as the question of the existing bargaining power of the AM radio stations members of FARB was concerned, it was submitted by the record companies that the provisions of the Trade Practices Act, 1974 ("the Trade Practices Act") would operate to prevent a recurrence of the imposition of any ban such as that imposed in 1970. The latter submission was made in the context of a further submission that trade practices implications were generally irrelevant whatever basis was 'adopted by the Tribunal for determining the amount payable by 2MMM to the record companies. To the extent that trade practices considerations were considered relevant by the Tribunal, counsel for the record companies submitted that the Trade Practices Act prohibited the imposition of bans or other similar collusive action on the part of the radio station operators in three ways. First, it was submitted that any such ban or exclusive arrangement would involve a contract, arrangement or 'understanding containing a provision having the purpose or effect or Lixely effect of ~46=< substantially lessening competition contrary to sub-para 45(2)(a) (ii) and that the giving effect to such provision would be contrary to sub-para 45(2)(b)(ii). Secondly, it was submitted that any such contract, arrangement or understanding would fall within s. 45A in that its purpose or likely effect would be to control the price for services acquired or to be acquired by the radio stations "in competition with each other. Thirdly, it was submitted that the imposition of a ban such as that imposed in 1970 or similar collusive conduct would involve the participants in conduct contrary to para 45D(1)(a). THE 1982 BAN: These submissions were also relevant to a ban imposed by 9. Sydney commercial AM and commercial FM radio broadcasters, members of FARB, which was agreed to be imposed at a meeting of representatives of the stations concerned on 29 September 1982. Each of the broadcasters involved (2GB, 2KY, 2SM, 2UE, 2UW, 2CH, 2WS, 2DAY, 2MMM) confirmed their agreement to impose the ban by Letter dated 29 September 1982 addressed to the Federal Director' of FARB. The ban was to commence on 4h october 1982 at 12.01 a.m. and applied to the broadcasting of:- ",.,all new sound recordings first made in the countries listed on the next page and released in Australia on and after the commencement date by PolyGram Records Limited and Astors Record. Limited, or successors or assigns thereof or companies related thereto and to such other of WEA Records Pty. Limited, EMI (Australia) Limited, Festival Records Pty. Limited, CBS Records Australia Limited and RCA Limited as subsequently decided:" -47- The letter then set out a list of countries the main significance of which was that Australia and the United Kingdom were included and the United States of America was excluded. The relevant letters also contained the following paragraph:- "4, This Company will be free to broadcast all other sound recordings, including recordings first made in Australia, released by the abovenamed record companies prior to and after the commencement date of the ban." On 1 November 1982, during the course of the hearing, the ban was extended to "all new broadcast copyright releases of Polygram and Astor including. Australian material" and "all new broadcast copyright releases of WEA Records including Australian material". By letters dated 29 October 1982 the broadcasters confirmed the substitution of the following paragraph for the original paragraph 4 in the letter agreements:- "4 (A) The ban will also apply to the broadcasting by this company and other broadcasters of new sound recordings first made in Australia or made by Australian artists where such recordings are released in Australia on and after the date of this letter by Polygram Records Limited and Astor Records Limited, or successors or assigns thereof or companies related thereto and by such other of WEA Records Pty. Limited, EMI (Australia) Limited, Festival Records Pty. Limited, CBS Records Australia Limited and RCA Limited as subsequently decided. (B) This company will be free to broadcast ail sound recordings other than those referred to in clauses 3 and 4 (A) hereof released by the abovenamed record companies prior to and after the date of this letter." ~48= The 1982 ban was imposed following consideration of a memorandum distributed to the participants. on 28 September 1982 which contains the following rationale for the imposition of the ban:- ",..it seems very doubtful whether the questions about the application and effect of the Trade Practices Act in relation to a broadcast restriction could be fully and definitively dealt with in the Tribunal proceedings. The only practical way of ensuring that the questions are completely answered is to implement a curtailment on the broadcasting of broadcast copyright recordings. The simplest way of doing this would be to apply a restriction in the first instance to the broadcast copyright. records released by. one of the Applicants. We are sure that a restriction will not affect the competitive position of member participants. The position can be assessed from time to time and it will then be open to members to consider whether the restriction is to be applied to any one or more of the other record companies..." «: Evidence was given by Mr. Foster, director of FARB, to the i effect that the Copyright Committee of FARB, which had devised the ban, selected Polygram as the first target for the ban because that 'company was perceived to be weak and might be prepared to negotiate individually with the FM radio stations and/or FARB to arrive ata settlement with the applicants outside the s. 152 proceedings. It was decided not to inform Polygram formally of the ban. -49- The form of ban imposed in 1982 was similar to that imposed in 1970. There were, however, differences so far as the participants in the ban and the objects of the ban were concerned. In 1970 all members of FACB participated in the ban. In 1982 only 9 Sydney broadcasters participated. In 1970 the ban was directed at all record companies. In 1982 the ban was selective. It was submitted by counsel for the record companies that the participating AM and FM broadcasters were in competition with one another to attract audiences by programming, and that the contract or _ arrangement evidenced by their letter agreement to compete without the use of new release recordings from Polygram and WEA Records would lessen competition within the meaning of sub-paras 45(2)(a)(ii) and 45(2)(b)(ii) of the Trade Practices Act. THE BANS AND THE TRADE PRACTICES ACT. In our opinion, the AM and FM radio broadcasters are competitive with each other in the market for the sale of advertising time in their coverage area. There was, nowever, insufficient evidence put before us to make any definitive finding concerning the definition of the relevant market. There was also insufficient evidence of the impact of the oans on competition between the radio stations. Consequently, it is not possisie for us to make any finding on the question whether the contract ce) r arrangement evidenced by the -50— 1982 letter agreements has or would be likely to have the effect of substantially lessening competition between the broadcasters involved. Similarly, we do not have sufficient evidence to make any" finding whether, if the 1970 ban was to be repeated, it would have. the effect of substantially lessening. competition between the participants. In the absence of any sufficient evidence concerning the definition of the relevant market and the impact of either the 1970 ban or the 1982 ban on competition between the broadcasters who participated, the submission that such bans would involve contraventions of sub-para 45(2)(a)(ii) and sub-para 45(2)(b)(ii) of the Trade Practices Act must be rejected. So. far as s. 45A is concerned, the question is whether or not the: contract or arrangement underlying the 1970 ban and the 1982 ban had the purpose or likely effect of controlling the price for services acquired or to be acquired by the radio stations in competition with each other. Assuming that the acquisition by the radio stations of licences to broadcast sound recordings involves the acquisition of x "services", we are not satisfied that this activity is one conducted by the broadcasters in competition with one another. The evidence before us shows that the commercial broadcasters compete with one another for the sale of advertising time. They do not have to compete with one another to acquire licences to broadcast sound recordings. The record companies actively compete with one another to press records upon the broadcasters so as to obtain airplay. In our opinion, while the 1970 ban did invdlve an arrangement which fixed or controlled the price which FACB members would pay to acquire Licences , -Sl- to broadcast sound recordings, its recurrence would not be caught by s. 45A of the Trade Practices Act so as to constitute per se breaches of sub-para 45(2)(a)(ii) or sub-para 45(2)(b)(iil) unless it could be shown that the relevant services were acquired by the broadcasters in competition with each other. Such has not been shown in these proceedings. It was further submitted on behalf of the record companies that the imposition by the broadcasters of a ban such as that imposed in 1970 or similar collusive conduct would involve the participants in a contravention of sub-s. 45D(1). This submission also applied equally to the 1982 ban. Section 45D was inserted in the Act in 1977 and the existing sub-s. 45D(1) was substituted in 1980 by Act No. 73 of 1980 which was in force at the material time. Sub-section 45D(1) provides:- "45D(1) Subject to this section, a person shall not, in concert with a second person, engage in conduct that hinders or prevents the supply of goods or services by a third person to a fourth person (not being an employer of the first-mentioned person), or the acquisition of goods or services by a third person from a fourth person (not being an employer of the first-mentioned person), where - (a) the third person is, and the fourth person is not, a corporation and - (i) the conduct would have , likely to nave the eff causing - <<" -52- (A) substantial loss or damage to the business of the third person or of a body corporate that is related to that person; or (B) 'a substantial lessening of competition in any market in which the third person or a body corporate that is related to that person supplies or acquires goods er services; and (ii) the conduct is engaged in for the purpose, and would have or be likely to have the effect, of causing - (A) substantial loss or damage to the business of the fourth person; or . (B) a substantial lessening of competition in any market in which the fourth person acquires goods or services; or (pb) the fourth person is a corporation and the conduct is engaged in for the purpose, and would have or' be Likely to have the effect, of causing - ~ (i) substantial loss 'or damage to the business of the fourth person or of a body corporate that is related to that person; or (ii) a substantial lessening of -competition in any market in, which the fourth person or a body.corporate that is related to that person supplies or acquires goods or services." The manner in which it was alleged that para. 45D(1)({a) had been infringed is best understood in terms of the illustration given. by counsel for the record companies in relation to the 1982 ban. It -53- was said that the provision was contravened as follows: - 2UW acting in concert with 2SM had engaged in conduct that hindered the supply of services by Polygram to 2MMM or the acquisition of services by 2MMM from Polygram. The services in question were licences to broadcast sound recordings. The submission was not developed before us in any detail.. Paragraph 45D(1)(a) only applies where the third person is and the fourth person is not a corporation. In the case of supply by Polygram to 2MMM, Polygram is the third person and 2MMM is the fourth person. In the case of acquisition by 2MMM from Polygram, 2MMM is the third person and Polygram is the fourth person. Both are corporations so that paragraph 45D(1)(a) can have no application. Paragraph 45D(1)(b) applies where the fourth person is a corporation. While there may be sufficient evidence before us to justify a finding that the conduct of the participants in the 1982 ban had the relevant purpose, there is insufficient evidence that would enable us to find that the conduct would have or be likely to have the effect of causing substantial loss and damage or a substantial lessening of competition for the purposes of para. 45D(1)(b). There is likewise no sufficient evidence before us to enable any relevant findings to be made concerning the effect of a re-imposition of the 1970 ban or any similar ban. ~54— A brief reference was made to the possibility of a ban contravening sub-s. 45D(1A) which provides that:- "45D(1A) Subject to this section, a person shall not, in concert with another person,. engage in conduct for the purpose, and having or likely to have the effect, of preventing or substantially hindering a third person (not being an employer of the first-mentioned person) from engaging in trade or commerce - (a) between Australia and places outside Australia; (b) among the States; or (ce) within a Territory, between a State and a Territory or between two Territories." There was little relevant evidence put before us concerning the possible application of sub-s. 45D(1A) in the case of Polygram and its engagement in trade or commerce of the kind mentioned. ie Counsel for the record companies accepted that not all the N relevant evidence was available in relation to the trade practices issues which had been raised. It was.suggested that s.164 could assist the Tribunal in-such a situation. In our opinion the mere fact that the Tribunal is not bound by the rules of evidence does not mean that it should not base its decisions on the material before it. We are unable to make any relevant findings of fact in relation to sub-s. 45D(1) or sub-s. 45D(1A) because the evidence is insufficient. ~55- Counsel for the record companies did not submit that the 1982 ban involved the making of a contract or arrangement containing an exclusionary provision contrary to sub-para 45 (2) (a) (i). of the Trade Practices Act or the giving effect to an exclusionary provision contrary to sub-para. 45(2){b)(i). Section 4D of the Trade Practices Act defines an "exclusionary provison" in terms which require that the contract or arrangement must be made between competitors and that the relevant provision must have the purpose of preventing, restricting or limiting (for present purposes) the acquisition of services from particular persons, or from particular persons in particular circumstances or on particular conditions. It is clear that the letter agreements evidenced a contract or an arrangement between competitors. Counsel for the record companies submitted that the provision in the letter agreements for the imposition of the 1982 ban on the use of the relevant recordings of Polygram and WEA was not an exclusionary provision because of the existence of the statutory licence under s. 109. In the case of the FM radio stations, each of the broadcasters was entitled to broadcast recordings of Polygram and WEA without infringement, having given an undertaking to pay the amount determined by the Tribunal under s. 152. In the case of the AM broadcasters, their position was covered py the FACB Agreement. In our 'opinion the relevant provisions of the letter agreements, on the face of them, nave the purvose of preventing, restricting or limiting the acquisition of a Licence to broadcast particular recordings in terms which would satisfy the requirements cf para. 4D(1)(b) of the Trade Practices Act. The question is whether -56- acquisition of a licence to broadcast constitutes the acquisition of services Practices Act. By sub-s. 4(1) of the "services" is defined as follows:- a particular sound recording for the purposes of the Trade Trade Practices Act .the term "'services' ineludes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and without limiting the 'generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under ~ (a) a contract for or in relation ta - (i) the performance of work (ineLuding work of a professional nature), whether with or without the supply of goods; (ii) the provision of, or of the use - er enjoyment of facilities for, amusement, entertainment, recreation or instruction; or (iii) the conferring of rights, benefits or privileges for which remuneration is payable -in the form of a royalty, ~ tribute, levy or similar exaction; (Bb) .a contract off insurance; (ce) a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or. (d) . any contract for or in relation to the lending of moneys, but does not include rights or benefits being the supply of goods or the performance of work under a contract of service." -57- In our opinion, the right to broadcast a recording without an infringement of the broadcasting copyright is a right, benefit, privilege or facility provided or conferred in trade or commerce for the purposes of the definition. This is because the right is acquired either by virtue of the provisions of the FACB Agreement, in the case of the AM broadcasters, or by virtue of the undertaking in the case of the FM broadcasters in conjunction with s. 109 of the Act. In the case of the FACB Agreement there is a contract for or in relation to the conferring of a licence for which remuneration is payable in the form of advertising credits. Such a contract falls within sub-para. (a) (iii) of the definition as well as the general part of the definition. In the case of the FM broadcasters there is no relevant contract. The giving of the undertaking procures statutory relief from infringement, which is in effect a statutory licence to broadcast. The giving of the statutory undertaking has the effect that s. 109 of the Act confers on the tundertaker the right to broadcast, The transaction is one in trade or commerce. In our opinion these circumstances are sufficient to bring the so-called "statutory Licence" within the definition of "services". The making or giving effect to a contract or arrangement containing an. exclusionary provision is a per. se breach and it is not necessary to show any anti-competitive effect. Assiming, Nowever, that the 1982 bans and any renewal of the 1970 bans would involve breaches by the varticipants of sub-para 45(2)(a)(i) and/or sub-para -45(2)(b) (i) of the Trade Practices Act it 1s necessary to determine to what extent that circumstance is relevant to the eresent oroceedings. -58-~ In our opinion, as the task of the Tribunal is to determine what amount. under s. 152 of the Act represents a fair and reasonable payment by 2MMM to the record companies for the broadcasting right, it is not relevant to take into account the impact upon the record companies or one or more of them of an unlawful ban. In our opinion, the fairness or reasonableness of the amount would not be affected even if the bans were found to be lawful. To the extent that the "notional bargain" approach were the correct approach, the ability of" the relevant party to impose an unlawful ban would not be relevant. If the bans were lawful, the ability to impose them would not be relevant if the notional bargain was to be constructed on the basis of the product. of a bargain: freely negotiated as distinct from one negotiated in circumstances of oppression: cf. General Tire and Rubber Co. v. Firestone Tyre & Rubber Co. Ltd. (1975) RPC 203 at 221 and 228. PPCA AND THE INPUT AGREEMENTS THE TRADE PRACTICES Act 2MMM submitted that the record companies and PPCA had made and were giving effect to provisions of a contract, arrangement or understanding which contained an exclusionary provision or which had the purpose or had or was likely to have the effect of substantially lessening competition in a market in which the record companies supplied services, namely," by licences for broadcasting sound recordings, contrary to sub-s. 45(2) of the Trade Practices Act. It was submitted that the record companies were competitive with each other in relation to the obtaining of broadcasting time for records which they marketed in Australia; and the licence fees obtainable by -59~ them for the granting to broadcasters of the right to broadcast sound recordings. It was further submitted that the record companies and PPCA were parties to a contract or arrangement or had arrived at an understanding which included provisions:- (a) that the granting of licences to broadcast recordings will be negotiated by PPCA exclusively as agent for all the record companies; and (b) that no record company will grant such a licence except on terms agreed by and applicable to all the record companies. Accordingly, so it was submitted, the contract arrangement or understanding had the purpose of preventing, restricting or Limiting the supply of services (namely the grant of licences to broadcasters) by the record companies to broadcasters in particular circumstances or on particular conditions. It was said that the relevant contract arrangement or understanding: was evidenced by the following:- -60- (1) The Memorandum and Articles of PPCA. (2) Input Agreements. (3) PPCA Minutes. (4) Mr. Hayes' Statement. (5) Mr. Hayes' evidence re. 2MBS-FM and licensing of community and public interest broadcasting. (6) Mr. Turner's evidence. (7) Application dated 3lst January 1975 by PPCA to the Trade Practices Commission for authorisation of exclusive dealing and restraint of trade with supporting documents. (8) Communications between the Applicants and PPCA and Radio 6SE. (9) Mr. Jamieson's evidence. (10) Application by 2MMM to Trade Practices Commission for revocation of interim authorisation granted to PPCA on 12th. May 1975 in respect of application for authorisation No. Al5458. (11) Application by 2MMM to Trade Practices. Commission for authorisation. It appears from these materials that the Trade Practices Commission granted an interim authorisation to PPCA and the various parties to the agreements and understandings referred to in a memorandum attached to the application by PPCA No. Al15458. In our opinion, the interim authorisation is one which would extend to cover -6l1l- the matters the subject of 2MMM's submission. The effect of an authorisation granted under s. 88 of the Trade Practices Act is that it removes the statutory prohibition that would otherwise apply to the relevant trade practices involved. Prima facie, the interim authorisation does authorise conduct which would otherwise be prohibited by s. 45 of the Trade Practices Act both so far as contracts, arrangements or understandings that have the purpose or likely effect of substantially lessening competition and exclusionary provisions are concerned. The position is, however, that by letter dated 28 August 1980 PPCA informed the Commission that it wished to withdraw the relevant application for authorisation with the result that the Commission revoked the interim authorisation on'or about 18 September 1980. Counsel for 2MMM submitted that the effect of the arrangements between PPCA and the record companies was that supply of licences to FM radio stations by the parties to the arrangement would only be on the one-set of terms namely, those stipulated by them or determined by the Tribunal. It was said that this arrangement precluded competition between them and, in terms of s. 4D of the Trade Practices Act restricted the supply of services in the form of Licences to FM radio stations by all of. the record companies who had entered into Input Agreements with PPCA. We do not accept these submissions. By virtue of s. 109 of the Act a Licence can be acquired either by agreement or by the giving of an 'undertaking to pay the amount determined oy the Tribunal -nder s. 152. So far as the AM broadcasters are concerned their licence has been acquired pursuant to the FACB Agreement. ~62- In our opinion it is not necessary for the purposes of these proceedings to make any determination one way or another: on the question whether or not the giving effect to the FACB Agreement by any of the relevant parties involves any contravention of the Trade practices Act. So far as the FM broadcasters are concerned, they were requested by PPCA to give undertakings for the purposes of s. 109 and they did so. The undertaking by 2MMM is one such undertaking. In these circwmstances, there is no question of the "supply" of a licence to 2MMM by the record companies or PPCA. Simply by giving the undertaking 2MMM has obtained by virtue of s. 109 of the Act the right to broadcast the relevant sound recordings without any infringement of the broadcasting copyright. Further, as 2MMM has given an undertaking, no question arises of giving effect to an agreement between the record companies and PPCA only to grant licences otherwise than for an amount stipulated by them or by the Tribunal. We do not consider that there is in this case any 'conflict between the provisions of the. Gopyright Act and the Trade Practices Act of the kind referred to in Broadcast Music Ine. v. Columbia Broadcasting System, Inc. (1978) 441 U.S. 1; per White J. at 5 and United States v. A.S.C.A.P. (1950-1951) Trade Cases 62+595. Even assuming that the arrangements between the record companies and PPCA contain an exclusionary provision in contravention of sub-s. 45(2) of the Trade Practices Act we do not consider that the performance by the Tribunal of its statutory function in hearing and determining the application for it under s. 152 could be regarded as giving effect to any relevant exclusionary provision or anti-competitive arrangement. -63- LICENCE ARRANGEMENTS BETWEEN THE RECORD COMPANIES AND THE AM BROADCASTERS J We have referred elsewhere to the arrangements that were made in 1970 between the record manufacturers and the AM radio stations which have continued since then although, in more recent times, PPCA has made it clear to new AM radio stations that it seeks from them a licence fee equivalent to 1% of gross revenue. 2MMM claims that the best guide to what it should pay the record companies is to be found in these arrangements that have been on foot since 1970. In our view, this is an unreal approach. [t is plain that the record companies have been considering for some years now changing their arrangements with the AM broadcasters and have, as we said, conducted negotiations in more recent times on the basis of 1% of gross revenue. However, in determining the appropriate order to be made in this case we do take into account the fact that the 1970 arrangements between the record companies and the AM broadcasters are still on foot. The fact that the record companies are seeking to substantially alter those arrangements along the lines of a licence fee of 1% of gross revenue is also relevant. These and' other considerations are relevant, matters to be taken into account by us for the purpose of ascertaining the equitable or fair and reasonable remuneration payable to the copyright owners for the use by 2MMM of protected recordings. -64~ PAYMENT FOR OTHER BROADCASTING MATERIAL The record companies submitted that there were various agreements available which could be of assistance to the Tribunal in considering the value to be attributed to the use of sound recordings by 2MMM. The agreements said to be relevant were those between the broadcaster and suppliers to it of program material other than that provided by record manufacturers. The material included the licence to broadcast music and news, the recording of a concert, and access to non-copyright material. So far as the use of sound recordings is concerned, it was indicated that two types of copyright licences are involved - one the subject of these proceedings and the other the licence of the owner of copyright in the music which is reproduced in the recording played by the broadcaster. Remuneration for the use of the music reproduced in the recording is the subject of agreement between FARB on behalf of the : broadcasters and Australian Performing Right Association ("APRA") representing the relevant copyright owners. The relevant agreement ("the APRA Licence Agreement") a continuation of earlier agreements, is one made on 15 July 1980 which, inter alia, provides:- -65- (b) The licence fees payable by the Licensee for each complete licence year shall be an amount equal to two per cent (2%) of the gross earnings of the Licensee from the sale of time on the said Station during the relevant period of twelve months ending 30th June as hereafter specified, and these periods shall be known as 'earnings years'. 3. The Licensee hereby covenants and undertakes with the Association:- (b) That it will announce at least once in ' gach performance the title of each musical work so broadcast and the name of the composer thereof. X eate ae 9. The Association reserves the right to withhold permission to broadcast or to restrict the broadcasting of any work or works assigned to it or in respect of which it is authorised to collect fees for broadcast performances, but hereby agrees that the number of works that may be withheld shall not exceed one per cent (1%) of the total number of works comprised in the repertoire of the Association. . i) eae eae In his evidence, Mr D.L. Foster said the current agreement was negotiated by the FARB on behalf of its members, and that there were no direct negotiations between APRA and individual stations. It was Mr Foster's view that the current agreement is not an appropriate indication of the value of the performing right 'to voroadcasting stations. Some members of FARB were considering various means whereby they could achieve payments to APRA substantially less than 2% of the -66— gross revenue. Mr Foster did not believe it was appropriate to seek to establish a relationship between the fee payable to APRA for the performance right in works and the fee payable to PPCA "for the proadeast right in some sound recordings, especially in the Australian context. The most important reason advanced by Mr Foster was that APRA controlled all of the works which broadcasters may wish to broadcast, whereas PPCA controlled only some of the recordings available to broadcasters. The existence of a monopoly so far as APRA was. concerned meant that there was in practical terms no 'body of unprotected works. The record companies submitted that the agreement with APRA was. a guide to the amount that might properly be payable.to it. The APRA. agreement was referable to one of the two copyrights that enabled 2MMM to broadcast music comprising, as it did, approximately 773 of its. total «program content. Whilst there were two different copyrights, neither was superior to the other. It was submitted that the broadcaster needed the licence of both and that it was appropriate x to consider the two rights as comprising the same process - the one creating the music, and the other recording it. The APRA Licence Agreement covers protected and non-protected sound recordings whereas, in the present case, the s. 152 copyright covers only about 59% of the field. The APRA Licence Agreement is an industry-wide agreement, not taking account of use. The 2% charge is thus an across-the-board charge. -67- We do, however, consider that it is appropriate to look at the APRA Licence Agreement as a guide, while keeping in mind the dissimilarities to which we have just referred. There are other matters which we regard as relevant considerations under sub-sec. 152(7). These were not necessarily relevant considerations to the parties under the APRA Licence Agreement. We were also referred by the record companies to the amount that 2MMM pays for the provision of a news service from Australian Associated Press. On the basis of budgeted expenditure, July/December 1982, 2MMM appropriated a small percentage of its total budgeted expenditure to the provision of news. The corresponding percentage budgeted expenditure on account of payments to APRA was a substantially lower percentage. Comprised in the budgeted expenditure on account of the provision of news were budgeted payments to Australian Associated Press on account of news rights, salaries and consultants' fees, The percentage attributable to Australian Associated Press was less than 1% and that attributable to news rights even smaller. The proportion of 2MMM's broadcasting time occupied by news as at 30 June 1982 was 3.1% as against 76.4% occupied by music as a program ingredient. We have considered these payments by 2MMM for the provision of a news service and derive no real assistance from these matters in resolving the questions before us. -68- PAYMENTS BY BROADCASTERS IN OTHER COUNTRIES The record companies submitted that what Tribunals in other countries have considered to be the value of the use by broadcasters of sound recordings, whilst "a little remote" from the question before us, does provide seme guidance to the Tribunal because the ' relationship of the parties is similar, the property is of a similar kind, the extent of the use is similar, and the argument against payment advanced by broadcasters, particularly in the United Kingdom and New Zealand, is similar. It was further submitted that we should be mindful of three matters. First, in the United Kingdom and New Zealand payments were for all sound recordings, whether protected or not. Second, there were Limitations on "needle time". Third, that so far as New Zealand was concerned, the FM broadcasters were in the ' process of negotiations, and according to Mr J.L. Hayes, had offered the New Zealand equivalent of PPCA 1.8%.of their gross revenue for 80% » "needle time". The term ""needlé time" refers to a limitation of the total programming day during which records can be played. In New Zealand at the relevant time it was 66.6% for AM radio and the royalty rate payable by the broadcasters to the New Zealand.equivalent of PPCA was 1.5%. Negotiations had taken place for a higher needle time ratio up to 80% needle time, and a royalty rate of 1.88. Other restrictions exist on the consecutive playing of albums. -69- Thus, whilst there are differences between the facts before the Tribunals in the United Kingdom and New Zealand, there are similarities. According to the record companies the similarities are sufficient to enable the Tribunal to take into account the situation in these other countries as a guide. It was submitted by 2MMM that neither the United Kingdom nor the New Zealand legislation was comparable to the Act in relevant respects, including the fact that in the United Kingdom much greater attention was paid to the existence of licensing bodies by reason of s.25. It was said that the United Kingdom and New Zealand legislation operated in a context where what is being valued is the copyright (analogous to the Section 85(¢) copyright), but where there are commercial stations which have no other music available to them than protected music. The sittation in both countries was the reverse, it was contended, of the situation existing in Australia. The copyright owners are there tn a very powerful bargaining position - a position the Tribunals in the United Kingdom and New Zealand must take into account. , We have derived gome assistance from the United Kingdom and . New Zealand legislation and the situation in those countries but ultimately the questions for us to decide fall for determination in the light of the particular requirements of s.152. -70= THE EXTENT OF USE BY 2MMM OF PROTECTED AND UNPROTECTED RECORDINGS. Although a relevant inquiry is the extent to which 2MMM uses protected recordings, the Tribunal may have regard to evidence of the use by 2MMM of both protected and unprotected recordings for the purpose of determining the extent to which it uses protected recordings. This particular matter of extent of use of protected recordings is one which the Tribunal is required to take into account by sub-s. 152(7) of the Act. 2MMM submitted. that its use of protected recordings comprised only a minor proportion of its record play lists. It also submitted that. a direct connection could not be established between its playing of protected recordings and its derivation of advertising income. The record companies submitted, on the other hand, that 2MMM's earnings are dependent predominately on the amount paid to it for advertising "and that income from that source was, for all practical purposes, directly linked to the playing of 'sound _ recordings. It was said that the programming policy of 2MMM is heavily oriented towards the broadcasting of sound recordings and that s. 152 recognizes a direct link between the uses of sound recordings and advertising revenue. The record companies set about the task of #¢stablishing the extent of 2MMM's broadcasting of protected recordings during the relevant period from 2 October 1980 to the cut-off point in the evidence namely, 10 August 1982. -7l1l- The period from October 1980 to 10 August 1982 was broken up into three segments for the purpose of analysis, the first period being 2 October 1980 to 30 April 1981, the second period 1 May 1981 to 31 December 1981 and the third period 1 January 1982 to 10 August 1982. As to the first period a running list of logs was kept by 2MMM. The task of analysing the logs and play Lists made available by 2MMM and assessing the frequency of playing protected and non-protected recordings fell in the first instance to Mr. Glenn Baker who carried out a very thorough and comprehensive analysis. Material provided to Mr. Baker consisted of about 200,000 noted playings of tracks. He went through the logs devoting between 150 to 200 hours to the task. He considered the "maker". of the sound recording. This was taken by him to be the first owner of the master, that is of the first record embodying the recording after all tracks had been fixed in. 'Criticism was made by 2MMM of some of the markings made by Mr. Baker on the logs. In answer to questions put to him by counsel for 2MMM Mr. Baker frankly conceded the possibility of there being some instances where there was room for another opinion as to who. was the maker of the sound recording, but said there could only be very few such instances. The work of Mr. Baker was challenged only in a few respects and he himself recognized a margin of error of olius or minus 2.5%. Mr. Baker analysed the logs of 2MMM for the other two periods and subjected them to the same process of analysis. His procedure -72~- was to prepare daily aggregate sheets and weekly summary sheets and then to calculate an overall percentage proportion of protected recordings to all recordings played. When this was done a check was made by the Assistant General Manager of PPCA,- Mr. S. Silver. In the result, based on the analysis of the logs the extent of 2MMM's broadcasting of protected recordings expressed as a percentage of all recordings broadcast was found to be as follows:- 2 October 1980 to 30 April 1981 - 52.66% 1 May 1981 to 31 December 1981 - 55.873 Ll January 1982 to 10 August 1982- 59.33% The higher percentage in the last period was contributed to by the absence of gold records in the play lists provided by 2MMM. An exercise separate from the log analyses was carried out by the record companies, involving the analysis of certain base play lists provided by 2MMM. These play lists related to the period 6 May 1981 to 31 December 1981 and 1 January 1982 to 12 August 1982. Two base play lists were prepared setting out, without repetition, each 'recording that appeared on all the play lists. The lists were then analysed by Mr. Baker into protected and non-protected recordings. Mr. Baker's analysis of the play lists for the last period 1 January 1982 to 12 August 1982 showed that the recordings which appeared on the play lists comprised 42.2% of all recordings broadcast by 2MMM in. that period other than gold records. -73- The base play lists were separately analysed by the record companies, that is independently of Mr. Baker's own assessment. The assessment showed that the proportions of protected recordings on the play .list expressed as a percentage of total recordings was about 62.5%. There is some disagreement between the record companies and '2MMM as to a small number of the relevant markings in the play lists but not sufficient to materially affect the result. Bearing in mind that the 42.2% recordings appearing on the January to August 1982 play lists excluded gold records, the play list analysis provides support for the log analysis. "Mr. Muir, the executive director of 2MMM, gave evidence of the activities of 2MMM from the commencement of transmission until the time he gave evidence. His evidence was to the effect that at all times, until the imposition of the recent ban, little if any regard was paid by 2MMM to whether a record was protected or not protected. Records played were those considered appropriate for the mix of music desired by 2MMM. "tt was possible for Mr. Muir to obtain from play lists extracted at random approximate percentages for protected and non-protected recordings as shown on the play lists of 2MMM from time to time. The result of one such test analysis carried out by 2MMM on play Lists for the period from mid-February 1981 to Late April 1981, was that the percentage of protected recordings in chart singles or albums played was between 45% and 35% and the proportion of protected albums and tracks played of gold or vintage recordings was approximately 60% of total recordings olayed. -74~ We note in passing that 2MMM has made provision in its profit and loss account in respect of the 1981 and 1982 financial years for the payment of a broadcast royalty which assumes a percentage of protected recordings played of not less than 50%. This was done no doubt as a matter of prudent business and accounting. Mr. Muir's test analysis was conducted in the first half of... 1981. As we have said, the percentage of protected recordings to total recordings played resulting from Mr. Baker's log analysis for the first period from October 1980 to April 1981 was 52.66%. The increasing percentage trend of protected recordings played by 2MMM as appears from the results of the log analyses (52.66% to April 1981, 55.87% to December 1981 and 59.33% to August 1982), at least until the imposition of the bans in October 1982, was reflected in a lesser percentage of gold and vintage recordings now being played by 2MMM. Our finding is that during the period from the commencement of transmission by 2MMM until the commencement of programming an average of 54% of records broadcast by 2MMM were recordings in which there existed a broadcast copyright. For the periods subsequent to the commencement of programming, that is October 1980 te 30 Jane 1981, 1. July 1981 to 30 Jume 1982, and 1 July 1982 to 30 June 1983, asswming the continuance of the trend of using protected recordings evidenced before the imposition of the bans, we find that the relevant percentage use of protected recordings was respectively 53%, 58% and 60%. We also find that there is a correlation between the broadcast of -75- music and the derivation of advertising revenue which is reflected in gross earnings. This correlation is reflected in the allocation of air time. ALLOCATION OF AIR TIME 2MMM does not, of course, devote the whole of its program time to the playing of music. An analysis prepared by 2MMM, which was not challenged by the record companies, showed that of a total weekly time available of 10,080 minutes, 7,697 minutes were devoted to music. The allocation was as follows:- Advertisements (Commercials) - 958 minutes 9.5% News - 316 minutes 3.13 Promotions - 112 minutes 1.1% Station identification - 126 minutes 1.3% Talk ~ 672 minutes 6.7% Sur £/Ski. Reports . - 23 minutes 0.2% Interviews - 36 minutes 0.3% Comedy ; ; - 40 minutes 0.4% Community service and Religion - 100 minutes 1.0% Music - 7,697 minutes 76.4% -76- According to this analysis, the percentage of program time devoted to music was then 76.4%. If one looked at the musi¢ content of the programs in the absence of commercials, the percentage of music content would rise to 84%. Mr. Muir stated in his evidence, however, that the percentage of time taken up by music would be reduced by 2MMM as it "got more money". In its application to the Australian Broadcasting Tribunal for the grant of a licence for a commercial FM Broadcasting Station, 2MMM summarised its prospective weekly programming ingredients as:- Music - 7,268 minutes News - 349 minutes Community service - | 84 minutes Religious - 60 minutes Childrens - 63 minutes ~ Information/Talk - 840 minutes Advertising - 1,416 minutes The 1980/1981 Annual Report of the Australian Broadcasting Tribunal sets forth the "broad proportions of time occupied by particular types of programmes on metropolitan, commercial broadcasting stations" as:- -77- Light/popular music - 61% Sport - 3% Presentation -— 5% News - 9% Other entertainment - 1% Advertisements ~ 14% Information and Services - 5% As to 2MMM the same Annual Report recounts its station profile as:- Popular/light music - 83% Presentation - 3% News ~ 5% Advertisements - 9% Seemingly in confirmation of the trend mentioned by Mr. Muir, the percentage of music to total programs and music to programs in the absence of advertisements has decreased from the 1980/1981 figures -veferred to in the Australian Broadcasting Tribunal Report to the 1982 figures, as provided by 2MMM to the Tribunal. -78-— Our finding is that the broadcasting time occupied by the playing of protected recordings by 2MMM was not less than - As a percentage of total program time: 1981 - 443 | 1982 - 45%; and As a percentage of total program time less advertisements: . 1981 ~ 48% 1982 - - 50% Having in mind the evidence of 2MMM and the importance of there being present an overall image or impact created by the mix of music, commercials, interviews, news, and the other ingredients, we consider that the-relevant matter to be looked at in this regard when measuring the contribution made by protected recordings to the earning capacity of 2MMM is the proportion of broadcasting time as a whole. occupied by the playing of protected recordings less advertisements. The time devoted to coumercials is a reflection of the 'power of the ether elements in the program package to attract a listening audience. There was clear evidence that advertising rates were closely linked to ' ratings or market share. The time spent in broadcasting music as a percentage of total program time less advertisements both for the 1981 and 1982 financial years, was approximately 49%. The similarity -79~ between the two years in the end result reflects a decrease in music time as a total ingredient of broadcast time measured against the increase in the use of protected recordings. On the evidence, we accept that this trend was likely to continue and consider that a like percentage would be appropriate for the 1983 financial year. AIRPLAY - ITS SIGNIFICANCE AND QUANTIFICATION The submissions of the parties on this question were in sharp contrast. Counsel for 2MMM submitted that the playing by it of the protected sound recordings should be taken into account by the Tribunal in diminution of the amount payable under s. 152 to the record companies. It was said that the playing of sound recordings is vital to the business of their manufacturer as it assists considerably in the promotion of the sale of sound recordings. Counsel for the record companies submitted that the position was akin to an owner who is entitled to compensation for the compulsory acquisition of his property and therefore it would be strange if compensation was assessed on the basis that the expropriation was good for him. Alternatively, it was accepted by counsel for the record companies that airplay enhances the sale of sound recordings, but it was said that it is necessary tq measure the benefit to the manufacturer of a sound recording against the benefit accruing to the broadcaster from the playing of the sound recording. -80- 2MMM sought to minimise the benefit to itself of airplay by submitting that there were numerous musical items available to it for the compilation of its programs, that no one broadcaster had exclusive access to particular sound recordings and that sound recordings were only one component of its programming. According to 2MMM' s statement of case, the components apart from sound recordings include:- "(a) The popularity of particular announcers and the personality, professional capability and expertise of announcers in general; (ob) the range and presentation style of news and information; (c) coverage of sporting events and other community activites; ; (d) the range and presentation style of advertisements, and. (e) the balance and flow of all program components." A view as to the benefit of airplay to the record companies ¢- is illustrated: by the evidence of Mr. Tudor, Managing Director of Fable Record Co. Pty. Limited who said:- ",..1lf you are going to promote records and try to achieve success....the only place you are going to get it is from radio...radio plays the most vital part initially and, whether record charts 'or otherwise, radio is normally the means by which a record is promoted." Mr. Muir gave evidence that a "hit" record only occurs when radio picks it up and decides to play it. Once radio decides to play a record and consistently repeats the playing of it ~81- "particularly in a competitive market like ours where a couple of stations do get onto the record at the same time, that creates a hit, and the hit has a sociological impact, if, you like, which is much more than the radio. The radio is the first measurement. It then runs out the juke boxes, artists in clubs sing the song, and it becomes a environmental occasion if you like. Just as people like listening to old records to relive the nostalgia of the moment that they enjoyed when it first came out." Mr. Muir acknowledged that music was the major source of entertainment sought by 2MMM's target audience, that .it was the "prime" but not the "dominant" programming element sought by that audience. Mr. Turner, previously Managing Director of WEA, gave evidence that so far as sales of records is concerned, airplay is very important. Mr. P.A. Iken, the present Managing Director of WEA, confirmed the importance of airplay and its significance in promoting sales. He said that the buyer demand was assessed depending on the individual record itself and the amount of airplay the record received. Mr.. Newman, Marketing Manager of Polygram Records, acknowledged that radio airplay constitutes an important part in obtaining sales of sound recordings and in sales strategy, but he qualified his view by saying that exposure is required on more than one station in a particular city to start chart activity and sales movement. -82- Mr. P.M. Jamieson, Managing Director of music operations of EMI regarded radio airplay as the enigma of "this whole case". He described it as both friend and foe to producers of sound recordings. Airplay was necessary to secure sales, but over-exposure on radio could "turn-off" Listeners. Mr. Stephen: Wagner, Secretary and Finance Controller of RCA Limited said that in recent times the importance of radio airplay had diminished and that "television. advertising is the main emotional tool used by record companies". He agreed however that a reasonable amount of airplay went hand in hand with the success of a sound recording and that it was the practice of record companies to obtain as much airplay as possible for new releases, Mr. Wagner said that he wished more records were played on radio than at. present, as there would be a likelihood of increased sales. He said that "airplay is an integral part of the marketing of our product". Other witnesses also gave evidence touching the significance of air play. It was suggested that the ABC television program "Countdown" played a significant role in introducing new recordings to the public. We are not the first tribunal to consider the question of significance of air play. It was described in the Owen Royal Commission Report (at op. 40) as this "apparent insuperable difficulty". -83- An exercise that has been of considerable assistance to us . } was carried out by Miss .K. V. Moller, Music Director of 2MMM , who caused a list to be compiled of about 150 selected tracks and albums appearing on charts and play lists from September 1981 to October 1982. Those tracks were first played by 2MMM and were considered to have "broken" in Sydney. A particular track is said to have broken when it has achieved chart status ("broken into the charts"). In some instances 2MMM was said to have been the only radio station to play the track yet it did achieve chart status. The tracks identified by Miss Moller represented over half and almost two-thirds of tracks added to play lists in the course of the year. The List compiled by Miss. Moller was then analysed choosing three record companies in the list and the releases by those companies of Australian groups were identified. She noted the date of release of the first appearance of a sound recording on the television program "Countdown", the date of 'first appearance on the charts and date on which it was first played by 2MMM. O£ the 27° releases identified by this means over two-thirds were played on 2MMM before first appearing on "Countdown" or the charts. Miss Moller's evidence was persuasive with reference to the significance of airplay to the manufacture and sale of sound recordings. In our view airplay is important to the record companies in promoting the sale of their products. It is alsc important to broadcasters, including 2MMM, who rely on the ready availability of records, both protected and unprotected, to conduct their business. ~84- 2MMM is an FM station which places some emphasis on music and requires a. supply of records and in particular new releases as its raw material. The record companies manufacture records for sale. The ability of 2MMM to sell advertising time is related to the Listening audience attracted by the music it broadcasts as part of its program package. The two activities are interdependent. In determining the amount which it is fair and reasonable that 2MMM should pay to the record companies for the relevant right under s. 152 it would be wrong in our view to ignore the benefit accruing to record companies by increased sales of the sound recordings. To do so would confer an additional penefit on the relevant record company (the copyright owner) above that to which it is entitled from the statutory use of its. property. It would obtain -in effect a double benefit namely, whatever royalty is payable together with the sales derived from the use of its product. On the other hand it is plain to us that the broadcasters, including 2MMM, rely primarily upon the playing of records for the success of their business and, in particular, the sale of advertising time. Overall, we are satisfied that the amount to which the record companies would otherwise be entitled under s. 152 must be reduced on | account of the benefit accruing to them from the playing by 2MMM of protected sound recordings. It is, of course, impossible to quantify the extent of this reduction with any precision, but we take it into account as part of the overall complex of relevant matters in arriving at the proper amount payable under s. 152. ~85- Although it was accepted by the record companies that airplay promotes or enhances the sale of records and thereby confers a benefit upon them,it was contended that airplay can have an adverse affect on sales. A sound recording can be played so often by a broadcaster and in such circumstances that a person who otherwise might have purchased the record will not do so, because he knows that he can hear it on the radio or perhaps hears it so often that finally he decides he does not want the record, that is to say he is over-exposed to it. This contention raised the question to what extent, if any, has radio become a substitute for the purchase of records and pre-recorded tapes? The record companies submitted that they need protection from airplay to prevent over-exposure or the substitution of listening to radio for the purchase of records. There was. a deal of evidence touching this question including evidence of Mr. Jamieson who said that radio can become "substitutional" for records. He said if there were no radio ",.,people- would be queuing up. outside record shops from morning to night trying to acquire music". We are satisfied on the evidence that the substitution of airplay for the purchase of records and pre-recorded tapes is a realistic consequence of the growing acceptance in the community of radio airplay. Although we propose to take into account the benefit -86= gained by record companies from the playing of sound recordings over the radio, in diminution of what otherwise would be payable to them under s. 152, we also take into account the real risk of reduced sales of sound recordings due to the substitution of listening to radio for _the purchase, of records and the over-exposure on the radio of some sound recordings. It is likewise impossible to quantify the significance of this risk in any precise terms. Seme evidence was given about certain "advertising deals" whereby a radio station would receive a percentage of sales of records. In the context of the significance of air play this evidence appears to cut both ways. HOME TAPING AND ASSOCIATED PRACTICES - GROWTH AND EFFECT UPON BROADCASTING XN Home taping has. been and still is a problem to the record industry. It is a widespread practice. It is not easy to assess the extent to which the sale of records and pre-recorded tapes has been reduced by home taping. Concerted efforts have 'been taken by PARB and PPCA to limit what was described as the "pirating" of music recorded on records and tapes. According to Mr. Jamieson, hame taping is a 'growing problem, and not only reduces the sales of records and pre-recorded tapes, but results in increased prices of pre-recorded tapes and records. -87- To what extent are the incidence and effect of home taping relevant to the decision of the Tribunal under 5.152 of the Act? ' In the first week of October 1982, ARIA, in a news release headed: "HOME TAPING COSTS GOVERNMENT $100 MILLION P.A. HOME TAPING COSTS RECORD INDUSTRY $440 MILLION P.A." said:~ ..sthere is no way any Government or the Copyright Owners could hope to police the copyright infringement involved every time someone ses a blank tape to record music. ...most Australians are not even aware they are breaking the Law. Half of all home taping is direct from the radio." According to the same news release, Mr. Turner, Managing Director of WEA was of the opinion that most Australians are not even "aware they are breaking the Law", and that one-half of all home taping is direct from radio. "The situation is that for every pre-recorded disc or tape sold in Australia, another two are home- taped...This is. having a very serious effect on employment, sales and profits in the record industry in Australia. One plant has closed down in Sydney and one in Melbourne and employment is falling off generally in other record companies. Each time a home tape is made our own Artists and Composers lose a legitimate royalty. Another effect is that the record companias have less risk capital to invest in oip-and-coming Australian Artists and Composers, and they will tend to stick with the established big names." -88~— In his evidence before the Tribunal Mr. Turner said that as a consequence of a change in consumer patterns over the preceding decade or sO, many people who previously bought their own records for their | own pleasure, now enjoyed their particular type of music by selecting a radio station which featured that music. Radio, he said, was now treated as a substitution for the playing at home of records and tapes. The record industry, he continued, has world wide been very seriously harmed by the practice of hame taping "whether it be by taping direct from radio broadcasts (which is facilitated by some 'stations with advertisement-free continuous music) or by unauthorized cepying from other records and tapes". "Mr. Turner stated that it. was only by: means of a survey that a reasonably accurate assessment could be made of the extent of the adverse effect of home taping on record sales. In January 1982, ARIA 'caused a "taping survey" to be carried out by Reark Research Pty. Limited. The survey sought the views of members of the general public 13 years of age and! over, who had taped either sound or video for private as distinct from commercial use, on a mumber of questions relating to taping. 'The survey sought to measure the incidence of home taping, both audio and video. 2,172 interviews were conducted in 15 metropolitan and country centres throughout Australia. The survey was designed and supervised by Mr. Adrian Fethers, a Project Director of Reark Research Pty. Limited, the eventual analysis being checked by a Mr. A. Whitfield of Messrs. Deloitte Haskins & Sells, Chartered Accountants. The latter firm carried out an audit of the survey. -39- The first objective of the survey was to estimate the total } 5 3 . number of L.P. equivalents being taped from records, pre-recorded tapes, radio and television, and to estimate the market value of those equivalents. Subsequently, the use and sales of blank tapes by people taping, reasons for taping, and taping trends, were assessed. As. detailed in the report on the survey, the procedure adopted to produce the taping estimates was to - l. Ascertain the proportion of dwellings in the sample area containing a person or persons who had taped sound and/or video material within the three months preceding the date of the interview; 2. Ascertain the number of sound and/or video tapers in each taper dwelling; 3. Gross up the number of sound only. tapers in the sample to represent the number of tapers in the population of the sampled area; 4. Ascertain the sound tapes made by one randomly selected taper in each taper dwelling; -90-— Gross up the number of L.P. equivalents taped from all sources, records, pre-recorded tapes and radio and television, to represent the taping of all tapers in all dwellings with tapers within the defined area; Estimate the retail market value by multiplying the total equivalents of L.P.s taped by the 'average retail price of an L.P., that is $8.00; and Estimate the direct loss in record sales by ascertaining the likelihood of purchase of taped music if the 'taper had been unable to tape, and multiplying the number of L.P. equivalents by the average retail price of an L.P. The results of the survey showed, inter alia, that:- (a) (2) During a period of twelve months, 74% of Australia's population was taping the equivalent of 55.1 million L.P.s,' either from records, pre-recorded tapes, or the radio and television; Australians taped the equivalent of 6.3 million L.P.s from records in the three months' period the subject of the survey; (¢) (e) (h) -91- There were some 637,000 pre-recorded tapes taped during the survey period from other pre-recorded tapes; By dividing the total number of hours that tapers had taped from radio and television by a factor ef 1.5 tol or the equivalent of 1 1/2 L.P.s to every hour taped, on the basis that most L.P.s require about 40 minutes to play, there was found to be a total of 4.6 million hours taped from radio and television during the three months survey period. This is the equivalent of 6,878,000 L.P.s; There is the same amount of taping from radio and television as there is from records and pre-recorded tapes combined; Blank tape purchases for private purposes, according to the survey, were sufficient during the three months' period to tape 64.8 million L.P.s without taking multiple taping into account; Sales in the three months survey period were sufficient to tape 19.2 million L.B. equivalents; The multiple use of blank tapes is widespread, and has the effect of increasing the potential for use of any One tape. Some estimate is needed to account for this Multiple use; ~92- Multiple use of blank tape would increase taping potential between 15% and 20% in the three months survey period, but could increase taping potential by up to 50% in a full year. Blank tape purchases by tapers were sufficient to tape 64.8 million L.P.s in a full year without taking multiple use into account. The estimate of L.P.s taped by private individuals in a full year was 55.1 million, or 85% of the blank tape purchased; Whilst no estimate was made in the survey of the likelihood of purchase of music taped from the radio and/or television, calculations were made in an endeavour to estimate how many records and pre-recorded tapes home taped might have been bought if, it had not "been .,possible to tape them. The calculations demonstrated that the loss would be some 6.5 million recards and 492,000 pre-recorded tapes in a full year; On most taping occasions the taper tapes a complete L.P. rather than excerpts. Of the tapes owned by people other than the taper, 50% would have been bought if the taper had been unable to tape them; ~93- (1) The survey found a total of 4.6 million hours taped from radio. and television in the survey period. This was the equivalent of 27.5 million L.P.s in a full year, and equalled the amount taped from L.P.s and pre-recorded tapes; _ (m) 42% of hours taped came from AM commercial stations compared with 24% from FM commercial stations; and (n) Radio, at least among tapers, was the most important influence on record and pre-recorded tape sales. Apart from radio, the more important factors influencing purchase behaviour included television advertising, music programs, and recommendations. In summary Mr. Whitfield concluded that the market value of equivalent L.P.s taped per annum from records, pre-recorded tapes, radio and television on the basis of the 1976 Australian population census.was $595.7 million. The total L.P. equivalents taped per annum which had been taped from radio was 24.3 million. The estimate of lost sales per annum due to tapings from records and pre-recorded tapes Only was on the Australian population basis $75,800,000 or 9.5 million L.P. equivalents. -94- Information was obtained by Mr. Whitfield from various members of ARIA of sales of records and pre-recorded tapes. for the 1979, 1980, and 1981 calendar years. The information indicated that, whilst sales by value increased 16.8% between 1979-1980, and 5% between 1980-1981, the number of units sold only increased by 1% 'between 1979-1980 and decreased by 4.5% between 1980-1981. Mr. Whitfield compared the market value of the equivalent L.P.s taped per annum from records, pre-recorded tapes, radio and television, to retail value of sales by ARIA members, and the estimate of lost sales per annum due to taping from records and pre-recorded tapes only _compared to retail values of sales by ARIA members (not including taping from radio and television). He concluded that the incidence of home taping in respect of radio sound is significant in relation to sales of records and pre-recorded tapes by record manufacturers. The Reark Research Report of January 1982 provided information from which Mr. Whitfield concluded that the retail value equivalent of hours taped from FM commercial radio in New South Wales for a twelve month period was $17.8 million of which $11.9 million was . attributable to 2MMM. It was conceded by Mr. Fethers that the January 1982 survey had not been designed to assess the effect of taping from radio of sound recordings on the sales of records. Additional questions would need to be put, some of which would be hypothetical. -95- In September 1982, a further tape survey was conducted by Rearck Research directed to obtaining an estimate of record and pre-recorded tape sales that were lost by reason of home taping from the radio. The report on the September 1982 survey sought also to examine the relevance of the questions then asked in relation to the earlier January 1982 survey. The September 1982 survey was limited to the Sydney, Melbourne, Brisbane, Adelaide and Perth metropolitan areas, and did not extend, unlike the January 1982 survey, to country areas. It represented 59% of the total Australian population aged 13 years and ever, whereas the January 1982 survey had represented 74% of that population. In order to estimate the loss of sales of L.P.s and pre-recorded tapes more directly attributed to home taping from the radio, the survey asked radio tapers:- - to think about the last (i.e. most recent) occasion on which they had taped material from the radio; ~ how likely they would have been to buy any of that music, either as an L.P. or as a pre-recorded tape, in the event that they were not able to tape it; and -~ how many L.P.s and/or pre-recorded tapes would they have bought. "* ~96- The conclusions reached as a consequence of this survey included the following: - (a) (b) of the people identified as radio tapers, being approximately 42% of the original sample, 16% certainly would have bought, 40% probably would have bought, 26% probably would not have bought, and 14% certainly would not have bought, at least some of the music they last 'taped; People in the capital cities who tape music from the radio would have bought 5.8 million L.P.s or pre-recorded tapes over a twelve month period had they been unable to tape that music for some reason; and Assuming only one taping per taper during the six months' period, this admittedly being conservative, the survey indicated that among people aged 13 years and over, living in the mainland capital cities, a total of 1.7 million L.P.s and/or pre-recorded: tapes definitely would have been bought, and a further 4.1 million L.P.s and/or pre-recorded tapes probably would have been bought. -97- An amendment was suggested to the September 1982 Reark Research results by Mr. Whitfield in that the September 1982 analysis. used the total population aged 13 years and over, living in the surveyed cities, as the basis for grossing up, whereas "a fairer or more reasonable approach" would be to gross up results to the total number of households in the surveyed cities. : , Consequently the various estimates flowing from the survey calculations were reviewed and an estimate made of a total sales loss in twelve months of 2.4 million L.P.s and/or pre-recorded tapes valued at. $19.5 million on the household. approach. Mr. Whitfield conceded a possible margin of error in the results of about plus or minus 108%. Mr. Fethers was the first to agree that one should not apply the results of surveys such as those abovementioned as if they resulted in mathematical certainties. The empirical results were, of course, not abie to be tested in the actual market place. Whilst the incidence of home taping is at least illustrated in the above surveys, we are mindful of the fact that blank tapes were until recently manufactured by some of the record manufacturers themselves. Indeed at the time of the hearing record companies solid tapes, one side being pre-recorded - the other blank, and known as "one plus one". The price was the same for the "one pius one" as for a tape fully recorded. — ~98- Although the numbers of recordings made and the value of sales foregone may be difficult to 'assess, we generally accept the results of the two surveys. The problem of home taping from radio and other sources is obviously one of significant dimensions. It is not easy to assess the relevance of thése considerations to our task. It is true that the broadcasters obtain benefit from home taping from the radio because home tapers, whilst taping, are listening to 'or tuned into the radio and there is a definite relationship between popularity of a radio station, its ratings and its revenue from advertising income. It is also true that home taping has a serious effect on the sales of sound recordings and therefore on the income of record manufacturers. Although we see some force in the argument that the question of home taping is irrelevant to our task, we think on balance that it is of some relevance and that it. should be taken to account to some extent in favour of the record companies. in assessing the amount payable by 2MMM. The quantification of the significance of home taping is of necessity a matter of judgment. It is impossible to define it arithmetically or precisely. We do not. consider it should be taken into account to-any significant extent because of the .conjectural notions that are necessarily involved in any assessment of the effect of home taping relevant to' these applications. There is, however, an indication in the evidence that 2MMM has a substantial impact in the context of home taping in New South Wales. =99- GROSS EARNINGS OF A BROADCASTER AND SUB-S. 152 (8) The prohibition imposed by sub-s. 152 (11) against the Tribunal requiring a commercial broadcaster to pay an amount exceeding 1% of the gross earnings of the broadcaster during the relevant period to which the order applies fixes a ceiling which the Tribunal cannot exceed. The sub-section does not require the Tribunal to approach the task of determining the relevant amount payable by reference to a formula expressed as a percentage of the broadcaster's gross earnings not exceeding 1%, but there are obvious sound practical reasons why the assessment of the relevant amount is best expressed as a percentage of gross earnings. What are the gross earnings of a broadcaster? Sub-sections 152 (19) and (20) of the Act provide that the gross earnings of a broadcaster in respect ofa period are his gross earnings during that period of the broadcasting by him of advertisements or other matter, including his gross earnings during that period in vespect of the provision by him of or otherwise in respect of, matter broadcast by him. Where in connection with a transaction any consideration is paid er given otherwise than in cash, the money value of that consideration is, for the purposes of sub-s. 152 (19), to be deemed to have been paid or given. It is the money value of the gross earnings in respect of the matter broadcast by 2MMM that is relevant to our determination. -100- The gross income of 2MMM as disclosed in its statements of profit and loss for the relevant years comprised items described as "advertising revenue", "sontra income" and "other income" or "miscellaneous revenue". The item "other income" or "miscellaneous revenue" included interest and earnings of a like nature not received in respect of broadcasting. We leave them out of account. The item "contra income" was the subject of some debate. The item related to such matters as morning traffic reports, surf reports, radio give-aways, tickets to concerts, a four-wheel drive vehicle used on Sydney beaches, 2MMM advertising signs on bikes, a staff party and a give-away holiday. The assignment of values to transactions involving the exchange of goods or services is obviously difficult and often becomes subjective and arbitrary. 2MMM placed values upon these items and its financial controller stated that he had used his best judgment in arriving at the figures in the accounts. The accounts were audited by 2MMM's auditors, Messrs. Arthur Anderson & Co. In our opinion the values placed on the "contra income" items by 2MMM should be accepted. The other item of contention, under the heading "contra income", related to amounts received by 2MMM from advertisers on behalf of television stations in respect of simulcasts. The amounts received in total were less than the production costs. In our view, bid ~101- the moneys received and subsequently paid to the television stations are more in the nature of recovery of an expense and we do not consider that they are "gross earnings" in respect of the broadcasting of advertisements within the meaning of sub-s. 152 (19). 2MMM ' s "gross earnings" for the purposes of sub-s. 152 (19) over the relevant period comprising advertising revenue, "contra" and other income were made available to us in a confidential exhibit. Hence we do not think it appropriate to mention the figures in our reasons. DETERMINATION OF AMOUNT PAYABLE In our opinion the amount payable by 2MMM to the owners of copyright in sound recordings in respect of the period commencing 1 October 1980 and ending on 30 June 1983 is best expressed as a percentage of gross earnings attributable to the use of protected ' recordings. We have considered all relevant matters for, the purpose of sub-s,. 152(7) and have come. to the conclusion that the amount payable should be 0.45% of the gross earnings of 2MMM. -102- We do not propose to make orders. at this stage, but will stand the application over to a date to be fixed. The parties may consider our reasons for decision in the meantime and bring in short minutes of order to give effect to these reasons.