Legal Matters: Embracing India

More than 65 million records are sold in India each year, yet there is essentially no music publishing industry. Local composers whose songs sell hundreds of thousands of soundtracks and ringtones don't receive royalties. International publishers have trouble collecting royalties for songwriters whose music attracts Indian fans. But Andrew Jenkins, president of BMG Music Publishing International, and Terry Foster-Key, special counsel to the chairman of EMI Music Publishing, are leading a fight to change the Indian landscape for composers and publishers.

Currently, the vast majority of contemporary Indian songs are written for movies. Production companies buy all rights from composers for a one-time fee, then sell all audio and video rights in the music to record companies (see story, page 29). The record company is essentially label and publisher for these songs, collecting publisher royalties from others who use its compositions.

But when it comes to foreign recordings that the Indian record companies have licensed to sell, the labels haven't been paying mechanical royalties to the publishers. These sales make up nearly 10% of the market.

"They say [the law] is not clear," Foster-Key says. Indeed, some indie label executives in India claim that payment of mechanical royalties is "voluntary," even though their copyright law expressly provides authors of musical works with a reproduction right (i.e., the right to receive a mechanical royalty).

"I'm going to tell you this, and you're going to say it doesn't sound feasible," Jenkins says. "There's a Copyright Act that set a rate of 5% of retail price for mechanical royalties [recently increased to 8%]. The Indian record companies all pay that to each other in respect of local recordings where they control the copyrights [in compositions] themselves. What none of them will do is accept that they should pay any mechanical royalty to writers from anywhere else in the world."

At least one executive interprets regulations to restrict payment of royalties to companies controlled by foreigners. That includes publishers outside India.

This argument comes from the time of Indian Prime Minister Indira Gandhi, Foster-Key says. In the 1970s, he says, publishers were receiving quarterly statements and royalty payments from the Gramophone Co. of India, the predecessor to Saregama, one of the country's largest labels today. Gramophone was owned by Thorn-EMI. When Gandhi introduced regulations forcing foreign companies to sell their majority holdings in Indian businesses, EMI sold the company—and payments stopped, he says.

Although laws have since changed, labels and publishers disagree on how those changes affect royalty obligations. They also disagree on whether mechanical royalties, if they are due, should be paid as a percentage of a retail price or as a percentage of a published price to dealers (PPD, roughly equivalent to a wholesale price). Jenkins, Foster-Key and others began negotiating with the labels' trade group, the Indian Music Industry, more than two years ago to resolve the situation.

Shridhar Subramaniam, managing director of Sony BMG India and chairman of IMI, believes that the parties will work things out soon. In fact, he predicts that once established, the Indian publishing business could generate $25 million annually in the next two to three years.

Jenkins says that BMG foresees a market for direct-to-mobile music in India, recognizes the large demand for Indian music outside the subcontinent and wants to develop local talent. So BMG's pending lawsuit in India, filed in 2005 against Saregama for copyright infringement, is about more than recovering damages for unpaid royalties to international songwriters.

"If we win the battle for the likes of Sting, Paul McCartney, Bono and Chris Martin, they will be pleased, but $10,000 won't really make a huge difference in their lives," Jenkins says. "However, if by doing that we establish the principle that labels have to pay songwriters, and that means Indian songwriters start to get paid, that $10,000 is a huge amount to each of those guys. That's the battle we're fighting."

Mumbai-based lawyer Ashni Parekh says that many top composers are afraid to take a stand since someone else would take their place. But they hope that publishers like BMG and EMI will help change the business environment so composers can start earning royalties.

In January, BMG announced another step toward developing this market. It formed a joint venture with New Delhi-based Deep Emotions Publishing to sign and nurture local lyricists and composers. "We started this to protect our writers in India," Jenkins says. "We ended up by finding a music publisher, we bought 50% of the company, and with Deep Emotions we're investing in Indian talent."

Other major publishers may soon set up similar deals with local companies if rights are clearly recognized.

"You can do things in the music industry that are good, but there's not really many opportunities where you can change people's lives," Jenkins says. "That's what we can do for Indian songwriters if we succeed."