APRA AMCOS

YEAR IN REVIEW

INCLUDING

SUSTAINABILITY
REPORT

2012 - 2013

We're here for the music.

We help music creators get paid for their work and give music users easy ways to legally play and copy what they like. Royalties keep the music coming and ensure the industry’s future. And that’s what we all want to hear.

It is a fact of contemporary life that copyright and the fundamental purpose it serves – to provide an income for authors and artists – is widely misunderstood and, in some sections of the community, misrepresented.

Without copyright - crafted to an internationally acceptable standard - there can be no royalty payments to writers, artists or their business partners for the various uses made of their works. In other words, without a reasonable copyright law there is no market for music, art or literature – and no reward for those who create it.

The statistics that follow hopefully add to an understanding that copyright is alive and well, and is as indispensably relevant to music writers and music publishers in Australia and New Zealand as it has ever been.

Royalty Distributions

Over the 2012/13 year APRA’s distributions to members rose to $177.4m – an increase of $7.2m, or 4.2%, in comparison with the preceding year. Of this amount $60m (up 6.6% year on year) was paid to affiliated societies in respect of their (mostly) writer member entitlements, and $117.4m was paid to APRA’s own members in Australia and New Zealand (up 3.1% year on year).

Of APRA’s total distributions to its own members, $47.8m was allocated and distributed directly to writer members throughout Australia/New Zealand while $69.6m was allocated and distributed to publisher members. It needs to be borne in mind that publisher members generally receive publisher share allocations in respect of all works to which they hold publication rights – including local writers’ works and the international works to which they hold sub-publishing rights.

A total of 39,016 APRA writer members received a royalty allocation during the year in respect of performances occurring in Australia and/or NZ (an increase of 16% compared with the preceding year) while 12,443 APRA members received a royalty allocation in respect of a performance occurring elsewhere in the world (an increase of 15.4% on the preceding year).

A total of 822,236 discrete musical works received an allocation from APRA in respect of performances occurring in Australia and/or NZ during 2012/13. This figure represents an increase of 85% on the equivalent figure of five years ago and starkly illustrates the enormous increase in data capture and processing required of the organisation in recent years.

The financial figures referred to above can be seen in the cash flow statement in the Annual Report for 2012/13 posted on our website (see “royalties paid”), and represent the bottom line in APRA’s activity for the year – the making of royalty distributions to music writers and publishers. Because these royalty payments occur after the process of generating royalty collections and expending costs in so doing, the figures reflect the revenue and expense figures crossing two financial years – 2011/12 and 2012/13.

Revenue

While in 2011/12 APRA licensing activity in Australia and NZ generated $160.6m in revenue (an increase of just 0.8% on the preceding year), in 2012/13 such activity generated $176.7m in revenue, an increase of more than 9.8%. Key factors were:

  • an increase in new media revenue (encompassing downloads, music subscription and ad-funded services, video-on-demand and websites) of $4.4m (up 46% year on year);
  • an increase in general public performance revenue of $6.7m (up 12% year on year);
  • an increase in broadcast revenue (encompassing both radio and television) of $4.5m (up 4.8% year on year); and
  • an increase in educational licensing revenue of $150k (up 8.4% year on year).

Partially offsetting these areas of growth were: (a) a further significant decline in interest income – from $2.5m to $1.6m (partly a reflection of historically low interest rates and partly the result of a much faster distribution cycle) – and (b) a marginal decline in foreign income (distributions received from affiliated societies) from $22m in 2011/12 to $21.7m in 2012/13.

During 2012/13 APRA embarked on a series of negotiations with major music user groups with a view to introducing new, more equitable licence schemes. These negotiations resulted in new licence agreements with

  • the Australian subscription (ie, "pay") television industry;
  • Australian and NZ airline carriers;
  • the fitness industries across Australia and NZ.

The impact of these agreements was partially reflected in the 2012/13 revenue figures but will be more fully reflected in next year’s results.

Costs

Excluding the cost of administering the AMCOS mechanical rights mandate, APRA’s total administrative costs rose by $2.1m (8.9%) in comparison with the preceding year. As noted in my comments last year, the organisation has embarked on an ambitious system re-engineering project that will impact both total expenses and our expense to revenue ratio over the next three to five years. The early stages of the project, which include:

  • a new general licensing system based around customer relationship management technology (the first phase of which is going live as we go to press);
  • a new website and digital/mobile apps for members and licencees (due to launch early in 2014);
  • a joint venture with the NZ recording industry by which a single licensing portal for musical work and sound recording licences is available for public performances (going live as we go to press); and
  • the adoption of music recognition technology in areas where it can add accuracy

and efficiency to our distribution processes (well in advanced trial phase) impacted to the extent of $350k in direct operating expenses and $552k in increased capital expenses for the year.

Notwithstanding these increases in costs, APRA’s cost to revenue ratio – excluding the financial impact of managing the AMCOS mandate (see below) – remained relatively stable at 13% (up slightly from last year’s 12.85%). This figure can be seen in the “Review and results of operations” included in the Directors’ Report section of the Annual Report. Total revenue excluding Management Services was $200.33m, while total costs (excluding the costs of administering the AMCOS mandate) were $25.962m.

Of greater import to the vast majority of members, and indeed to our affiliated society partners around the world, is the fact that our ratio of total costs to domestic revenue (that is, licensing revenue generated in Australia and NZ) reduced from 14.6% to 14.5% during the year. This in many respects is the best measure of our efficiency and effectiveness, and remains at or near world’s best practice.

AMCOS

APRA has managed the AMCOS business under contract since 1997. The transition from physical distribution of music to digital distribution has affected AMCOS more profoundly than APRA, with the result that the AMCOS business is far more volatile than APRA’s.

During the year AMCOS distributions to members declined by 4.4% – from $62.68m to $59.847m – reflecting the small decline in revenue referred to below. This decline should, however, be placed in context; in 2011/12 AMCOS revenue grew by 26.5% in comparison with the preceding year (for the reasons outlined in last year’s Year in Review), while total distributions for that year increased by 37.9% in comparison with the preceding year. Thus, over the last two years the net increase in distributions to members has been in the order of 34.5%.

AMCOS now has 12,001 members of whom 6816 received a royalty allocation during the year. As mechanical royalties in respect of published works are overwhelmingly paid to publishers under the terms of their publishing contracts with writers, the great majority of AMCOS’s distributions were made to Australian or NZ publisher members of AMCOS discrete works figured in AMCOS distributions for the year.

As indicated above, AMCOS revenue declined marginally during the year: total licence fee collections were down from the historic high of $69.65m achieved in 2011/12 to $68.49m, while interest income declined from $1.958m to $1.688m.

New media now accounts for almost 50% of AMCOS revenue, with licensing revenue from digital downloads – totalling $26.7m in 2012/13 – being clearly the dominant feature in AMCOS’ revenue picture. Revenue from subscription and ad-funded services more than doubled during the year, however, to $1.2m, and most of the world’s major players in that space – including Spotify, Google, Rdio and Deezer – are now operational in Australia and NZ.

By comparison, traditional mechanical royalties from the sale of physical product accounted for only $10.5m of AMCOS revenue during 2012/13 – a decline of some $4m over the year – and a figure that is expected to decline further in the immediate future.

The cost to APRA of administering the AMCOS mandate was, in 2012/13, $7.314m. For the same period APRA received management fees from AMCOS totalling $7.336m. The surplus to APRA of $22k has formed part of APRA’s royalty distributions for the year.

Member Services

APRA now has 75,593 members while AMCOS has 12,001 members. The membership base of each organisation is growing strongly (APRA’s at about 7% pa and AMCOS’ at about 14% pa), but each (in common with copyright membership organisations throughout the world) struggles to ensure continued relevance to a new generation of writers and music entrepreneurs who inhabit a do-it-yourself world forced on them by technology and casual consumer disregard for their rights as copyright owners.

In this new environment, APRA and AMCOS have to constantly strive to be the best possible service providers to members, not only in securing proper payment for the use of their works and swift through-payment of royalties, but in responding quickly and properly to queries, finding new and more effective ways to deal with disputes, finding technical solutions to the “long tail” of massive data and micro payments for members from digital services, providing a high level of transparency in the discharge of obligations and offering communications and business transactions on platforms that meet members’ business expectations.

The launch of our new website and associated digital/mobile apps early in 2014 are directed at improving our services in these areas.

In addition, as we go to press the APRA Board is reviewing a number of fundamental aspects associated with the apportionment of costs to distribution pools, the more widespread application of music recognition technology across several areas of data collection and the refinement of key distribution processes, including those applicable to live performances. APRA will engage in an ambitious consultation process with members in relation to these issues over the coming year.

While systems and policies are of great importance to APRA AMCOS, it is people who ultimately make a difference. At the time of writing this report, a number of key changes in both Board and staff responsibilities are being announced:

After 24 years in the Chair of the APRA Board, Mike Perjanik has announced that he will step down as Chairman (but, happily remain on the Board) following this year’s AGM; and Sally Howland – our Head of Member Services – has decided to reduce her working commitments by standing down from her current position on 1 December this year in order to move to a part-time position based in Melbourne.

Mike and Sally have made – and will continue to make – an extraordinary contribution to APRA AMCOS, and the strong and respected industry positions that the organisations occupy is a fitting testament to their respective contributions.

MESSAGE FROM THE CEO

BRETT COTTLE

Key Highlights

87,594

Total APRA + AMCOS
members

75,593

APRA Members

12,001

AMCOS Members

$243.5

Million

in net distributable revenue
achieved by apra amcos (Up 5.0%)

CO2

emissions equivalent
per full time equivalent
decreased from

8.0 TONNES IN 2012 TO
7.5 TONNES IN 2013

APRA AMCOS becomes the first collecting society in the world to partner with the Global Reporting Initiative and to commit to sustainability reporting.

apra nz

achieves revenue of NZD

$22.2

million

(up 5.0%)

17.0%

increase in live performance returns

submitted by Aboriginal
& Torres Strait
Islander members

46.0%

increase in new
media revenue

APRA AMCOS implements new licence schemes for Australian and New Zealand airlines, community radio, the fitness sector, Australian Pay-TV and YouTube.

837,087

songwriters, composers
and publishers received
an APRA distribution
payment representing

755,098

unique musical works

128,960

premises across australia

are now

licenced

to use music

$483.2

million

in revenue generated from
APRA domestic licensing
activity in Australia and NZ

(9.8% INCREASE)

Over the 2012/13 year APRA's distributions to members rose by 4.2% to $177.4 million.

APRA AMCOS