PRS for Music CEO Robert Ashcroft's AGM 2018 speech
The PRS AGM took place at the British Library on Thursday 24 May
Last year I talked about change, and the need for change, and I shall return to that topic today in the context of our changing industry and your changing PRS, but first I would like to pick up where we left off at last year’s AGM, after the questions that some members had asked about errors in the April distribution, which at the time had just gone out.
Let me start by saying that there is no higher priority for me or indeed the organisation than ensuring your distributions are right - this runs to the very core of what we do.
The April 2017 errors had followed the reorganisation of our Distribution Accounting function, during which we had documented for the first time our distribution processes: ironically, because we realised that with the massive increase in distribution data and the need for increasing granularity in our reporting, the old way of doing things was no longer fit for purpose.
We were too dependent on the knowledge in the heads of a few people, who themselves risked being overwhelmed by the sheer volume of usage data being reported, let alone what would have happened to the society had anything untoward befallen any of them.
We identified in July that despite our best efforts, our documentation, processes and controls needed further improvement, but with good distributions in October and December, we believed we had the situation under control.
We knew there was still too much manual intervention, and are investing to improve our systems, but then we found some more errors in this year’s April distribution.
These were picked up by our process controls, but too late to correct them without holding back the entire £170m distribution.
We know how important it is that your money arrives in your bank accounts on time, so we made the decision to let the money go out and make corrections at the individual member level.
To have to take such a step is regrettable to say the least and we are deeply conscious of the need to restore your confidence - I can only reiterate my sincere apologies to everyone affected.
At the same time though, we had to decide how finally to resolve last year’s April and July errors, as some historic over- and under-payments can only be detected in the annual reconciliation against the value of blanket licences.
To correct these historic matters at the level of individual members would have meant going back on monies received in good faith at the time and the Board decided instead that the correct course of action was to not request repayment of the overpayments, to make good any underpayments and, following consultation with our external auditors, treat the resulting balance as a reduction in the society’s net Royalty creditor balance.
After holding individual members harmless in this way the effect will be no more than to defer slightly the date at which we expect to be able to reduce our administration rates in the future, as the benefits of our Digital Transformation Programme and our Joint Venture with PPL are realised.
Our focus now is on making sure that we do not have a recurrence of either these, or any similar problems in the future and we have been working hard to understand both their root causes and potential solutions.
My view, looking back, is that the increase in usage data has been straining our distribution systems, narrowing, or even eliminating, any gaps between processing runs and putting our staff under increasing strain, which in turn, has led to some turnover and loss of knowledge.
We have been trying to maintain too ambitious a distribution schedule given our systems and the amount of data we are handling, and need, as an interim measure at least, to bring forward the cut-off for receipt of usage data to allow more time for checks to be made, before sending out the money.
This will mean a one-off reduction in cash flow for our members, but we plan to recover this as our investments in new systems, analytical tools and business processes allow. In the meantime, please be assured that there is no higher priority, either for myself, or for my management team, than getting your distributions right.
I am sure you will have questions for me during the Q&A, but if I may, I would like to move on to talk about what was in every other respect a hugely successful year for PRS.
This time last year, our new JV with PPL was being readied, now it is operational, with over 200 hundred new employees based in Leicester, an hour’s train ride from our offices in Kings Cross.
ICE, our joint venture with STIM and GEMA, has also made significant progress since our last meeting, as we have begun to migrate the platform to the Cloud to give us some dramatic improvements in both performance and transparency.
We saw changes in the management of the society too. Our Chief Operating Officer Craig Nunn left us after six years of service. Finance Director, Steve Powell was promoted to Chief Finance Officer and Nigel Hall following a successful career in mobile telecoms and technology joined us as Chief Operating Officer.
Karen Buse, our Executive Director of Membership & International, left us after 28 years of distinguished service to become an independent consultant to the industry, while Paul Clements was promoted to the position of Executive Director of Membership, International and Licensing.
Vince Kelly, our IT director, left us too after five years of service.
Finally, Graham Davies, our Director of Strategy, left us after 21 years of service and I wish him, along with Karen, Vince and Craig, every success in the next stage of their careers.
A lot of change, then, at the top of the company, but I am very confident in the mixture of capability and experience among the senior management team and trust that we shall be able, together, to continue the trajectory of recent years.
If PRS is changing, so too is the industry. Streaming services continued to report increases in subscribers; significant catalogues were bought and sold; new deals were concluded with Facebook and YouTube. India and China attracted investment from Spotify, Google and Amazon… and copyright legislation was reshaped around the world, from Argentina to South Korea.
Throughout this change, we delivered industry leading revenue and distribution growth for members.
In 2017, we collected more money than ever before. £717m - up almost 13%, which is an additional £80.7m. All our revenue areas showed an increase with particularly strong growth from online and international.
We also distributed more money, with distributions increasing by nearly 15% to over £600m for the first time.
Costs also increased in 2017 as a result of planned, strategic investments, such as our joint venture with PPL and our digital transformation programme, but also because of an increase in the commission we paid to our ICE joint venture on the over 50% growth we saw in online revenue.
Steve Powell will present the numbers to you shortly in what will be his first AGM address, but what I will tell you is that PRS continues to grow faster than other leading societies.
This performance is a direct result of our strategy - first implemented in 2010 and refined over the years to keep pace with industry change.
We knew we needed to lead in online licensing; we identified the importance of collaborating with overseas societies; we focused our lobbying efforts on the need to secure a fair rate for the use of our members’ works Online and we wanted to evolve our public performance licensing from merely enforcing the need for music users to obtain a licence, to upselling the value of music to businesses.
Taken together, these initiatives have enabled the value of our members rights to increase by almost two thirds over the past eight years.
And what a change we have seen over that time - more than anyone could have predicted - but the thing about a sound strategy is that is stands the test of time.
The strategy, approved by what was then the Joint Boards of the MCPS-PRS Alliance in the summer of 2010, has not only provided a solid foundation for growth - it has shaped the industry, from the Collective Rights Management Directive to the Transfer of Value.
PRS is a pioneer and always will be.
Our strategy of collaborating with other societies has served us well as data volumes have grown - from millions, to billions and now trillions. In 2017 we processed 6.6 trillion uses of music - an increase of over 50% on last year alone.
This has required significant investment, which we have shared with our partners, to great effect. The latest such initiative involves porting the ICE infrastructure progressively to the Cloud, which is enabling us to implement an entirely new business model based on an agreed hierarchy of data authority.
I liken this to a water filtration plant: our members submit copyright registrations at the top and they filter down, combining with others, until a complete, authoritative picture emerges at the bottom.
Where there are conflicts or gaps these will be apparent to the interested parties, who will be able either to correct them themselves, or rely on the ICE copyright officers to resolve them on their behalf.
The revised shares will then be re-submitted, and automatically filter down to the authoritative layer if now correct and so on.
This process will be significantly more efficient and more transparent than the current method, which relies exclusively upon the efforts of ICE staff.
The new system will be much faster too: society work share pictures will be calculated in seconds rather than hours; loading and matching will take minutes rather than days and the business intelligence capabilities of the new platform will simply revolutionise the way we do business.
It’s not just technology though. Without the efforts of everyone who works at PRS, and ICE, we would not have made the progress we have. We rely on their dedication and application in an ever more complex and competitive environment.
Everyone, in each of our teams and companies, from King’s Cross to Streatham and from Berlin to Munich, played a role in delivering last year’s outstanding results and I would like to take this opportunity to thank them on your behalf.
Continuing on the theme of collaboration and partnerships, we have a new joint venture - PPL PRS Ltd - which is now three months old.
Most of you know its history. We began by discussing a joint systems development with PPL to build a common licensing platform to replace our ageing PuPPS system, but by early 2016 it had become apparent that the business logic of entering a full joint venture was irresistible.
Politicians had been asking for this for years and, provided we could execute it properly, it would be helpful for businesses too.
So, with the company having opened its doors for business on 26 February, I would like to thank Peter Leathem, CEO of PPL, along with Paul Clements from PRS, and Suzanne Smith, Managing Director of PPL PRS Ltd, and - of course - all their teams, for their fantastic collaboration, which has seen this project through to reality.
This is the biggest operation of its kind in the world. To have had such a significant transition from the respective public performance teams at PRS and PPL, to have built new systems and to develop new working practices, a new culture into what is now PPL PRS Ltd is testament to the work and dedication of many people.
I would like to acknowledge all the former staff at both companies. Their professionalism helped ensure a smooth set-up and we all wish them every success in their future careers.
Closer to home, our relationship with MCPS goes from strength to strength following the conclusion of the service agreement last year.
We value this partnership and I firmly believe that both organisations enjoy a much stronger relationship, based on mutual understanding, open dialogue and, of course, a detailed set of Key Performance Indicators.
We have also continued to work with American society, ASCAP, and French society, SACEM on a project that seeks to standardise the links between sound recordings and musical works across the industry. If we can do this, it will generate massive efficiencies: improving the identification of musical works on user-upload platforms and allowing the streaming companies to identify songwriters and composers accurately alongside recording artists.
We are investigating the possibility of capturing these authoritative links in the Blockchain in order to make them available across the industry, as we continue to invest in technologies to ensure that our members’ works can be identified and receive the royalties due to them, whenever and wherever they are played.
Staying with the theme of collaboration, this time with nine organisations representing the interests of the UK Live Music sector, from small venues to festivals to major concerts:
Our Live Popular Tariff had been set at 3% of gross receipts by the Copyright Tribunal back in 1988, but since then the industry has moved on. The Live sector has grown; the internet has arrived; ticket prices have risen and the range of promotional activities grown beyond recognition.
After over two years of consultation, we reached an agreement that helps to sustain small venues, supports festivals and recognises the new ways the business works.
The Agreement had to go before the Copyright Tribunal, which invited interested parties to intervene where they had cause and I am delighted to say that it has approved the new Tariff, which will not only support the Live sector going forward, but will also support the continued growth of our members’ royalties.
My congratulations to Paul Clements and his team, the architects of this new way of doing business, and my thanks to the Live Sector Parties for the constructive way in which they engaged in our need to modernise our Tariff.
Collaboration though does not end with licensees: we collaborate, too, with collecting societies around the world and our international business continues to break new ground.
Ten years ago, our collections from overseas societies stood at just under £140m. Last year, for the first time, they exceeded a quarter of a billion pounds.
This is due, of course, to the continued success of our members and their creative work, but it is also down to an investment of time and effort in working collaboratively with our fellow CMOs.
Collaboration leads to knowledge; knowledge reveals opportunities for mutual support and mutual support leads to more accurate and timely distributions, with lower deductions.
This is critical for those of our members engaged in International Live tours, as many continue to be.
PRS has developed a particular expertise in this area and as our reputation grows, we attract new members, assigning their rights to PRS, often for the world outside their home country, in order to maximise their earnings from major live concert tours.
Thus, we welcomed as new members in 2017 Kings of Leon, Negin Djafari and Steven Fry, following on from R.E.M, Red Hot Chili Peppers and Prince, who joined us over the past three years and we are proud to represent some of the best creative talent in the world.
In fact, last year, 9 out of 10 top grossing tours worldwide were by PRS members.
Before I finish, I must mention one of the most fundamental issue facing all businesses in the UK. When we meet for the 2019 PRS AGM, the UK will no longer be a member of the European Union.
Whatever our individual views on the decision to leave the European Union, it is essential that our access to a market worth £155 million to PRS members last year, and which has grown by nearly 20% in the last 5 years, remains as free as possible. Brexit is not entirely without risk to us, but we are in a better position than many.
As for the risks there are significant threats to the UK’s status as Europe’s biggest broadcasting hub. Over 100 broadcasters based in the UK operate across Europe and these services are not only licensed by PRS, they are also commissioners of new works by our members.
Our members also risk visa restrictions on foreign tours, as they have long faced with the USA.
On the positive side though, the Berne Convention and TRIPS Agreement confer equal treatment of copyright globally, so our sector already enjoys a free trade agreement around the world.
While on the topic of Europe, I have to comment on the proposed reform of copyright law, which has been at the forefront of political debate in Brussels these past two years.
It was nearly four years ago that PRS published the paper that gave birth to this initiative to address the Transfer of Value between Online platforms and the creative industries.
In the next few weeks the European Council and Parliament will vote on their final proposals before the formal trialogue begins and the wording of the new Directive will appear.
It would be a fitting end to the UK’s membership of the EU if one of the final legislative instruments of the 28 member states were a copyright reform package that served as the foundation of a properly functioning market for copyright works on the Internet.
That PRS should have been instrumental in bringing this about would be something of which we could be justly proud.
To conclude, I spoke last year about our work not yet being done… and given the rate of change, it never will be, and though we face a particularly challenging year ahead, I would like to assure you that your society remains well-equipped to manage the challenges of the future.