Who pays for music?

The owner of Berlin's Watergate nightclub doesn't mince words when asked about a music-rights fee hike set to go into effect in early 2013. "I'd rather plant tomatoes in the Uckermark than give another cent to GEMA," said Steffen Hack of Watergate.

GEMA collects royalties for music copyright holders and artists in Germany, and the body has passed a new fee structure that club owners say will increase their payments by 1,000 percent.

Licensing fees from clubs represent less than one percent of GEMA's annual revenue. But media reports have suggested that GEMA's top members are pushing it to make up for slack music sales by going after successful clubs.

In response, club, restaurant, and bar owners, along with their trade association DEHOGA, have launched a wide-ranging media and protest campaign, the pinnacle of which were several rallies throughout Germany in September. Hack said that he and others are to make their case to members of the German parliament in meetings this week. Unless the government steps in, they say, their businesses will close, tourists will stop visiting, and the city as a whole will suffer.

Transparency and pre-war methods

The "GEMA as Goliath" narrative has established itself in the media - but what is less clear is how GEMA actually functions. As the focus on GEMA increases, so do calls for the organization to operate more transparently, address conflicts of interest, and more fully disclose the formulas it uses to distribute the nearly 900 million euros ($1.5 billion) it collects annually.

Currently, clubs, restaurants, and bars that play music pay fees according to a schedule that categorizes venues into 11 groups. But starting in April 2013, GEMA will shift to a formula based on club size, with two categories for large and small venues. Franco Walther of GEMA said the new formula will essentially bill clubs an amount equal to 10 percent of their revenue from cover charges.

Watergate's Steffen Hack said that this would mean his club's annual GEMA payment of 10,000 euros might increase to 100,000 euros. Walther disputed this figure, however, saying clubs like Watergate and Berghain would be eligible for rebates. That could bring Watergate's annual fee to about 50,000 euros per year.

In asking for "10 percent of the door," GEMA is essentially returning to a system that was used before World War II, explained Klaus Quirini. The media-savvy septuagenarian runs several small trade groups representing club owners, musicians, and disk jockeys. He has also styled himself "the world's first DJ" in Vice Magazine and Der Spiegel.

"Before the war," Quirini noted, "music venues were billed based on the size of the venue and 10 percent of ticket revenue. The system was started by none other than Johann Strauss, the famous composer of waltzes."



The black boxes

When asked why it chose to redraw its 50-year-old fee table, Peter Hempel of GEMA said that DEHOGA had asked GEMA to come up with a simplified fee structure in 2009. Stephan Büttner of DEHOGA disputed this. Klaus Quirini told DW that he and other figures associated with GEMA had pressed the organization to crack down on DJs who copy their personal CDs to their computers and then play the digital files in clubs without paying royalties.

Money collected from clubs, bars, and restaurants essentially goes into a pot, from which payments are doled out to music rights owners according to a formula that GEMA applies to so-called "black boxes."

The boxes are recording devices installed in 120 venues around Germany, which GEMA says allow it to make a fair assessment of all music played in nightlife locales nationwide. Critics dispute this. They say the box system is inherently flawed because neither Berghain nor Watergate nor any other Berlin club relevant to the electronic music scene has agreed to install a GEMA black box on its premises.

GEMA has outsourced the maintenance and evaluation of its black boxes to Media Control. The Baden-Baden-based company takes a random sample of one hour of music from each of the 120 devices, though GEMA did not specify how often this occurs.

Media Control employs 10 to 15 people with various musical backgrounds to review the tapes and compile play lists for each of the 120 hours of music. Hempel said the team of "young listeners, well-acquainted with the music scene, is able to identify 90 percent of the club music that they hear."

Interests at stake

A Berlin DJ and record label owner consulted for this article questioned the figure. "With 3,000 to 4,000 new songs coming out every week on Beatport, there's no way that a human being could know every song played in clubs," he said, asking that his name not be used. "We don't know who these reviewers are, and there are no checks in place to make sure they are writing honest play lists that don't benefit them or their friends."

The 90-percent figure is impossible to verify because GEMA does not employ a third-party auditor to monitor the process. Also, nearly all of the 21 members on the body's board are musicians, composers, or publishers who receive payments from GEMA. That seems to represent an inherent conflict of interest.

GEMA's Franko Walther said his organization has offered to install black boxes in Berlin's major clubs, but that the club owners have refused.

"Clubs like Watergate and Harry Klein are only paying 30 to 50 euros per night and that's unfair - their whole business is based on music. Clubs have been paying very low rates for decades, and they don't want that to change," Walther said.

When presented with this argument, Watergate's Steffen Hack explained he and other club owners have refused to allow GEMA to install black boxes because they want GEMA to adopt DJ Monitor, a transparent, auditable track list system produced by a Dutch company.

Berlin club owners adamantly insist the GEMA black box system favors Billboard Top 40 artists. Hack said he and other electronic and house club owners are essentially being forced to subsidize pop music that his DJs never actually play.

A recent study supports his point. Some 65 percent of the 735.9 million euros in fees that GEMA distributed in 2010 went to the top five percent of its members - those garnering at least 30,000 euros a year in royalties over a consecutive five-year period. In other words, the black box system makes the assumption that all clubs in Germany of a similar genre are playing the same music.

Club owners tolerated the system when the fees were relatively low, but in the face of massive increases, they've pushed back hard. Though about 70 percent of the music played in their clubs is produced by GEMA-affiliated artists, the club owners say few of the artists heard in their clubs ever receive royalties payments from GEMA.

A flawed system?

Morgan Geist, the New York-based owner of record label Environ LLC and composer of the recent hit house song "It Goes On," said he sees royalties from GEMA regularly, but has no way of confirming whether the money GEMA pays him corresponds to the amount of play his music receives.

"The only thing I can say 100 percent is I'm not getting paid commensurate with the amount of exposure for that song," he told DW, referring to his recent hit heard in clubs across Germany this year. "As usual, recording artists are victims in a war between other factions - in this case, clubs and GEMA, two groups who profit far more than I do off of recorded music."

German music figures associated with GEMA acknowledged the issue of artists receiving too little payment, but reiterate their belief that more black boxes are the solution.

"This is definitely a flaw that we want GEMA to address. But the solution is to get more black boxes in the clubs," said Udo Starkens, co-chair of the German Composers' Association (VDM).

Yet club owners have so little faith in the GEMA system that they are opting instead to use their lobbying power to force it to become more transparent. DEHOGA and GEMA have taken their dispute to the German Patent and Trade Mark Office, which regulates GEMA.

Stephan Büttner of DEHOGA said he hopes the new fee structure can be halted until changes are negotiated. "But GEMA is not prepared to put this new system on hold while the trial takes place," Büttner said.

He noted that while the fee increase will prove burdensome for large clubs like Berghain or Harry Klein, it won't put them out of business. "But the increase is going to hit small bars and club owners that took on debt, made five-year business plans that don't calculate for a 1,000-percent increase in GEMA fees."