CMO FINANCIAL ADMINISTRATION, DISTRIBUTION Of REVENUE & DEDUCTIONS
Part 6 of 13 Reasons Why Kenyan Music Creators Need a New CMO Legal Framework
In part 6 of the 13 Reasons Why Kenyan Music Creators Need a New CMO Legal framework we discuss a very important and controversial subject in Kenyan Music- Money. We explore why it is important for Kenya to put in place a financial management system for CMOs. This is informed by the unsatisfactory financial performance of Kenyan CMOs.
SPLIT ACCOUNTS
To ensure maximum transparency and accountability, a CMO should separate its Rights Revenue from income derived from its own assets or other activities.
LEGISLATIVE PROPOSALS
- A CMO should manage and keep separate the Rights Revenue and any income derived from the investment of its own assets, the income derived from its management services, or the income derived from any other activities.
- A CMO should not be allowed, unless specifically authorized by the General Meeting or its Statute, or provided by law, to use Rights Revenue and any income from the investment of Rights Revenue for any purposes other than Distributions to Rightsholders or, if so decided by the General Meeting, social, cultural, educational, or cost reduction.
ANNUAL REPORT
The Annual Report of a CMO is an important document providing information about its performance and operations to Members, other Rightsholders, other CMOs and the public at large.
As CMOs, like all other companies and associations, normally have a legal obligation to produce and publish an Annual Report, it is recommended practice that a CMO provides in its Annual Reports a full and transparent picture of its financial performance and operations.
CMOs should also publish the reports in an easily accessible format and make them available to the public for example through its websites. The information provided should be simplified and easy to understand.
LEGISLATIVE PROPOSALS
| 1. In respect of each financial year, a CMO should distribute or make available an Annual Report to its membership well in advance of its General Meeting. 2. The Annual Report should contain: A. A financial statement, which should include a balance-sheet or a statement of assets and liabilities as well as an income and expenditure account for the financial year; B. A report of the CMO’s activities in that financial year; C. A statement of Rights Revenue broken down per category of rights managed and per type of use including the total amount of Rights Revenue collected, but not yet attributed to Rightsholders, and the total amount of Rights Revenue attributed but not yet distributed to Rightsholders. D. A breakdown of the Operating Expenses; E. A breakdown of the deductions for the purposes of social, cultural and educational services in the financial year and an explanation of the use of those amounts, with a breakdown per social, cultural and educational expenditure; F. Information on the total amount of remuneration paid, and other benefits granted to, the persons who manage the business of the CMO and the board members in the financial year; G. A general statement setting out, in respect of the transactions between a CMO and each partner CMO with which it has a Representation Agreement, the: a. name of such partner CMOs, and the dates of the relevant contracts; b. total amount paid in the financial year to the partner CMOs; c. total Management Fees and other specified deductions; and total amount received from the partner CMOs. d. The financial records of a CMO should be inspected annually by at least one external auditor appointed by the General Meeting. |
DISTRIBUTION POLICIES
Noting that CMOs’ Distribution policies are based on the usage of licensed works, CMOs should include in their licenses a requirement to provide accurate and timely information on their usage of works licensed by the CMO.
As a matter of principle, a CMO should collect and distribute – fairly, promptly, and as accurately as possible – to individual Rightsholders the Rights Revenue it has collected on the Rightsholders’ behalf.
It is therefore important that a CMO’s Distribution rules and policies are fair, objective, and transparent.
The Distributions should reflect, to the greatest possible extent, the actual use of the content and the actual value attached to the use, or, when such data is not available, on an agreed formula of proportionality, which must reflect actual use as far as economically feasible.
HOW OTHER COUTRIES HAVE DEALT WITH DISTRIBUTION POLICIES
MUSIC CMOS IN BRAZIL
In Brazil the Law on Copyright and Neighboring Rights Provides that: “The associations [OMCs] shall provide information system for periodic communication by the user of all the works and phonograms used, as well as for the monitoring by the rights holders of the amounts collected and distributed.” “The portion destined to the distribution to the authors and other rights holders (…)shall not be less than 85% (eighty five percent) of the amounts collected.” Articles 98(9) and 99(4),
LEGISLATIVE PROPOSALS
| 1. A CMO should maintain a Distribution policy, as approved by the General Meeting, that sets out: a. the basis for calculating entitlements to receive payments from Rights Revenue collected. In establishing such basis, a CMO should consider, as far as possible, the actual use of works or other subject matter. If not practicable, a statistically valid sample approximating actual use of the works or categories of works can be used. b. the manner and frequency of Distributions to Members and Rightsholders; and c. the amounts that will be deducted from the Rights Revenue before Distribution on the basis of Operating Expenses and deduction policies as determined by the General Meeting, the Statute, or the law. 2. A CMO should regularly, diligently, and accurately distribute and pay amounts due to the Rights holders it represents, be it through membership, mandate – voluntary or statutory – or through Representation Agreements with other CMOs, in accordance with its general policy on Distributions and the agreements it has signed with other CMOs. |
| 3. A CMO should carry out such Distributions and payments no later than 12 months after the end of the financial year in which the Rights Revenue was collected, unless objective reasons, for instance insufficient reporting by Users/Licensees, prevents it from meeting this deadline. 4. A CMO should clearly state its policy relating to undistributed monies. |
REVENUE DEDUCTIONS (SUCH AS SOCIAL, CULTURAL, EDUCATIONAL)
In view of its mission to manage rights efficiently on a collective basis, it should be a key objective for a CMO to provide high quality rights management services at the lowest possible cost, thus maximizing the Distributions to Rightsholders.
It is therefore important that its members have the power to decide on all deductions made from monies collected on their behalf, in particular in respect of any deductions for social, cultural, and educational purposes.
legislative proposals
The General Meeting should decide on the rules on deductions from Rights Revenue.
The amounts deducted from the Rights Revenue for the purposes of social, cultural, and educational purposes in the financial year and an explanation of the use of those amounts should be included in the annual report.
A CMO should strive to ensure that funds for social, cultural, and educational purposes are only deducted from the Rights Revenue with the agreement of the Rights holders represented.
A CMO should ensure that its Operating Expenses are transparent and properly documented.
A CMO should ensure that each Rightsholder it represents – whether directly through a membership contract or through a Representation Agreement will be entitled to apply for its social, cultural or educational services provided deductions were made on Rights Revenue attributed and distributed to such Rightsholder.
