IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

CASE NO: 119/2013
Reportable
In the matter between:
NATIONAL ASSOCIATION OF BROADCASTERS

Appellant
and
SOUTH AFRICAN MUSIC PERFORMANCE RIGHTS
ASSOCIATION

First Respondent
SOUTHERN AFRICAN MUSIC RIGHTS ORGANISATION         Second Respondent
Neutral Citation:
National Association of Broadcasters v South African Music
Performance Rights Association (119/2013) [2014] ZASCA 10

(14 March 2014).
Coram:
Navsa and Shongwe JJA, Swain, Legodi and Mathopo AJJA
Heard:

17 February 2014
Delivered:

14 March 2014

Summary:
Correctness of determination by Copyright Tribunal in terms
of the Copyright Act 98 of 1978 of the rate of royalties payable
by commercial and public radio stations – Tribunal ignoring
relevant factors and evidence – court at large to overturn
decision and determine the rate based on available evidence –
discussion about lack of legislative regulation of procedure to
be followed by Tribunal – comment on convoluted legislative
structure in terms of which determination is made and failure
to legislate a procedure for the Tribunal.

______________________________________________________________________
ORDER
______________________________________________________________________

On appeal from: The Copyright Tribunal (Sapire AJ sitting as court of first instance).

The following order is made:

1.
The appeal is upheld to the extent reflected in the formula set out below, and the
cross-appeal is dismissed with no order as to costs.
2.
The determination by the court below is set aside and substituted as follows:
„A

C x 3
______    x _____
B

Where:
A = the amount of time used by a radio station in any period to broadcast the sound
recordings administered by SAMPRA;
B = the total amount of time used by a radio station in that period to broadcast editorial
content,
and
C = a radio station‟s net broadcasting revenue based on what is certified by its
accountants and confirmed in its financial statements.
“editorial content” is defined as content, including the repertoire, broadcast for
entertainment, information or interest of members of the public and shall not include
broadcast time allocated to advertisements.‟

______________________________________________________________________

JUDGMENT
______________________________________________________________________
Navsa JA, (Shongwe JA & Swain, Legodi & Mathopo AJJA concurring):

[1] Except for a period between 1916 and 1965, there was no legislative machinery
compelling commercial and public radio stations to pay copyright royalties to the
recording industry and performers for the use of sound recordings in their broadcasts.1
This changed with legislative amendments to the Copyright Act 98 of 1978 (the Act)
during 2002. The applicable provisions will be dealt with in due course. The present
appeal and the related cross-appeal, with the leave of this court, concerns the
correctness of a determination by the Copyright Tribunal (Sapire AJ), established by
s 29 of the Act,2 about the rate of royalties broadcasters are required to pay and it
requires a consideration of the extent of the Tribunal‟s jurisdiction. This is the first case
of its kind.

[2] The appellant is the National Association of Broadcasters (NAB), a non-profit
organisation funded entirely by its members, more than 80 in number, who are all active
participants in the South African Broadcasting Industry (the SABI). These members
include all television broadcasters, most commercial and public radio stations,
community radio stations and signal distributors. The present dispute only concerns 31
commercial and public radio stations.

1 See para 18 of the report of the Advisory Committee of the Copyright Act, dated 5 November 1993.
2 Section 29(1) provides:
„The judge or acting judge who is from time to time designated as Commissioner of Patents in terms of
section 8 of the Patents Act, 1978, shall also be the Copyright Tribunal (in this Chapter referred to as the
tribunal) for the purposes of this Act.‟
Section 36 provides for appeals from the Tribunal to this court.

[3] The first respondent, the South African Music Performance Rights Association
(SAMPRA), in terms of the Act and the regulations promulgated thereunder, is an
accredited3 collecting society of royalties for sound recordings on behalf of its only
member, the Recording Industry of South Africa (RISA), an industry body representing
members of the recording industry.

[4] The second respondent, the Southern African Music Rights Organisation
(SAMRO), which represents the interests of composers, played the part of observers
during proceedings before the Tribunal. Similarly, before us, they chose not to
participate but to observe.

[5] A sound recording (embodied in a record, CD, tape, digital or other device) is
usually the product of many talents, namely, the musical work of the composer, the
literary work of the poet or lyricist, the performance of the artist, and the arrangements
made for its making by its producer. A sound recording need not contain music,
alternatively it need not contain words.4

[6] In appreciation of these talents the Act and the amendments thereto, read with
the provisions of the Performers‟ Protection Act 11 of 1967 (the PPA), recognises three
kinds of copyrights involved in the broadcast of a given piece of music. First, s 6(d) of
the Act protects the rights of the composer5 in relation to the broadcasting of his or her
work. Second, s 5(1)(a) of the PPA, which deals with the rights of performers, states:
„(1) Subject to the provisions of this Act, no person shall –
(a) without the consent of the performer –

3 SAMPRA was accredited as a representative collecting society in terms of Regulation 3(1)(a) of the
Collecting Society Regulations published under Government Notice No 517/06 to administer the right to
receive payment of royalties in terms of section 9A of the Act.
4 See discussion in para 5 of the report referred to in note 1.
5 Section 6(d) of the Act.

(i)
broadcast or communicate to the public an unfixed performance of such performer,
unless the performance used in the broadcast or the public communication is itself
already a broadcast performance; . . . .‟
Third, s 9A(1)(a) and s 9A(2)(a) and (b) of the Act dealing with the position of the
owners of copyright in sound recordings, provide as follows:
„(1)(a) In the absence of an agreement to the contrary, no person may broadcast, cause the
transmission of or play a sound recording as contemplated in section 9(c), (d) or (e) without
payment of a royalty to the owner of the relevant copyright.
. . .
(2)(a) The owner of the copyright who receives payment of a royalty in terms of this section
shall share such royalty with any performer whose performance is featured on the sound
recording in question and who would have been entitled to receive a royalty in that regard as
contemplated in section 5 of the Performers‟ Protection Act, 1967 (Act No 11 of 1967).
(b)
The performer‟s share of the royalty shall be determined by an agreement between the
performer and the owner of copyright, or between their representative collecting societies.‟

[7] There is no statutorily prescribed rate of royalties to be paid by radio stations to
record companies. The legislature chose to leave it to agreement between radio
stations and owners of copyright in sound recordings, failing which, arbitration or, as in
the present case, where the parties failed to agree on either a rate or referral to
arbitration, determination by the Copyright Tribunal.6

[8] This case does not involve the rights of composers. Essentially, it is a dispute
between NAB and SAMPRA, concerning the reasonableness of the rate of royalties the
former should be paying the latter. It is accepted by NAB that royalties should be paid to
SAMPRA for the broadcast by radio stations of sound recordings. NAB and SAMPRA
differ on the formula to be used in determining what is due. It is common cause that the

6 Section 9A(2)(c).

royalties to be collected are to be shared between the recording studios and performers.
During the hearing of the present appeal we were informed that recently, following
negotiations between their respective representatives, an equal split had been agreed.

[9] Sound recording royalties are colloquially referred to as „needletime royalties‟, a
throwback to the time when sound was relayed from a vinyl record via a stylus on a
record player. Lobbying by musicians, performers and the recording industry saw the
amendments to the Act and the PPA, referred to earlier, being effected in 2002, to
protect performers and owners of copyright in sound recordings. Record companies
were motivated by reduced sales of compact discs (CD‟s) due to piracy, facilitated by
technological advancements. Musicians and performers, on the other hand, were driven
by their sense of being inadequately rewarded for their services.

[10] The determination referred to in para 1 was made pursuant to a referral to the
Tribunal by SAMPRA in terms of s 9A7 of the Act. In making the referral, SAMPRA
proposed a formula which it contended ought to be used to determine the royalty rate.
NAB, in turn, resorted to a cross-referral in which it sought a determination based on its
proposed royalty formula. In addition, NAB sought a determination from the Tribunal
about the date from whence that royalty was to apply. That issue and the
appropriateness of the formula proposed by NAB are the subjects of the cross-appeal.
Sapire AJ did not address whether he could or should determine the date from which
the royalties are to be paid, notwithstanding that it had been pertinently raised. More
about that later.

7 Section 9A(1) reads as follows:
„(a) In the absence of an agreement to the contrary, no person may broadcast, cause the transmission of
or play a sound recording as contemplated in section 9(c), (d) or (e) without payment of a royalty to the
owner of the relevant copyright.
(b) The amount of any royalty contemplated in paragraph (a) shall be determined by an agreement
between the user of the sound recording, the performer and the owner of the copyright, or between their
representative collecting societies.
(c) In the absence of an agreement contemplated in paragraph (b), the user, performer or owner may
refer the matter to the Copyright Tribunal referred to in section 29(1) or they may agree to refer the matter
for arbitration in terms of the Arbitration Act, 1965 (Act No 42 of 1965).‟

[11] Predictably, the royalty formula proposed by each produces a result most
favourable to the interests represented by each. Put simply, SAMPRA‟s formula results
in a higher rate of royalty, whilst NAB‟s formula produces a lower rate.

[12] At this stage, it is necessary to set out the formulae proposed by NAB and
SAMPRA. The following formula is the one proposed by SAMPRA:
„A

C
______    x
_____
B

Where:
A = the amount of time used by a radio station in any period to broadcast the sound
recordings administered by SAMPRA;
B = the total amount of time used by a radio station in that period to broadcast editorial content,
and
C = a [radio station‟s] net broadcasting revenue.
Net broadcasting revenue means the amount in South African Rands equal to 85% in
number of the published rate card value (before any . . . deductions) of advertisements and
sponsored promotions or features broadcast by the Station, including any such broadcast
by any entity which is an associate, subsidiary or agent of the Station and including
advertisements published on any internet simulcast service;
“editorial content” is defined as content, including the repertoire, broadcast for entertainment,
information or interest of members of the public and shall not include broadcast time allocated to
programme promotions and/or advertisements or promotions on behalf of the Station or any

registered or unregistered charity or in support of social action activities, including but not limited
to awareness raising campaigns and initiatives, telephone helplines.‟

[13] In relation to C in the SAMPRA formula, the published rate card value is obtained
from data published by the A C Nielsen company. Economists, analysts, the media and
the advertising world all rely extensively on the A C Nielsen data. The published data
includes the monthly values of advertising spots broadcast by each radio station,
calculated by reference to each such station‟s published rate card. The rate card does
not take into account discounts, and the 85 per cent provided in SAMPRA‟s formula is
based on its estimate of a 15 per cent discount allowed by radio broadcasters to
advertisers.

[14] NAB proposed the following:
„A

E
_____  x C x D x
______
B

F
Where: -
A = the amount of time that a radio station broadcasts protected sound recordings
per time channel;
B = the total broadcast time of the radio station per time channel;
C = a radio station‟s net revenue per time channel;
D = the industry average net profit percentage for the period;
E = the radio station‟s audience for the period;
F = the total radio audience for the period; and

The needletime royalty per station is the sum of royalties calculated per time channel for the
period. “Time channel” refers to a fixed period within the 24 hour cycle, and according to which
audience is measured (and therefore advertising costed).
Net revenue is defined according to the industry accredited body the Radio Advertising Bureau
(RAB) as actual gross advertising revenue adding all net events revenue and deducting all
agency commissions, discounts, public service announcements and trade exchanges.‟

[15] The major differences between the respective formulas can be seen from what is
set out in this and the four paragraphs that follow. SAMPRA takes into account the total
amount of time used by radio stations in any period during which sound recordings are
broadcast, to which SAMPRA can lay claim, against the total amount of time used by a
radio station in that period to broadcast editorial content, which is defined to exclude the
broadcast of specified items. SAMPRA brings those two items into the reckoning
against the radio station‟s total revenue during the same period. The factor of ten
employed in SAMPRA‟s formula is based on its unflinching attitude that a broadcaster
that chooses to use sound recordings for 100 per cent of its broadcast editorial content
time should pay a royalty equal to ten per cent of the revenue that it derives from
airtime. So, if sound recordings constitute 58 per cent of the broadcaster‟s editorial
content, the royalty is 5,8 per cent, and so on. What this means is that, as a
broadcaster‟s use of music as a percentage of its total broadcast editorial content
declines, so the royalty percentage declines proportionally.

[16] The exclusion of certain items from editorial content has, as a result, that the
proportion of music will necessarily be higher than if the editorial content were to be
broadened, so as to avoid the exclusions contended for by SAMPRA. In simple
mathematics, the smaller the denominator, the larger the result of the fraction. In short,
it increases the royalty rate. SAMPRA‟s rate, as can be seen from what is set out
above, can notionally be from ten per cent downwards.

[17] NAB, on the other hand, contends that the rate should be determined by
reference to the use of copyright protected sound recordings per time channel,
distinguishing between peak broadcasting times and times during which most people
are asleep, and that revenue generated should be considered in relation to each time
channel. That, according to NAB, should then be brought into reckoning against the
total broadcast time of the radio station per time channel, without any deduction, as
envisaged by SAMPRA‟s exclusions in its definition of editorial time.

[18] Furthermore, NAB brings profit into its formula, based on the industry average,
whereas SAMPRA‟s proposal has regard to an individual broadcasting station‟s total net
revenue, without reference to profit or NAB‟s proposed time channels. NAB‟s formula
also takes into consideration audience-reach, which SAMPRA‟s formula disregards.
There is also disagreement about SAMPRA‟s use of the published rate card less a 15
per cent discount to determine revenue. It was contended on behalf of NAB that
discounts sometimes exceed 15 per cent and that it would be better to have regard to
the revenue reflected in a radio station‟s financial statements.

[19] NAB‟s less restrictive approach to editorial content has as a concomitant a
reduced percentage use of musical content. It is the antithesis of what is set out in
para 16. All the factors referred to in the preceding two paragraphs have the effect of a
restricted royalty rate which, it appears, equates to a little over one per cent of a
broadcaster‟s net income.

[20] The merits of the relevant constituent parts of each formula will be dealt with in
due course after an assessment of the evidence and the contentions in relation thereto.

[21] It is necessary to record that subsequent to the referral and the cross-referral, the
parties were at odds about the extent of the Tribunal‟s jurisdiction, including the
question whether it had the power to determine the date from which royalties were
payable. In the latter regard the following facts are relevant. Even though Parliament
amended the Act and the PPA in 2002 to provide for needletime royalties, it was not
until 1 June 2006 that the Minister published Regulations that provided for accreditation
of collecting societies and the conclusion of framework agreements between such
collecting societies on the one hand, and trade associations and representative bodies
of potential users of sound recordings, on the other.8 There was a dispute between the
parties about whether the royalties became due when the amendments were effected or
whether they were only due when the mechanisms for collections were put in place
legislatively. In respect of the intervening period questions arise about whether
performers and producers of sound recordings could otherwise sue for copyright
infringement. Issues such as prescription also intrude.

[22] There was uncertainty about the procedure to be adopted by the Tribunal, in
fulfilling its statutory function to determine the royalty rate. In this regard it is important to
note that there are no regulations prescribing the procedure. After the present matter
was ripe for hearing before the Tribunal, and after representations in this regard, the
Minister of Trade and Industry (the Minister), recognising various lacunae in the
legislation, established the Copyright Review Commission to assess concerns and
allegations about the Collecting Society‟s model for the distribution of royalties to
musicians and composers of music. The Commission completed a report in 2011 in
which it said the following concerning the procedure to be followed by the Tribunal:
„It also became apparent to the [Copyright Review Commission] that the present statutory
provisions dealing with the Copyright Tribunal requires substantial amendment to enable the
Tribunal to perform effectively in the various matters that may come before it. . . .

8 GN 517 of 1 June 2006.

In a memorandum submitted to the [Copyright Review Commission] the Registrar of Copyright
stated that the delays in finalising the two matters before it relating to needletime royalties were
“the result of unclear and vague regulations which do not prescribe the procedure to be
followed.”‟ (My emphasis.)
These are aspects on which I will comment further later in this judgment.

[23] In light of the disputes referred to at the beginning of para 21 NAB considered it
necessary to apply to the North Gauteng High Court for a declaratory order concerning
the Tribunal‟s jurisdiction. Despite opposition by SAMPRA it was successful in that
endeavour. The following order was made by Claassen J:
„1. THAT the copy-right Tribunal is to determine the following: -
1.1 The royalties payable in respect of sound recordings;
1.2 The date from when royalties are applicable;
1.3 Whether any escrow payments are to be made in the interim;
1.4 Whether any other royalties such as for the so-called mechanical reproduction of sound
recordings in the broadcast processes are payable, and if so, from when;
1.5 Costs relating to the application of substituted service effected in respect of this application,
as authorized by the Court on 22 October 2008 following the applicant‟s ex-parte application
under case number 44698A/2008 be reserved for later determination;
1.6 First respondent pay the costs of this application, including the costs of two councils.‟
The application to the high court and the resultant order will also be dealt with later in
this judgment.

[24] Before the Tribunal the parties followed the conventional adversarial procedure
and evidence was adduced by each. Economists testified in support of each side‟s
proposed formula referring to economic theory and relevant and practical factors to be
taken into account in determining a royalty rate. Protagonists in both the broadcasting
and sound recording fields and other witnesses testified. SAMPRA also led evidence

and presented documents that dealt with the rate of royalties for sound recordings
employed internationally by a range of countries. I consider it necessary to set out the
relevant evidence in the paragraphs that follow.

[25] Mr Louric Richardt, an attorney and consultant with the International Federation
of the Phonographic Industry, testified about his experience and exposure to processes
and practices worldwide. It appears that not only economic realities but historical factors
are taken into account in other countries. The more recent trend, however, is for
economic factors to play a more prominent role. A principle that applies universally is
that broadcasters pay royalties in relation to the time that music is played on their radio
stations. Put simply, the principle is pay for play. Another rule is that rates are based on
a correlation between time and revenue generated. In some instances countries apply
rates that increase in relation to bands of increasing revenue.

[26] According to Richardt the broadcasting industry in South Africa is amongst the
most profitable in the world with profit margins reaching to between 40 and 50 per cent.
This evidence was largely supported by Mr Peter Armitage who commented on the
financial results of three entities that control most of the radio stations in South Africa.

[27] In some countries the royalty rate payable to owners of copyright in sound
recordings is half of those payable to composers. For many decades SAMRO has been
collecting those royalties in South Africa. Richardt accepted that in the South African
context and relative to the international trend, the SAMRO rate is irrelevant. He appears
to base that conclusion on the fact that composers have resisted attempts to have the
value of their intellectual property linked to those of others. Richardt testified that other
benchmarks are preferable.

[28] Mr Richard Murgatroyd, an economist, testified in support of SAMPRA‟s case.
His evidence on a particular pricing theory, it was agreed by the parties, can rightly be
discounted. Of importance are his concessions under cross-examination. He accepted
that the SABI was extensively regulated. So, for example, they are statutorily obliged to
include local content of at least 25 per cent. Also, the public broadcaster has language
and specific religious broadcast obligations.

[29] Insofar as revenue is concerned, Mr Murgatroyd and other witnesses agreed that
the use of actual income was better than the use of notional amounts and in this regard
they accepted that the financial statements of NAB‟s members ought to be employed.
Although not entirely forthcoming, Mr Murgatroyd appeared to accept that promotions
by radio stations of the upcoming broadcasts, might impact beneficially on revenue and
that they should perhaps not be excluded in SAMPRA‟s definition of editorial content.
He seemed to agree with the proposition by counsel on behalf of NAB that if one could
link time channels to revenue generated by advertising during those particular
segments, it would be preferable to have regard to revenue in relation to time channels.
I will, in later paragraphs, deal with other evidence on this aspect.

[30] Mr Keith Lister, chairperson of the board of SAMPRA, testified that he was
formerly Chief Executive Officer of Sony Music Entertainment Africa (Proprietary)
Limited. He testified about how the Minister had unsuccessfully been lobbied to change
legislation to provide for a compulsory 50/50 sharing of the royalty between performers
and record companies. As stated above, this split now appears to have been agreed
between their respective representatives. It appears from Lister‟s testimony that,
historically, the recording industry considered a ten per cent royalty for 100 per cent of
music usage by broadcasters as fair, because it was then thought that the ten per cent
should also embrace the present 3,25 per cent royalty paid to SAMRO for composer
rights. Later, the recording industry thought that ten per cent ought to be shared
exclusively between performers and the recording industry, with composers being left to

a separate 3,5 per cent to be collected by SAMRO. It appears from Mr Lister‟s evidence
in-chief that the ten per cent royalty claim is a rigid position driven by a „sense‟ that it
would be reasonable, without there being any postulated rationale.

[31] In his evidence, Lister dealt with the 15 per cent discount referred to in
SAMPRA‟s formula and said that a closer examination of discounts provided in the
available documentation indicates that the discounts afforded to advertisers were closer
to 18,9 per cent. In his view, discounts should not be allowed at all because they should
be considered as the cost of doing business. In respect of the time channels and related
revenue proposal by NAB, Mr Lister testified that the proposal is impractical, because
advertising is sold by broadcasters to advertisers in bundles. Sometimes free spots are
provided to advertisers in non-peak advertising times as part of a bundle, to induce
advertisers to buy premium spots at premium prices. In addition music usage in non-
peak periods is substantially greater than at premium times.

[32] Mr Lister testified that there are other revenue streams that redound to the
benefit of owners of copyright in sound recordings, including from retailers, banks,
shopping malls, sport stadiums, restaurants and the like, and that the amount collected
over the past three to four years from licensing is in the region of one hundred million
rand. Importantly, Mr Lister accepted that international royalty rates paid to composers
were in most instances higher than rates for sound recordings. He accepted that some
of the largest members of RISA repatriated to America and elsewhere the greater
percentage of what was received as sound recording royalties. Even though Mr Lister
was loath to make any concession concerning royalty rights for performers in the United
States of America (the USA), it does appear that at least a substantial percentage of
performers have no royalty rights in respect of terrestrial broadcasting by radio stations
in the USA. Mr Lister testified that there is some money that accrues to South African
performers from broadcasts internationally, but that the outflow of funds to recording
companies in other countries, particularly the USA, is greater.

[33] An important aspect of Mr Lister‟s testimony is the question of how a radio
station‟s audience-reach is evaluated in relation to revenue. Some radio stations with a
more limited audience charge a higher rate because the audience is regarded as having
a higher value to the advertiser. It might relate to affluence, or products connected to
the target audience. There is undoubtedly difficulty in placing a value on listenership.

[34] An issue of significance is the percentage of works administered by SAMPRA
that is subject to copyright. The regulations under the Act require that a repertoire of
copyright protected sound recordings be made available by a collecting society.
Regulation 7(1) of the Collecting Society Regulations, promulgated under the Act, 9
provides as follows:
„7. Licensing – (1) A collecting society shall make available, on non-discriminatory terms, for any
potential user of public playing rights the complete repertoire of records in respect of which the
public playing rights are owned by the South African and foreign rightholders that [are]
represented by it.‟
It is necessary to point out that a complete repertoire has not yet been compiled or
provided by SAMPRA. Mr Lister testified that a substantial playlist provided by NAB to
SAMPRA could in a relatively short time be analysed to determine what percentage is
not protected by copyright. This is an important issue because it appears that not all the
music administered by the SAMPRA is subject to copyright.

[35] The problem flowing from what is set out in the preceding paragraph is that it
would be difficult to invoice and charge broadcasters for the use of sound recordings
without a proper reconciliation. Mr Lister suggested that this problem could be met by
resorting to the following procedure: A broadcaster would only be invoiced after an

9 GN 517 of 1 June 2006.

analysis by SAMPRA of its playlist. He suggested that provisional payments be made,
which could later be adjusted when a reconciliation was completed, having regard to
copyright in sound recordings. It also appears from Lister‟s testimony that the royalty
rate collected by the SAMRO in respect of composer rights is calculated at 3,25 per
cent of revenue and that the rate is based on international comparisons. That rate is
current.

[36] According to Mr Lister, since deregulation in 1995, the South African music
industry peaked in 2007 and went into decline thereafter. Mr Lister agreed that revenue
is not always in direct proportion to profitability, but pointed out that when revenue
declines, margins tend to be lower and profitability less.

[37] Mr David du Plessis, General Manager of RISA and CEO of SAMPRA, testified
that the rate proposed by SAMPRA, when compared to international rates, is not below
the average. However, it appears that only Finland and France have a higher rate than
the rate proposed by SAMPRA. He added a qualification, namely, that the music usage
per radio station would determine the ultimate rate. As pointed out above, the rate
reduces as the music used during a broadcast period lessens. He accepted that the
average SAMPRA rate would be above the SAMRO rate. Mr Du Plessis cautioned
against a purely mathematical international comparison, suggesting that circumstances
in those countries have to be contrasted with circumstances locally. According to Mr Du
Plessis, only two per cent of SAMPRA‟s repertoire is not subject to copyright. He was
adamant that if SAMPRA was provided with lists by broadcasters they could determine
which qualify for copyright protection and which do not.

[38] Ms Virginia Hollis, the Managing Director of Media Shop (Pty) Ltd and the vice-
chairperson of the South African Advertising Research Foundation that conducts
audience research for all media, testified. She spoke of the media‟s reliance on the A C

Nielsen data. Radio stations provide their logs of advertising broadcast to A C Nielsen,
which then publishes it. That then provides a basis for an estimate of what was spent by
each radio station. A C Nielsen provides the advertising rates as well. She testified that
the radio stations do not provide particulars of discounts provided to any advertiser. Ms
Hollis confirmed what was said in evidence by Mr Lister, namely, that it is often difficult
to calculate revenue per time channel because of what she called „value add-ons‟,
namely, providing free airtime to advertisers in some time channels instead of offering a
discount, as an incentive to advertise at higher rates in prime time channels.

[39] Mr Andrew McFarlane, a director and shareholder of a company that uses
technology to determine the time and duration of broadcast of sound recordings and to
record the name of the artist as well, testified. The data so collected enables the
company to calculate the aggregate amount of time on any given day or over any period
that is utilised by any radio broadcaster for the broadcast of music sound recordings.
The information gathered is sold to interested parties.

[40] Mr Quintin Stewart, Managing Director of a company that monitors radio and
television broadcasts in South Africa testified that, by the use of technology, one can
accurately determine the content of broadcasts.

[41] Mr Spiro Damaskinos, a director of Sony Music Entertainment Africa
(Proprietary) Limited, testified that for a decade he was directly responsible for its
marketing and promotional relationships with radio and television broadcasters. He
testified about how radio stations clamoured for new releases and that recording
companies were always under pressure to supply new content. He testified about what
is common knowledge within the recording industry, namely that, ironically, even though
consumers have increased access to music through the internet and digital technology
and even though the music they sell has never been more popular, revenue through the

sale of physical and digital products has continued to decline. Much of this is due to
increasingly sophisticated illegal downloads. It was accepted that a benefit is derived by
recording companies from airplay by radio stations, but that did not necessarily translate
into sales and revenue – certainly, not as much as it used to.

[42] Dr William Bishop, an economist, testified in support of NAB‟s case. He, like
others, accepted that placing a value on intellectual property is generally not an easy
task. This proposition is not contentious. In the event of a rate that is prohibitive, radio
stations would resort to using the efforts of session musicians captured on a disc or
other device in their music broadcasts. There are instances of persons who use sound
recordings, who have resorted to this method, particularly in the United Kingdom.

[43] Dr Bishop favoured the revenue per time channel calculation as NAB would have
it. Dr Bishop could not understand the logic of SAMPRA‟s exclusions from editorial
content. He was of the view that revenue in either formula should be based on actual
figures rather than notional ones. Simply put, this means financial statements, rather
than the rate card less the estimated discount. Dr Bishop took the view that either
formula could be scaled up or down to get to a rate that would avoid perverse reactions
and consequences. He agreed that an acceptable formula was one that reduced
distortions but warned against setting the rate so low that it was considered not
worthwhile. Dr Bishop was struck by the complexity of regulation in the radio industry in
South Africa. In considering profit against revenue, Dr Bishop testified that one could
have revenue with a bad profit-crunch and, similarly, one could have profit soaring out
of proportion to revenue. Whilst he accepted that there was no direct correlation
between revenue and profit, he stated that there was some correlation.

[44] It will be recalled that NAB‟s formula incorporated the profit average for the
industry. Dr Bishop stated that it was for someone else to explain why that was adopted.

He accepted that some form of sharing, either in revenue or profits, has to be factored
into a formula. Viable sharing has to be appropriate and efficient. Whilst he described
the symbiosis between the record industry and radio broadcasters as a joint venture of
sorts, he accepted that it was not truly such.

[45] Mr Jonathan Shaw, a music business entrepreneur, testified that a large
proportion of music broadcast in South Africa originates from American companies.

[46] Mr Colm Tonges, an accountant, testified on behalf of NAB. He is a partner at
Price Waterhouse Coopers (PWC), an auditing firm, and was instrumental in compiling
NAB‟s formula. He rejected the ten per cent proposed by SAMPRA as being arbitrary. In
justifying the revenue per time channel approach, he testified that one of the principles
PWC tried to incorporate was that the more people were listening, the more revenue
would be generated, and that the time channel proposal ought to be viewed in that light.
Thus, the best way was to link revenue to time channels in order to ensure that that
objective was being met, rather than simply having regard to revenue across all time
channels. Like other witnesses, he too favoured actual revenue reflected in a
broadcaster‟s financial statements. In looking at letters of demand from SAMPRA, PWC
considered its formula in relation to seven radio stations that were different in size and
got a range of a royalty rate of between 6,8 to 8,8 per cent. That exercise was purely to
illustrate the levels of royalty that would ensue if SAMPRA‟s formula was adopted.

[47] PWC factored in audience-reach in its formula to ensure that radio stations with a
greater audience paid more. Mr Tonges accepted that revenue bears a relationship to
listenership, but testified that it is not the only variable and that demographics impact on
revenue as well. Audience income is thus not irrelevant. Audience size can be fairly
accurately determined by market surveys.

[48] A concern by PWC was that if the level of royalty was too high, the viability of
radio stations may be affected. Justifying the inclusion of industry average profits in the
NAB formula, Mr Tonges stated that basing a formula on an individual station‟s profit
might prove inequitable. So, for example, a well-run station would pay higher royalty
than one less so. This, he stated, should be contrasted with loss making radio stations
that would not pay any royalty, even though, notionally, they could have higher music
usage. An industry average avoided such a result.

[49] Dr Nicola Theron, an economist who is the Managing Director of an economic
consultancy, testified. Like others, she preferred revenue in the formula to be based on
actual rather than notional figures. She too spoke of the difficulty of placing a value on
intellectual property. In respect of exclusions from SAMPRA‟s definition of editorial
content, she stated that the exclusions are something one needs to be certain of. She
thought that in respect of international comparisons, developing countries would be
more comparable to South Africa. Dr Theron took the view that there was some value to
international comparisons, but qualified it by saying one should be conscious of
peculiarly South African circumstances. Although, more recently, there has been a
decline in radio listenership, there has overall been a growth in the revenue of radio
stations.

[50] Dr Theron agreed that, from an economist‟s point of view, one would be
concerned about the net outflow of currency from South Africa in determining a royalty
rate. She took the view that in determining the royalty rate, one should minimize the
impact on all parties. Importantly, Dr Theron thought that a simple, rather than a
convoluted formula would be preferable. As an economist, she testified in relation to any
proposed formula that a result that is startling should make one revisit the methodology
producing the result.

[51] Johannes Koster, the Executive Director of NAB, testified. In respect of
advertising discounts, he testified that a maximum of 16,5 per cent is allowed as
discounts to advertisers. In respect of a 50 000-odd play list obtained from SAMPRA,
NAB had difficulty identifying the originality of all the sound recordings. In relation to
editorial content, Mr Koster testified that promotional competitions have entertainment
value as well as playing a role as a reward for listeners participating, and the advertiser
attached to it gets exposure. It certainly could help to generate revenue.

[52] Finally, I consider it useful to reproduce a broad based table compiled by
SAMPRA on sound recording royalty rates that apply in other countries. It is necessary
to point out that the table does not provide motivations or qualifications. However, as
appears from what is set out above, there was testimony in relation to royalty rates that
apply in still other countries. The table that appears hereafter sets out the comparative
rates.
0 – 1%
1 – 2%
2 – 3%
3 – 4%
4 – 5%
5 – 6%
>6%
Australia
Chile
Japan
Malaysia
Romania
Argentina
Barbados
Costa Rica
Lithuania
India
Italy
Jamaica
Panama
Paraguay
Poland
Canada
Dominican
Republic

Latvia
Portugal
Slovenia
Spain
Switzerland
Bulgaria
Peru
Austria
Czech
Republic

Denmark
Greece
Hong Kong
Netherlands
Thailand
United
Kingdom
France
Germany
Sweden
Slovak
Republic
Finland
Ireland

[53] That then, in summary, was the totality of relevant evidence.

[54] Sapire AJ found most of the evidence referred to above unhelpful. Throughout
proceedings it was evident that he required of the expert witnesses to actually provide
the rate he was called upon to determine. He disregarded the evidence of royalty rates
applied internationally. He described how he would go about determining the rate
payable as follows:
„I do not propose to analyze or adopt the opinions of the experts but will . . . use the SAMPRA
formula with an adjustment to the denominator representing the percentage of the broadcaster‟s
net income, to produce the desired result.‟

[55] Sapire AJ considered the appropriate rate to involve a value judgment on his
part. It is difficult to discern the rationale for his ultimate conclusion. Towards the end of
his determination he stated the following:
„This assessment is made on the limited information available, but will result in an equitable
reward to the referrer‟s clients, while not imposing an unaffordable burden on the broadcasters.‟
The following is the formula he determined should be used in calculating the needletime
royalty:
„A

C x 7
_______
x
________
B

Where:
A = the amount of time used by a radio station in any period to broadcast the royalty protected
sound recordings administered by SAMPRA;
B = the total amount of time used by a radio station in that period to broadcast editorial content
“editorial content” is defined as content, including the repertoire, broadcast for  entertainment,
information or interest of members of the public and shall not include broadcast time allocated to
programme promotions and/or advertisements or promotions on behalf of the Station or any
registered or unregistered charity or in support of social action activities, including but not limited
to awareness raising campaigns and initiatives, telephone helplines

and
C = a radio station‟s net broadcasting revenue.
Net broadcasting revenue means the amount in South African Rands equal to 85% in number of
the published rate card value (before any deduction of agency commissions or any other
deductions) of advertisements and sponsored promotions or features broadcast by the Station,
including any such broadcast by any entity which is an associate, subsidiary or agent of the
Station and including advertisements published on any internet simulcast service; . . . .‟

[56] In essence, the maximum royalty rate of ten per cent was reduced by Sapire AJ
to a maximum of seven per cent with the percentage decreasing relative to music use.
Other than that change, the SAMPRA formula remained largely unaffected. It is against
that determination that this appeal in terms of s 36 of the Act is directed.

[57] It is necessary at the outset to say something concerning the rather tortuous
statutory scheme in terms of which the Tribunal derives its power. As pointed out by
Dean in Handbook of South African Copyright Law,10 the factual matrix set out in
Chapter 3 of the Act has to be read „mutatis mutandis to accommodate the adjudication
of disputes arising out of s 9A‟. This means that one has to strain to make those
provisions compatible with those of s 9A, more particularly those of s 9A(1)(b) and
(2)(c). Put simply, the licensing scheme provisions are applied to the determination of
the royalty rate. That notwithstanding, the learned author rightly points out that to adopt
a different view would render the provisions of s 9A nugatory – a consequence that
should be avoided. Section 33(5)(b) therefore, applies mutatis mutandis and requires
the Tribunal, when it is determining a royalty rate, to make such order as it may
„determine to be reasonable in the circumstances‟.

10 O H Dean Handbook of South African Copyright Law 2012 at 1-55.

[58] One other preliminary issue that needs to be addressed, albeit briefly, is the
failure of the Regulations under the Act to prescribe the procedure for the adjudication
of a royalty rate. It is distressing that, despite a lapse of more than three years since the
report by the Copyright Review Commission in which it described the regulations as
vague and unclear and lamented the failure to prescribe a procedure for the
adjudication of a royalty rate, no progress has been made. This is an aspect the
Minister should address urgently.

[59] I now turn to deal with the manner in which the Tribunal made its determination.
In my view, Sapire AJ wrongly discounted the evidence that both parties took care to
adduce to assist him in reaching a decision. There are areas of commonality and
divergence which ought to have been taken into account in arriving at a conclusion.

[60] First, almost all the witnesses were agreed that in considering revenue, the
financial statements of the radio stations ought to be considered rather than the
SAMPRA calculation of the rate card less a 15 per cent discount.

[61] It is not irrelevant that many countries calculate a royalty rate based on the
percentage of revenue with some choosing to increase rates relative to revenue
thresholds. I will in due course deal with comparable rates.

[62] That the broadcasting industry is extensively regulated is a factor to be taken into
account in NAB‟s favour.

[63] It does not appear that royalty rates for sound recordings internationally exceed
composer royalty rates. It is arguable, though not definitive, that composers are the key
component in relation to the production of music. In Chile sound recording rates are
determined at half the rate of the composer royalty rate.

[64] Whilst NAB‟s proposal that revenue should be linked to time channels,
distinguishing between peak periods and the midnight shift in which listenership is
minimal, is superficially attractive, the following oddities arise: It discounts the fact that
advertisers are offered free spots in the midnight shift in order to induce them to pay a
premium for advertising spots during peak time, and it ignores the fact that the greater
amount of music is used during off-peak periods.

[65] A concern expressed by the Advisory Committee on the Act in relation to the
imposition of too high a royalty rate was the financial implications for South Africa, which
translated, means excessive negative currency outflow. As pointed out, much of the
money collected by SAMPRA will find its way to the USA and other countries.

[66] In addition, consideration should be given to perverse consequences for the
music industry by too prohibitive a rate driving broadcasters to the alternative of using
session musicians and the like.

[67] The problem with the introduction of profitability in the form of the industry
average is that it does not properly or necessarily give vent to the pay-for-play principle
and might be punitive on people whose profits are below the industry average. It might
also lead to manipulation on an accounting basis in order to lessen the royalty burden.
There appears to be no precedent internationally for including profitability in the

calculation of a royalty rate. Dr Bishop, who testified on behalf of NAB, did not champion
its inclusion and left it to others to justify.

[68] Although there appears to be some logic to factoring audience-reach into a
formula, one has to be mindful of the difficulties of valuing an audience as became
evident from the evidence set out above.

[69] There is force to the submission on behalf of NAB in relation to editorial content,
namely, that the exclusions by SAMPRA are too liberal. Whereas advertisements ought
rightly to be excluded, it appears to me that programme promotions and other content
such as charity drives or competitions ought not to be. They are part of the total cachet
of a radio station and can all be said to be part of the revenue generating effort.

[70] As far as can be ascertained, only six countries, who probably all qualify to be
described as developed countries, pay a rate of more than five per cent. Only two
developed countries pay more than six per cent of total revenue. India, which is
probably the more closely comparable country, charges between one and two per cent
of total revenue. In considering the international experience and practice, I am not
unmindful of South African circumstances, more particularly that South African
performers have been clamouring for years for their due.

[71] It is clear that the factor of ten representing a maximum rate of ten per cent
proposed by SAMPRA is purely arbitrary. Sapire AJ considered that, because the
determination by him involved a value judgment, he was free to arrive at a conclusion
by a sense of what was reasonable without any real consideration of all of the factors
set out above. He appears to have considered that the SAMRO rate multiplied by two
would be reasonable. In this regard, instead of arriving at 6,5 per cent, he determined

seven per cent to be reasonable. It certainly was never suggested, with substantiation,
by any of the witnesses that owners of copyright in sound recordings were entitled to
rate their talents at twice the rate received by composers.

[72] It was submitted on behalf of SAMPRA that the discretion conferred on the
Tribunal in terms of s 31(5) of the Act was the widest form of discretion in our law and
that the Tribunal could legitimately adopt any one of a range of options about which
there may well be a justifiable difference of opinion as to which one would be the most
appropriate. Such discretion, so it was contended, is what is known as a strict
discretion. In this regard the judgment of this court in Oakdene Square Properties (Pty)
Ltd v Farm Bothasfontein (Kyalami) (Pty) Ltd 2013 (4) SA 539 (SCA) is relevant.

[73] NAB, on the other hand, contended that the Tribunal did not have an unfettered
discretion. Both parties, however, agreed that if we were to conclude that the Tribunal
proceeded from incorrect facts and ignored relevant factors, the determination could be
overturned and we could substitute a conclusion based on the available evidentiary
material.11 The parties were ad idem that any further delay was undesirable.

[74] In my view, Sapire AJ‟s determination occurred without reference to the very
important evidence and factors set out above, with the consequence that the
determination is liable to be set aside and substituted.

[75] For all the reasons set out above, a reasonable rate would be 3,0 per cent of
revenue as a maximum rather than the seven per cent determined by Sapire AJ or the
ten per cent proposed by SAMPRA. In my view the only justifiable exclusion from

11 See para 20 of Oakdene.

SAMPRA‟s definition of editorial time is the broadcast of advertising. There is no doubt
in my mind that revenue should be that which is reflected in a radio station‟s financial
statements. In this regard the practice followed by SAMRO, about which we were
advised from the Bar, appears salutary. It appears that broadcasters are invoiced two
months in arrears, based on the revenue certified by its accountants, which, after the
end of the financial year, is verifiable by way of audited financial statements. The time
lag will enable SAMPRA to verify, pre-invoicing, that part of a radio station‟s play list that
is rightly subject to copyright. From what is set out above, it is clear that I did not
consider profitability or audience-reach to be included in a formula to arrive at the
royalty rate. In my view, for the reasons already provided, I am un-persuaded that
NAB‟s proposal that revenue should be calculated per time channel within a total
broadcast period is justified. In this regard I bear in mind the concession by Ms Hollis
who testified in support of NAB‟s case that a simple formula is to be preferred. NAB‟s
formula is somewhat complex and more susceptible to disputes.

[76] Thus, the formula to be applied in determining the royalty rate is the following:
„A

C x 3
______    x
_____
B

Where:
A = the amount of time used by a radio station in any period to broadcast the sound
recordings administered by SAMPRA;
B = the total amount of time used by a radio station in that period to broadcast editorial content,
and
C = a radio station‟s net broadcasting revenue based on what is reflected in its financial
statements or certified by its accountants.

“editorial content” is defined as content, including the repertoire, broadcast for entertainment,
information or interest of members of the public and shall not include broadcast time allocated to
advertisements.‟

[77] I now turn to address the remaining issue flowing from the cross-appeal by NAB.
In my view, the approach to the South Gauteng High Court for the declaratory order
referred to earlier in this judgment was misplaced. Counsel representing NAB rightly did
not argue the contrary too strenuously. It was for the Tribunal to consider whether what
it was required to determine was within its statutory powers. If it erred, that decision
could be challenged on appeal. Counsel on behalf of NAB accepted that we were not
bound by the decision of the high court concerning the powers of the Tribunal to
determine the date from whence the royalty is payable. In the latter regard, it is
important to note that the Tribunal‟s power is narrowly circumscribed and does not
include the power to deal with disputes concerning the time from which the royalties are
due. Moreover, there are a number of issues that impact on the question of the date
from which royalties become due including, but not limited to, prescription and claims for
unlawful breach of copyright. Questions concerning the application and enforceability of
the provisions of the Act also come into play. Sapire AJ did not address the question
raised in the cross-appeal at all. In my view, there is no basis for concluding that the
Tribunal was empowered to deal with the questions that arise from the cross-referral on
this aspect.

[78] No costs were awarded in the court below. This was justified by Sapire AJ on the
basis that both parties had contributed equally towards his determination and that he did
not wholly adopt the formula of either one. In my view, the same reasoning applies in
this court. For the reasons set out above, the following order is made:
1. The appeal is upheld to the extent reflected in the formula set out below, and the
cross-appeal is dismissed with no order as to costs.

2. The determination by the court below is set aside and substituted as follows:
„A

C x 3
______    x _____
B

Where:
A = the amount of time used by a radio station in any period to broadcast the sound
recordings administered by SAMPRA;
B = the total amount of time used by a radio station in that period to broadcast editorial
content,
and
C = a radio station‟s net broadcasting revenue based on what is certified by its
accountants and confirmed in its financial statements.
“editorial content” is defined as content, including the repertoire, broadcast for
entertainment, information or interest of members of the public and shall not include
broadcast time allocated to advertisements.‟

_____________________
MS NAVSA
JUDGE OF APPEAL

APPEARANCES:

FOR APPELLANT:

Adv C E Puckrin S.C (with him O. Salmon)

Instructed by:

Webber Wentzel, Johannesburg

Honey Attorneys, Bloemfontein

FOR RESPONDENT:

Adv. I Miltz S.C. (with him C LRobertson)

Instructed by

Edward Nathan Sonnenbergs, Johannesburg

Matsepes Inc., Bloemfontein