Phonographic Performance Company of Australia Limited (ACN 000680 704) under section 154(1) of the Copyright Act 1968 - [2010] ACopyT 1

COPYRIGHT TRIBUNAL OF AUSTRALIA
Phonographic Performance Company of Australia Limited (ACN 000680 704) under section 154(1) of the Copyright Act 1968 [2010] ACopyT 1

Citation: Phonographic Performance Company of Australia Limited (ACN 000680 704) under section 154(1) of the Copyright Act 1968 [2010] ACopyT 1

Parties: REFERENCE BY PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED (ACN 000 680 704) UNDER SECTION 154(1) OF THE COPYRIGHT ACT 1968

File number: CT1 of 2006

The Tribunal: DRIVER FM (DEPUTY PRESIDENT)
PROFESSOR DENNIS PEARCE (MEMBER)
DR RHONDA SMITH (MEMBER)

Date of judgment: 17 May 2010

Catchwords: COPYRIGHT – Proposed licensing scheme – reference of scheme to Tribunal for approval under s.154(4) of the Copyright Act 1968 (Cth) – licences for use of sound recordings in fitness classes – calculation of licence fee –rate of increase – whether calculated by monthly membership of fitness centres, or by attendance at fitness classes or by reference to the classes conducted – choice modelling survey – measurement of the value of sound recordings in fitness classes – measurement of willingness to pay for recorded music – flaws in survey – alternative basis for calculation of licence fee – consideration of bargaining principles – consideration of competition issues – whether only fitness centres should pay the licence fee – consideration of definition issues in the proposed scheme – observations on the role of the ACCC in Tribunal proceedings.

Legislation: Copyright Act 1968 (Cth), ss 22, 85, 89, 136, 154, 157, 157B
Copyright (International Protection) Regulations 1969

Cases cited: Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd (No 4) [2006] ACopyT 2
Australian Hotels Association v Copyright Tribunal [2008] FCAFC 37, (2008) 75 IPR 449
Copyright Agency Ltd v Department of Education NSW (1985) 5 IPR 449
Reference by APRA [2006] ACopyT 3
Reference by Phonographic Performance Company of Australia Limited under s.154(1) of the Copyright Act 1968 (2007) 73 IPR 162

Dates of hearing: 16, 17, 19, 23, 24, 26, 27, 30, 31 March, 6-9, 14-17 April, 29-30 June, 1-3 July 2009

Place: Sydney

Category: Catchwords

Number of paragraphs: 324

Counsel for the Applicant: Mr R Cobden SC with Mr C Dimitriadis

Solicitor for the Applicant: Gilbert + Tobin

Counsel for the First Respondent: Mr J V Nicholas SC with Ms K Richardson and Ms J M Beaumont

Solicitor for the First Respondent: Minter Ellison

Counsel for the ACCC: Mr D M Yates SC with Mr J M Hennessy

Solicitor for the ACCC: Norton Rose

COMMONWEALTH OF AUSTRALIA

Copyright Act 1968

IN THE COPYRIGHT TRIBUNAL OF AUSTRALIA CT1 of 2006

REFERENCE BY:

PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED (ACN 000 680 704) UNDER SECTION 154(1) of the COPYRIGHT ACT 1968

THE TRIBUNAL:

DRIVER FM (DEPUTY PRESIDENT)
PROFESSOR DENNIS PEARCE (MEMBER)
DR RHONDA SMITH (MEMBER)

DATE OF ORDER:

17 MAY 2010

WHERE MADE:

SYDNEY

THE TRIBUNAL DIRECTS THAT:
1.The applicant bring in short minutes to give effect to the Tribunal’s conclusions.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

COMMONWEALTH OF AUSTRALIA

Copyright Act 1968

IN THE COPYRIGHT TRIBUNAL

CT 1 OF 2006

REFERENCE BY: PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED (ACN 000 680 704) UNDER SECTION 154(1) of the COPYRIGHT ACT 1968

THE TRIBUNAL:

DRIVER FM (DEPUTY PRESIDENT)
PROFESSOR DENNIS PEARCE (MEMBER)
DR RHONDA SMITH (MEMBER)

DATE:

17 MAY 2010

PLACE:

SYDNEY

REASONS FOR DETERMINATION
THE APPLICATION TO THE TRIBUNAL

The applicant, Phonographic Performance Company of Australia Limited (“PPCA”), is a copyright collecting society. It is a licensor within the meaning of s.136 of the Copyright Act 1968 (Cth) (“the Copyright Act”). PPCA represents the interests of record companies and recording artists in relation to the broadcast, communication and public playing of recorded music and music videos to which the Copyright Act applies.
PPCA proposes to bring into operation a licence scheme initially described as the “Fitness Class Licence Scheme” (“the Scheme”). The Scheme relates to “the granting of sound recording licences for the use of sound recordings to accompany fitness classes (Fitness Class Use) held by providers of fitness classes (Fitness Class Providers)”. The Scheme is intended to replace an existing scheme relating to the use of sound recordings for fitness class use.
Under s.136 of the Copyright Act, a licence scheme is a scheme setting out both:
·the circumstances in which the licensor is willing, or the persons on whose behalf the licensor acts are willing, to grant licences, and
·the charges, if any, subject to payment of which, and the conditions subject to which, licences would be granted in those classes of cases.
The term “licence” is defined in s.136 to include a licence to cause a sound recording to be heard in public.
On 8 December 2006, PPCA applied to the Tribunal for an order under s.154(4) of the Copyright Act. Section 154(1) of the Copyright Act provides that, where a licensor proposes to bring a licence scheme into operation, the licensor may refer the scheme to the Tribunal. At the date of the application s.154(4) required the Tribunal to consider such a scheme and make such order, either confirming or varying the scheme, as the Tribunal considers reasonable in the circumstances. PPCA’s application sought an order from the Tribunal that the proposed scheme be confirmed or be varied as the Tribunal considers reasonable in the circumstances. However, s.154(4) was amended with effect after the date of the application to provide that the Tribunal might, as an alternative to confirming or varying a scheme, substitute for the scheme another scheme proposed by one of the parties. During the course of the hearing of its application, PPCA indicated that it accepted that it would be open to the Tribunal to substitute another scheme for that which it had proposed.
The Tribunal notes that s.157(2) of the Copyright Act allows a person to apply to the Tribunal if that person claims that the grant of a licence would be subject to charges or conditions that are not reasonable in the circumstances of the particular case. If the Tribunal is satisfied that such a claim is well founded, the Tribunal may make an order specifying the charges and conditions that it considers reasonable in the particular circumstances. Thus, the Tribunal is empowered to address the unreasonable application of a scheme in a particular case.
It is important to note that the effect of making an order confirming a licence scheme establishes a scheme of general application, binding not only those organisations that were parties to the reference, but all others who use the copyright to which the Scheme relates. However, approval of a scheme does not prevent a person or organisation from reaching an agreement with the copyright owner different from the confirmed scheme: see Reference by APRA [2006] ACopyT 3 per Lindgren P.
It is important also to note that a licence fee fixed by the Tribunal under an approved scheme is a maximum fee. There is nothing to prevent a collecting society charging its licensees a lower fee.
Parties to the Application
As indicated above, the applicant in these proceedings is PPCA.
The first respondent is Fitness Australia Incorporated. It is a national body representing businesses and professionals who together constitute the health and fitness industry in Australia. The Tribunal was informed that its membership comprises the State industry associations who have, as their business members, over 800 health and fitness facility owners, operators and managers and 18,000 registered fitness professionals.
The second respondent is the Australian Competition and Consumer Commission (ACCC). Section 157B was included in the Copyright Act in 2006. It empowers the Tribunal to make the ACCC a party to an application under the Copyright Act if the Commission so requests and the Tribunal is satisfied that it is appropriate for it to be a party. At its request, the ACCC was made a party by the Tribunal on 8 May 2007. This is the first application before the Tribunal in which this has occurred.
The third respondent, Mr David Smith, is the operator of a fitness centre in Wagga Wagga, New South Wales. Mr Smith took no part in the hearings.
Phonographic Performance Company of Australia (PPCA)
PPCA was established in 1969. In its evidence to the Tribunal it said that it was formed for two principal purposes:
· to manage the overall process by which owners of copyright in sound recordings could grant public performance and broadcasting licences and receive royalties for the use of those recordings; and
· to provide a central licensing body so that users of sound recordings for public performance or broadcast can obtain a single comprehensive blanket licence covering the repertoire of most record companies and recording artists.
“Public performance” is the convenient shorthand term used for the exclusive right given by s.85 of the Copyright Act to the owner of the copyright in a sound recording to “cause the recording to be heard in public” and to “communicate the recording to the public”.
The Tribunal was informed that PPCA is able to give effect to the purposes for which it was established as a result of the receipt from record companies (licensors) of non-exclusive licences of the right to play sound recordings in public. PPCA had 736 licensor members at 6 January 2009. The PPCA licensors include the major recording company groupings Sony Music, EMI, Universal and Warner. The Tribunal was informed that these companies collectively own or control the public performance copyright in 80 to 90 per cent of the sound recordings commercially released in Australia. The licence given to PPCA applies to all the sound recordings owned or controlled by the licensor from time to time.
Businesses and other entities that want to play sound recordings in public require a licence to do so from the owner of the copyright in the recording. As PPCA has only a non-exclusive right from its licensors, it would be possible for a person who wished to play a sound recording in public to obtain permission directly from the relevant sound recording copyright owner. However, it is only PPCA that can offer a licence covering the repertoire of many different copyright owners. PPCA warrants that it has the right to licence the works of its licensors. It does not warrant that every sound recording played by a licensee will be covered by the PPCA licence. However, it claims never to have received a representation that a licensee is being sued for breach of copyright. This largely stems from the fact that PPCA’s licensors own or control the performance right in most sound recordings that are protected under the Copyright Act. The respondents did not attempt to rebut this claim.
References in this decision to “PPCA music” refer to sound recordings comprised within the PPCA repertoire. It is not intended to suggest that PPCA has any copyright interest in music per se.
Australasian Performing Rights Association
The Australian Performing Rights Association (APRA) was not a party to these proceedings. However, its position in regard to the operation of fitness centres should be noted. APRA represents the owners of the copyright in musical works, in contrast with PPCA, which acts on behalf of the owners of the copyright in sound recordings of musical works. A fitness centre that wishes to play music as an accompaniment to its fitness classes must have a licence for that purpose from APRA. In contrast with PPCA, APRA has the licensing rights in virtually all musical works published world wide. This distinction in coverage is referred to from time to time throughout this judgment and has an impact on the scheme that the Tribunal approves.
Protected Recordings
Copyright protection is afforded to sound recordings by the Copyright Act on the same basis as other works are protected under the Copyright Act, namely: the recording is made by a qualified person; or the recording is made in Australia; or the recording is first published in Australia (Copyright Act, s.89). Protection is then extended to overseas recordings by virtue of the operation of the Copyright (International Protection) Regulations 1969 (CIPR), regulation 4. However, the protection afforded is more limited than that given to other works in which copyright subsists because of the inclusion of subregulation 6(2). That reads:
(2)Copyright that subsists in the recording includes the exclusive right to cause the recording to be heard in public, only if:
(a)the maker of the recording was, at the time when the recording was made:
(i) a citizen or national of a Schedule 3 country; or
(ii) a person resident in, or a body corporate incorporated under the law of, a Schedule 3 country; or
(b) the recording was made in a Schedule 3 country.
A Schedule 3 country is defined by regulation 3 of the CIPR as “a country that is specified in Schedule 3 as a country that provides rights for secondary uses of sound recordings”. Schedule 3 contains a list of the countries that provide such rights. They include most of the major record producing countries with the notable exception of the USA.
The range of sound recordings protected in Australia is greatly affected by the scope of the reference to the “maker” of a recording. The Tribunal was addressed at length on this topic by the parties.
The Copyright Act was amended in 2005 to provide protection for the first time to performers of works. As part of these changes, and in regard only to sound recordings, s.22 was amended by the inclusion, relevantly for present purposes, of subsections (3), (3A) and (7). Those provisions read:
(3) For the purposes of this Act:
(a)a sound recording, other than a sound recording of a live performance, shall be deemed to have been made at the time when the first record embodying the recording was produced; and
(b)the maker of the sound recording is the person who owned that record at that time.
(3A) For the purposes of this Act, the makers of a sound recording of a live performance are:
(a) the person or persons who, at the time of the recording, own the record on which the recording is made; and
(b) the performer or performers who performed in the performance (other than a performer who is already covered by paragraph (a)).
Subsection 22(7) contains a number of significant definitions:
“performer” in a live performance:
(a) means each person who contributed to the sounds of the performance; and
(b)if the performance includes a performance of a musical work--includes the conductor.
“sound recording of a live performance” means a sound recording, made at the time of the live performance, consisting of, or including, the sounds of the performance.
“live performance” means… a live performance, whether in the presence of an audience or otherwise.
PPCA asserts that, if a performer who contributes to the making of a sound recording has an Australian connection or is a citizen of a Schedule 3 country, the recording qualifies as a protected recording. Accordingly, if there is any musician satisfying this description who contributes to the recording, even if only as a member of the orchestra, chorus or backing band or vocalists, the record will be protected in Australia. It also relies on the definition of “live performance” to claim that it does not matter if the recording is made in a studio or is not made with all performers present at the one time. It points out that recording techniques involve a layered or iterative process in which various tracks are made and mixed. It is the exceptional case for a recording to be made as a one off exercise with all contributors present.
This approach results in many of the records used in fitness classes being classified as protected recordings. It is rejected by the respondents.
Fitness Australia asserts that the reference to the “maker” of a sound recording in regulation 6(2) of the CIPR requires all persons who fall within the description of “maker” to satisfy the nationality requirements before the recording can be regarded as being protected. This is the reverse of the PPCA argument. On the Fitness Australia approach, in those cases where the protection for the recording is reliant upon the connection of a person with a Schedule 3 country, if any contributor to the recording does not have that connection, the recording will not be protected.
Fitness Australia also rejects the claim by PPCA that a live performance does not require the presence of all performers at the one time. In Fitness Australia’s view, a studio recording of a work does not qualify as a protected record unless the work is performed and recorded at the one time by the whole group of performers.
This issue became of significance in the hearing before the Tribunal because Ms Lynne Small, Manager, Finance, Operations & Administration at PPCA, undertook an analysis of the track listings of new CDs issued by Fitness Compilation Vendors, ie, vendors of recordings made for use in fitness classes. This analysis applied PPCA’s meaning of protected records. It led Ms Small to conclude that around 70 per cent of the tracks included in the records were protected. The overwhelming majority of these tracks would thereby fall within the scope of PPCA’s licence.
Fitness Australia sought to discredit this analysis. Applying its basis for determining whether a recording is protected under the Copyright Act, it asserted that, at best, 60 per cent and more probably 40 per cent of the tracks sampled were protected. (However, this basis for the number derived is affected by the fact that it is asserted that the Les Mills programmes do not require a PPCA licence, as to which see [72]). Fitness Australia also questioned the methodology adopted by Ms Small to arrive at her conclusion. Fitness Australia claimed that the analysis undertaken was not rigorous and inflated the number of records that could be claimed as protected.
In this context it is pertinent to note that the Tribunal had brought to its attention that Rhythm Express Music, one of the largest Australian companies that produces music compilations for use in fitness classes states on its website that:
The greatest advantage of all our CDs is that we license the biggest tracks from all the major record companies. We only publish the original artists.
The Tribunal does not think it appropriate that it should express a view on the correct approach to be taken to determining what sound recordings fall within the protection provided by the Copyright Act. It involves a very difficult question of the interpretation of the copyright legislation that should be left for a court to resolve in a case where the interpretation bears upon the outcome of an application. It is sufficient for present purposes to indicate that the Tribunal is persuaded that many, but not all, records that are used in fitness classes are protected recordings and that some of these will not be covered by the PPCA licence. The Tribunal has taken this into account in arriving at the figure that it has fixed as the appropriate rate to be paid for the use of such records. It returns to the issue at [275] and [308].
The Tribunal also takes into account that obtaining a PPCA licence largely overcomes the problem of deciding whether a record is protected. A licence provides access to the whole PPCA repertoire. In practical terms, the need to seek the consent of the owner of the copyright to use a particular track on a record for the purposes of a fitness class is taken away. If a record is not protected, no licence to use it is required. If it is protected, the PPCA licence will in practice remove the need to seek permission to use it. While not all protected records are covered by the PPCA licence, it is pertinent to a consideration of the value of the licence to a fitness provider that PPCA is not aware of an instance where a licensee has been called to account for using a record not covered by the PPCA licence. Neither did the respondents identify any such instance.
FITNESS CENTRES
The fitness industry

The fitness industry was said to be made up of a range of sectors that include:
(a)traditional fitness centres with group exercise studios and weight areas;
(b)weight loss circuit centres;
(c)health/wellness centres;
(d)personal fitness studios;
(e)personal fitness services delivered outdoors;
(f)mobile personal fitness centres;
(g)leisure/aquatic centres;
(h)community centres; and
(i)service specific centres such as martial arts, boxing, yoga, pilates and dance studios.
The Tribunal was told that there are over 1,000 fitness centres in Australia that offer a diversity of classes and activities to members and casual attendees.
In 2007 PPCA commissioned a survey of the fitness industry by The Market Intelligence Co Pty Ltd (“the Fitness Classes Study”). Ms Denise Billard, who was in charge of the project, provided an affidavit to the Tribunal and was cross examined. However, the information provided by the study went largely unchallenged by the respondents.
Relying upon a report published in 2006 by the International Health, Racquet and Sportsclub Association (IHRSA), the Fitness Classes Study indicated that 9 per cent of the Australian population are members of a fitness centre. This figure was said to be supported by an Australian Bureau of Statistics statistic that 10 per cent of Australians participate in fitness activities. The study demonstrates a very rapid increase in the number of fitness centres operated by chains of such centres, usually under franchising arrangements. For example, the Fernwood chain centres increased in number from 27 in 2000 to 73 in April 2007. Fitness First centres rose in number from 11 to 69 in the same period. (At the date of the Tribunal hearings in April 2009 this number had risen to 83.) The Curves chain was reported to have opened 178 new centres in 2006-07 (but many of these were purchases of existing centres). Counterbalancing these increases, the study indicated that there has been a decrease in the number of independent fitness centres.
Another fitness classes segment noted in the study is that of companies that provide corporate exercise programs. It was said that many of these companies go out to different workplaces, schools or hospitals and in some cases conduct group exercise sessions. The Tribunal received very little information relating to this segment of the fitness industry but it has taken its existence into account in consideration of the licence arrangements that it has determined.
The Fitness Classes Study described the fitness industry as being one that was thriving. It referred to the Fitness Australia national strategic plan 2007-2010 which predicted an overall growth of around 10 to 15 per cent. The study noted that fitness centres are targeting new markets for older people and people in rehabilitation. It said that the industry is also benefitting from government health and fitness campaigns.
Fitness Australia claimed that, while the industry overall may be growing, traditional fitness centres have experienced a decline in membership. It was said at the hearing that, while this position had been exacerbated by the then current economic climate, the downturn had commenced earlier. Competition from other forms of fitness activities, including the development of specialised centres offering such activities as yoga and pilates, was said to have sparked this trend. However, these types of centres will fall within the proposed PPCA licence scheme if they offer classes to which the scheme applies.
Many fitness centres provide group classes. The Fitness Classes Study put this offering at a mean of 35 classes per week in individual centres and 48 in centres that were part of a chain. The number of classes offered in the centres that were the subject of the study ranged from 3 to 199 per week. The number of persons taking part ranged from 1 to 33 with an average of 12. Of the classes attended by researchers engaged in the Study, 97 per cent were said to use music in the whole or part of the class.
The study noted that 50 per cent of the classes that used music were conducted in time to the beat of the music for the whole class and 16 per cent for part of the class. Thus a third of the classes where music was used were not conducted in time to the music. Whether or not exercise is conducted in time to the music it may be an integral part of the class. See the discussion from [50] below.
Fitness Australia claimed that the number of fitness classes that used music was in fact diminishing. It observed that classes such as pilates, yoga, tai chi, stretch and circuit were increasingly popular with members and that most of these classes used music only as background. The use of background music in the sense of music being played in a centre generally and not being directed to the participants in a class is not the subject of the licence under consideration in this case. However, the licence application is not limited to the use of music in classes conducted in time to the music. It includes also any use of music where it is provided specifically as part of a fitness class.
The Tribunal was not provided with any clear evidence as to the proportion of members of fitness centres who attended fitness classes in which the use of music was an integral part of the training being undertaken. Mr Malcolm Allan, Operations Director, Fitness First, said that about 28 per cent of visits to fitness centres resulted in a person attending a fitness class. Ms Jadranka Raguz, who is the Managing Director of the New Dimensions Health Club in Mount Druitt, NSW, stated that her records showed that around 12 per cent of the members of her club attended fitness classes. The large Fernwood women-only fitness centre chain reported attendance in classes as 42 per cent.
Whatever might be the exact figure, it is apparent that this type of class comprises a significant element of the training being offered at many, but by no means all, fitness centres.
Membership
Membership of fitness centres is very fluid. Fitness First is one of the major fitness centre operators both in Australia and overseas. At the time of the hearing it owned and operated 83 centres in Australia with approximately 340,000 members. Mr Allan stated that the average member remains with Fitness First for only two years. Approximately 50 per cent of members leave Fitness First each year. Mr Allan said that he understood that this represented the experience of the industry generally.
Persons may attend fitness centres on a casual basis rather than as a member but the evidence before the Tribunal indicated that this represents only a very small percentage of total attendance at centres.
Membership fees
The fees structure for membership adopted by fitness centres varies between centres both as to terms and amount. There are administrative fees, joining and cancellation fees, deferral fees and transfer fees in addition to the standard attendance fees. Many centres require the taking out of an annual membership. Others have monthly membership. Cancellation does not usually entitle a full refund of the balance of the fees paid.
Membership fees vary considerably according to the nature of the facilities available and the degree of personalised attention a member is given. The figures provided to the Tribunal were confidential but it can be said that, in 2008, they covered a spectrum from around $40 per month per member to nearly $300. Fitness First charges $18-$25 for casual visits. The 2007 Fitness Classes Survey put the average figure for such visits at $14.
In most centres it appears that fees are not geared to the particular use of facilities by members (except at the higher end of the range). The membership generally entitles access to all facilities of the centre, including fitness classes where these are available.
Use of music in fitness centres
Activities using music
Fitness centres offer a diversity of exercise types. Some are directed to building core strength and muscle tone. Others are concerned with improving aerobic capacity or flexibility.
Music is not an integral part of all activities carried out at a fitness centre. Activities such as weights, swimming, cycling, walking machines and classes with personal trainers are often undertaken without using music. (Music may be played as ambient background sound to these activities but that use is not the subject of this application before the Tribunal). Some activities offered by fitness centres take place outside the centre, eg, boot camps and running. Music is not usually used by the fitness centre providers as a part of these activities.
However, music is an integral part of a number of activities which are conducted as classes. These can include activities such as aqua and cycling (also known as “spin”) which can also be undertaken by a person on their own as an alternative to being part of a group in a class environment. The reference to the Tribunal is concerned only with class activities. The evidence to the Tribunal indicated that classes in which music will be an integral part of the training include aerobics, circuit, dance, cycle/spin, and aqua.
It was claimed by PPCA that stretch, yoga and pilates classes should also be included among these. The evidence to the Tribunal was that the practice in relation to these types of classes varied considerably. Some were conducted to music but many were not. Even when music was played in the class, it was seldom, if ever, used for its beat. However, the Tribunal notes that, while these types of activities serve a different fitness purpose than the activities that have a rhythmic basis, music may still be seen as contributing to the value of the class.
It was accepted by the parties that music is used in various classes to provide the rhythm and tempo for the exercises undertaken. Professor Patricia Tremayne, who is an Associate Professor in Psychology at University of Western Sydney and a former fitness instructor, said, in an affidavit on which she was not examined, that the presence of music has a range of practical benefits in fitness classes. Professor Tremayne’s view of these benefits may be summarised as:
·allowing the instructor to alter the training effect on muscles by varying the speed of movement;
·enabling the instructor to control and structure the class – both the structure of the class as a whole and for the individual moves within the class;
·motivating the participants by adding rhythm and interest – reducing fatigue and uplifting participants and making exercise more effective and interesting;
·generally increasing the enjoyment and benefits of the class.
Professor Tremayne did not limit these advantages to circumstances where exercises in a class had to be performed to the beat of the music. She considered that the comments were applicable also to classes where the exercises were not performed to the beat of music and gave as examples spin, circuit, boxing and yoga. In spin classes music acted as a motivator; in circuit and boxing it added energy, intensity and aggression; in yoga and pilates it created a relaxed and meditative atmosphere.
Professor Peter Terry, a Professor of Psychology at University of Southern Queensland, made similar comments on the value of music in fitness classes. In particular he said that music exhorts participants to greater efforts and improves work output. He alluded to research that indicated that listening to motivational music significantly increased a participant’s stamina, enhanced their emotional responses and exhorted them to greater effort thereby improving work output.
Professor Terry also asserted that it was unlikely that an individual would gain any extra motivation, positive emotions or enhanced mood during exercise where only a beat machine, ie, a machine that provides a beat but no melody, was being used. He also asserted that an original version of a musical work has a better psychological effect than a cover version (see from [61]). He was subjected to strong criticism in the course of cross-examination on this last assertion. However, his other remarks were not contradicted.
No evidence of a significant kind was led by the respondents suggesting that these assertions of the importance of music in the conducting of fitness classes were incorrect. It was claimed that it was possible to undertake classes to a beat machine or by an instructor calling out directions but it was recognised that these were poor alternatives to music.
Fitness Australia laid some emphasis on evidence that indicated that other factors were as, if not more, important to the success of a fitness class than the music used. It was asserted that the skill of the instructor was regarded by participants as the most important feature in their enjoyment of a class. Significant also were the nature of the classes, the equipment used and the choreography followed.
The Tribunal accepts that many factors go to the enjoyment of a class and that the music used is but one of those factors. However, it considers that playing sound recordings is regarded by instructors and participants as an essential part of many forms of fitness class conducted by fitness centres, particularly those that are rhythm based. It also concludes that members of fitness centres would find certain classes less attractive without music and would be unlikely to continue to attend some types of classes or would look to other classes in the absence of the use of sound recordings.
The sound recordings used
The music to be used in rhythmic fitness classes has to be suitable for the purpose in that it is required to have a standardised beat. Bridges between individual works and pauses may be removed from sound recordings to permit the continuity necessary for an uninterrupted exercise session.
There is an established market for compilations of music for use in fitness classes. These are customised recordings of popular music specially selected and sequenced for fitness class use. The tempo of the various pieces of music on the recordings will have a designated beat per minute (BPM). For the purposes of freestyle classes (as distinct from those which have been pre‑choreographed), a fitness class instructor selects the piece that has the BPM to suit the particular exercises or activities that are being performed in the class that he or she is taking.
Many of the pieces of music included in compilations are original performances by well known singers or groups. However, many are “cover” versions where another performer or group provides their version of the original.
There was a difference of opinion expressed by the witnesses before the Tribunal as to whether participants in fitness classes preferred to hear original performers or were content with cover versions. The Tribunal does not have to resolve this issue. It is apparent that both types of recordings are widely used. While it may have a marginal effect on the popularity of a particular class, it does not seem to the Tribunal to be a matter that has a significant impact on the value of recordings to the conduct of the classes. The more significant issue is the proportion of PPCA licensed recordings used in fitness centres. This is returned to below.
There was some difference of opinion in the evidence as to whether it was possible to buy fitness compilation recordings in retail stores. Whether or not this is possible, it was apparent that most compilation recordings are bought directly from compilation vendors. Many, but by no means all, compilation recordings are manufactured and sold by PPCA licensors.
Use of non-PPCA music in classes
Not all fitness classes use music that is a part of the PPCA repertoire. Although the ACCC noted that PPCA’s licence from the recording companies was non exclusive and so users could by-pass PPCA, there was no evidence of this occurring, or if it was occurring, the extent of it. However, the evidence supported the claim by Fitness Australia and the ACCC, that there is a substantial amount of recorded music available for use in fitness classes from other sources.
There are two established programs of fitness classes that use at least some non-PPCA music for the purposes of their exercises. These programs constitute training packages that are bought by fitness clubs and are presented by trained instructors. The programs are known as Les Mills and Radical Fitness. There are also other sources of music for use in fitness classes.
Les Mills
Les Mills fitness programs originated in New Zealand and were first used in Australia under licence in the mid-1990s. They have proved extremely popular. Mr William Robertson who introduced the programs into Australia informed the Tribunal that there are 4,000 licensed Les Mills programs running at approximately 900 licensed locations in Australia. Over 1 million people take part in a Les Mills class each week.
There are eight Les Mills programs. They are all pre-choreographed and may only be conducted by licensed instructors. New versions of each program are released quarterly to maintain interest in the programs. The licence agreement between the fitness centre and the Les Mills organisation entitles the licensee to use the music that provides the basis for the exercises included in the classes that make up the program. The music provided for the classes may not be used in any other environment in or outside the fitness centre licensed to use the programs.
As has been noted above, the music to be used for fitness classes often needs modification to make it suitable for use. Mr Robertson informed the Tribunal that Les Mills is not permitted to modify original music without the consent of the copyright owner. Accordingly, where permission to modify a work cannot be readily obtained, a cover version of the work will be made. Mr Robertson advised that approximately 18.3 per cent of the sound recordings used in the 12 month period July-June 2007-2008 were cover versions. Some programs use a higher percentage of cover versions because the nature of the programs does not lend itself to use of original recordings. Les Mills owns the copyright in these cover versions.
The cover versions of music produced by Les Mills for use in the Les Mills classes will frequently constitute protected records as New Zealand is a Schedule 3 country.
The Tribunal was not provided with any clear evidence relating to the need to obtain a PPCA licence in respect of the playing of music as part of a Les Mills class at a fitness centre in Australia. To the extent that the records played as part of the class constitute cover versions in which Les Mills owns the copyright, it is possible for Les Mills to give a licence to the fitness centres to play such music. However, as noted above, most of the music that is played is derived from protected sound recordings. The Tribunal can see no obvious reason why a PPCA licence would not be necessary to permit the playing of these sound recordings. It does not see a basis for concluding that, even if a fitness centre provided only Les Mills classes, it would not need a PPCA licence.
Radical Fitness
Radical Fitness is an Argentinean company that offers fitness classes to fitness centres in Australia. It works in much the same way as Les Mills except that the exercises are not all completely pre-choreographed thereby giving an instructor some flexibility in their presentation. However, the music that is used comprises exclusively cover versions of songs that are recorded in South America. These recordings are not protected records in Australia.
Radical Fitness classes have not been adopted as widely in Australian fitness centres as Les Mills exercises. The evidence indicates that at least 66 fitness centres in Australia offer Radical Fitness programs. It was claimed that these programs provide a realistic alternative to classes that use PPCA music. However, no evidence was presented to the Tribunal suggesting that any centre presented solely Radical Fitness programs as fitness classes for its members.
Other sources of music

Fitness Australia led evidence that there are other producers of music for use in fitness classes. At present none of these are firmly established in Australia.
Ms Susan Kingsmill, the owner and operator of Hiscoes Fitness Centre in Sydney and President of Fitness Australia, said that SAIFAM is a significant producer of music recorded for fitness classes covering all major exercise regimens. These records are continuously up dated. SAIFAM licences the use of sound recordings made by it and fitness centres using SAIFAM records would not need a PPCA licence. Ms Kingsmill said that preliminary negotiations were under way to make SAIFAM records more readily available in Australia. These negotiations were sparked by the PPCA action to increase its licence fee.
It was also asserted by Fitness Australia that it would be possible for fitness centres to direct their fitness instructors to use only music sourced from non-PPCA records in their classes. It said that this was likely to happen if the licence fees for PPCA records were considered to be too high.
Mr David Allan of Fitness First, which has the largest market share of the fitness industry in Australia, stated that he was exploring the possibility of using fitness programs provided by “Body Training Systems” (BTS), a United States provider of fitness programs. BTS programs utilise unprotected music. Mr Allen said that he would pursue use of these programs if the PPCA fees increased significantly.
Conclusion on effect of other sources of music
The Tribunal notes the availability of exercise programs that do not use PPCA protected music. However, it is not convinced that they can or are likely to displace all use of the PPCA repertoire. The fitness industry is dynamic and it is apparent that the various modes of fitness training pass through periods of popularity. It seems that members of fitness centres desire change in their activities. Despite the current popularity of Les Mills classes in particular, the Tribunal considers that it is unlikely that pre-choreographed programs would be favoured by all participants and the participation rate could well decline if they were the only type of training offered. Centres need to provide some flexibility in their offerings.
There are also issues relating to competition between centres. Not all centres will wish to offer the same types of classes and there are limits in the range and variety of pre-choreographed classes. There is also an issue of counterbalancing costs for centres. While they might have to pay a fee for the use of PPCA licensed music, this must be compared with the need to pay for the right to use pre-choreographed classes and the cost of training the instructors to present those classes.
The Tribunal is not persuaded that the availability of alternative sources of music for classes means that there will be no market for the PPCA repertoire in fitness centres in the future. The evidence does not establish that the Radical Fitness classes are likely to be accepted by all persons who attend fitness classes as a substitute for instructor choreographed classes or as a competitor with Les Mills. As indicated at [72], the Tribunal is not persuaded that the use of the music in Les Mills programs does not require a PPCA licence.
The Tribunal is also not persuaded that the Les Mills classes should properly be seen as a substitute for classes that use PPCA protected music vis a vis the use of music. Fitness Australia claimed that, prior to the introduction of the Les Mills programs, the popularity of freestyle classes was waning and:
It was the differentiating aspects of the Les Mills offering – namely the choreography, the training of instructors, the systemisation and marketing – that led to the success of Les Mills.
Contrary to the position of Fitness Australia, this tends to suggest that the value of Les Mills programs was not the music per se, but their ability to address deficiencies associated with fitness instructors and the nature of the classes being offered. Mr Robertson did not suggest that the resurgence of interest was due to the music being used. It was the total experience that the classes provided. Music is but a part of this.
The bundled nature of the Les Mills programs creates another problem when considering substitutability between different sources of recorded music for use in fitness classes as the bundle is being compared with one component of the bundle, the recorded music.
The Tribunal is unable to conclude that close substitutes for PPCA protected music for use in fitness classes are readily available. The range and availability of such recordings is limited. While it is possible that such recordings may become more generally available in the future, the Tribunal must reach its decision based on the current position. The Tribunal concludes that the provision of music for use in fitness classes will continue to be dominated by the use of PPCA protected recordings for the foreseeable future.
PRESENT LICENCE
PPCA presently administers a licence scheme for the use of sound recordings for the purposes of fitness classes. (As noted previously, this is to be distinguished from the use of sound recordings in fitness centres as background music. This use is governed by another scheme). The fitness class licence scheme was established in 1987. It covers two uses of protected sound recordings:
·as an integral part of fitness classes at venues such as fitness centres, gymnasiums and health clubs;
·by teachers and instructors conducting fitness classes at venues that would not ordinarily require a licence such as church halls, schools and community centres.
The fee for use of sound recordings in such classes was originally based on a daily rate to be paid by the fitness class provider with a minimum and, in the case of fitness centres, a maximum annual fee. The rate to be paid was reviewed in 1995 and a rate per class introduced. Again there was a minimum and maximum annual fee. The rate adopted was $0.71 per class with an annual minimum fee of $35.00 and a maximum of $1,814.05.
In the following years the 1995 rate was adjusted following the introduction of GST and has since been increased to take into account CPI increases. The rate at the commencement of these proceedings was $0.946 per class with a minimum annual fee of $49.39 and a maximum of $2,570.04 but it has increased since then to take account of CPI increases. The rate is a flat per class fee. It does not vary with the number of attendees at a class, the membership fee payable to the fitness class provider or the fee charged for undertaking a class.
In 1997 a Board of Review, an external dispute resolution mechanism established by PPCA to deal with complaints by licensees, reviewed the tariff as it applied to a particular licensee. The Board, on 16 March 1998, confirmed the then tariff but reduced the amount payable by that licensee.
REVIEW OF LICENCE
Mr Stephen Peach, CEO of PPCA, gave evidence to the Tribunal that in 2003 he decided to examine the fees that were being charged for the various licences administered by PPCA. He said that this decision was driven by his view that the PPCA tariffs should be set at a level which properly reflected the economic value of the recorded music being licensed and his understanding that there had never been any proper economic valuation of the rights PPCA was licensing for commercial uses.
The first such review was that for nightclubs and dance parties. This review resulted in the application considered by the Tribunal in Reference by Phonographic Performance Company of Australia Limited under section 154(1) of the Copyright Act 1968 (2007) 73 IPR 162 (Nightclubs case) (affirmed on review, Australian Hotels Association v Copyright Tribunal (2008) 75 IPR 449). This decision is discussed further below.
Attention was then turned to the fee charged for music used in fitness classes. Mr Peach asserted that the rate fixed in 1995 had not been based on an economic analysis or valuation process that took account of the value of music to the fitness industry. He also indicated that, in his view, the rate set for the licence did not reflect the importance of music in fitness classes, a use which he said continued to grow. He was concerned that the rate per class on which the tariff was based did not adequately reflect the fact that attendance in many classes was high: a figure of 15-20 participants was alluded to. Mr Peach said that this meant that the amount that each member was paying for the use of music did not represent the value that the music gave to their class participation.
Having decided to review the fitness class licence, PPCA undertook a preliminary analysis of operational aspects of the fitness industry including the nature of classes offered and the charges for participation in those classes. It also commissioned Frontier Economics Pty Ltd to undertake work to ascertain the value of sound recordings in fitness classes.
Frontier Economics undertook a pilot study comprising a short, limited choice modelling exercise based on face to face interviews with fitness class participants at a small number of fitness centres in Melbourne. The report on this survey is known as the “Roberts Research”. The result of the research was to produce a preliminary estimate of the value of music in fitness classes. See further from [128].
Armed with this information and confirmed in its view that its existing tariff was too low, PPCA set out to engage in negotiations for an increase with various fitness associations in Australia which were perceived to be representative of the 1,000 or so fitness class providers. These negotiations were not successful in arriving at an agreed tariff. PPCA thereafter commenced these proceedings.
To support its application to the Tribunal, PPCA commissioned Frontier Economics to undertake a choice survey of users of fitness centres. The results from this survey, known as the Gyms Survey, became a major part of PPCA’s case.
SURVEY EVIDENCE BEFORE THE TRIBUNAL
The amount of remuneration that should be paid by a person to a copyright owner for the use of the owner’s copyright can be equated to the monetary value that the use of the copyright has for that person. This general proposition has resulted in the presentation to the Tribunal in cases involving copyright licences of evidence directed to estimating that value. On occasions this evidence has taken the form of a survey of the members of the public who take the benefit of the use of the copyright, eg the playing of music, the viewing of films, etc. An attempt is made to ascertain what value those persons would place on the copyright work as a component of the total cost that they are prepared to pay for the activity that uses the copyright work.
It has generally not been found to be satisfactory to simply ask people to state what that value is to them (“stated preference”). It has been found that this tends to result in a reduced figure being advised if the person thinks that he or she might have to pay the amount. Greater accuracy in survey responses has been found to be achieved through obtaining what is termed a “revealed preference” from respondents. This is achieved by asking respondents carefully constructed questions based on alternative scenarios that contain some common and some variable factors. Analysis of the responses to these scenarios can reveal the preference of the respondent for a particular factor included in the scenarios and the willingness to pay for that factor.
The Tribunal has had to consider survey evidence in two recent cases: Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd (No 4) [2006] ACopyT 2 (AVCS case) and the Nightclubs case. In the AVCS case the Tribunal said of the use of survey evidence:
279 While courts and tribunals have to a limited degree over the last twenty years or so admitted survey results into evidence (see the cases cited in Kellogg Company v PB Foods Ltd [1999] FCA 1610 at [107]), they have done so with caution. Examples are evidence of properly conducted surveys exploring issues such as reputation, market or consumer confusion. We note that these are matters of existing fact. Courts and tribunals have been concerned to be satisfied that there has not been inappropriate prompting or the creation of artificial circumstances in which a survey respondent's true state of mind is unlikely to be discerned.
280 The primary issues for the Tribunal are those of the relevance of, and weight to be accorded to, the Survey: see the comprehensive review of the authorities by the Full Court of the Federal Court in Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 358-365.
281 Factors that are to be considered are whether there are ambiguities in the Survey questions, and whether any positive conclusions can be safely drawn about the likely behaviour of the respondents and of the general population (see State Government Insurance Corporation v Government Insurance Office of New South Wales (1991) 28 FCR 511 at 542-544). It is also important to consider whether the utility of the results is limited by the fact that the survey seeks to elicit responses in a context removed from that of consumer decision making in the real world.
In the AVCS case, the Tribunal indicated that it had such doubts about the validity of the contingent valuation survey relied on by the applicant that it could attach no weight to it.
In contrast, in the Nightclubs case the Tribunal attached considerable weight to the findings that emerged from the survey submitted by the applicant. The Tribunal was satisfied that the survey methodology was sound and that the questionnaire used there had provided guidance as to the amount that patrons would be willing to pay for the use of sound recordings in nightclubs and at dance parties.
The survey used for the purposes of the Nightclubs case was a choice modelling survey. Choice modelling surveys are discussed further from [118].
PPCA in this case commissioned the administration of a choice modelling survey of fitness centre users to endeavour to ascertain their willingness to pay for the use of music via sound recordings in fitness classes (“the Gyms Survey”). This survey formed the centrepiece of the PPCA’s claim for an increase in its tariff. Its value as a guide to the determination of the appropriate licence fee is returned to below.
PROPOSED LICENCE
At the outset, PPCA resolved to abandon the two categories of uses that are provided in the present licence. It substituted one category applicable to all fitness class providers irrespective of the venues at which the classes take place. It also determined that it should move from a per class method of specifying the tariff to one based on membership of fitness centres that offer fitness classes.
PPCA initially sought the approval of the Tribunal to a rate of $4.54 per member of a fitness centre per month or $0.99 per visit by a casual attendee at such a centre. This fee was not related to participation in fitness classes. It applied to all members of the fitness centre on the basis that membership entitled a member to participate in fitness classes and this opportunity cost should be included in the fee.
At the conclusion of the hearing, the Tribunal was presented with a scheme described as the Fitness Centre Licence Scheme (“the amended Scheme”) that contains three options with differing methods of calculating the tariff. The first is based on a payment per member per month.
The second option is a flat rate of $20 per class, including for stretching, yoga, etc, classes.
The third option is based on a rate per-attendee per-class. When the amended Scheme was presented to the Tribunal it was made clear that this option was not favoured by PPCA or Fitness Australia and accordingly no amount for the rate was proposed by PPCA. However, it was the method for calculating the licence fee favoured by the ACCC.
The options are summarised in Appendix 1.
APPLICATION OF LICENCE SCHEME
The intended application of the amended Scheme can be gleaned from the notes to Option 1 of the scheme as set out in Appendix 1. Points of significance are:
·The range of activities that fall within the definition of “Fitness Class” covers most activities that are conducted in a “Fitness Centre”. The only requirement is that it be a “structured form of exercise” and that it be accompanied by a sound recording. There is no limitation in the definition that the class involve some rhythmic movement.
·The definition of PPCA Class extends the scheme to classes where there is any use of a PPCA repertoire record in the class. There is no variation in liability depending upon quantum of use.
·A fitness class does not have to be taken by a fitness instructor to fall within the amended Scheme; the accompaniment of a sound recording is the qualifying factor.
·On the per member rate, a lower fee is to be charged for classes conducted in Specialist Yoga Centres and Specialist Rhythmic Only Centres.
Following the hearing, an exchange of correspondence took place between the Tribunal and the parties. The Tribunal indicated that it was minded not to adopt Option 1 but was inclined to make Option 3 available to fitness class providers. Fitness Australia stated that it was still opposed to that form of tariff. However, PPCA indicated that it was prepared to accept such an approach to determining the tariff and proposed a fee per attendance of $1.50 for a single attendance at a class. PPCA did not differentiate in its proposed fee between different types of classes. Unlike its proposal in relation to Option 1, it drew no distinction between general and specialist centres (as it had not in Option 2).
PPCA proposed that additional conditions should apply if the per class attendance tariff were adopted. It proposed that, a fitness centre be required to elect one fee basis, ie per class or per attendance for a 12 months period. The Tribunal agrees with this. It also proposed that there be a minimum amount per class, for example $15, or a higher per attendance rate for classes with low attendance. The increased administrative burden associated with this proposal was not canvassed and the Tribunal considers that it adds a degree of complexity to the option that is not warranted. The Tribunal returns to PPCA’s proposals at [288].
The ACCC had indicated at the hearing that it favoured an attendance per class tariff but it responded to the Tribunal’s subsequent correspondence to advise that it did not wish to make any submissions on the issues raised.
TRIBUNAL’S ROLE IN DETERMINING LICENCE FEES
The appropriate fee for payment for the use of sound recordings in public was recently considered by the Tribunal in the Nightclubs case. In the course of its judgment the Tribunal summarised its role in relation to an application for approval of a licence scheme as follows:
[10] In each reference under s 154, the Tribunal must make a value judgment as to what it considers reasonable in the circumstances. It is not usually possible to calculate mathematically the correct licence fee in any particular case (APRA v AFRB 46 IPR 20 at [19] and [11]). Where approval of a scheme would lead to a substantial increase in fees, the increases can be phased in over a period of years rather than being introduced immediately. In the present case, the Society proposes that there be a phasing in of the increase claimed by it.
[11] In determining whether a proposed scheme, and the licence fee payable under it, are reasonable, a number of approaches might be adopted. The approaches include the following, which may overlap to a certain extent:
·Market rate: the rate actually being charged for the same licence in the same market in similar circumstances.
·Notional bargain rate: the rate on which the Tribunal considers the parties would agree in a hypothetical negotiation, between a willing but not anxious licensor and a willing but not anxious licensee.
·Comparable bargains: bargains not in the same market but sufficiently similar to such a notional bargain as to provide guidance to the Tribunal.
·Judicial estimation: the rate determined by the Tribunal after taking into account a range of matters such as:
·previous agreements or negotiations between the parties;
·comparison with other jurisdictions;
·comparison with rates set by other licensors, capacity to pay, value of the copyright material, the general public interest and the interests of consumers; and
·administrative costs of a licensing body (see Audio Visual Copyright Society Ltd v Foxtel Management Pty Ltd No. 4 68 IPR 367 at [131] and [142]).

The Tribunal accepts this analysis as appropriate for it to follow in the present application.
In this case, PPCA contends, in essence, that there is no market rate or comparable bargain available. It says that the Tribunal’s approach must, therefore, be a combination of notional bargain rate and judicial estimation. Fitness Australia rejects this saying that the present rate represents a market rate and that it is comparable with rates adopted in other countries for the like use of sound recordings and with the APRA rate for the use of music in fitness classes.
PPCA based much of its case on the choice survey that it had commissioned from Frontier Economics. The Tribunal turns now to that survey.
The Choice Modelling Exercise
What is the objective?
No specific market value is available for the use of recorded music from the PPCA repertoire in fitness classes provided by fitness centres. The music to which access is provided by the PPCA licence is bundled with other attributes offered by fitness centres such as the instructor, the venue and the equipment. Consequently, membership fees paid by those attending these classes provide little, if any, insight into the value of the music. Thus, to estimate the value of the music and hence the economic value of the licence, it is necessary to unbundle the fitness centre offering.
Arriving at the economic value of the licence involves two steps:
a.estimation of the value generated for their benefit by fitness centres through the use of the music; and
b.determination of the share of that value that should accrue to PPCA.
Although not categorically accepted by Fitness Australia, the Tribunal is satisfied that the evidence establishes that it is valid to assume that playing recorded music in fitness classes adds value from the perspective of attendees and hence increases the profits of the fitness centres. This is because more people choose to attend these classes and people are prepared to pay more for classes playing recorded music than if no music was played. The operators of fitness centres may have some idea of the value of this music for their operations, and as the ACCC submitted, they would appear to be the appropriate party to provide information about this. However, if asked, their incentive would be to understate the value of the music.
However, as the demand for music by fitness centres derives from the value placed on the use of recorded music by those attending the classes, that is, it is a derived demand, it may be possible to obtain the information necessary for valuing the music from attendees rather than from the fitness centre operators, that is, the value placed on the music by attendees may provide a proxy for the value placed on it by fitness centre operators. This can be referred to as their willingness to pay for it (WTP).
The issue is whether it is an appropriate proxy. Fitness Australia and the ACCC argue that it is not. This is because, first, under the present arrangements fitness centres generally charge a membership fee that is not specific to attendance at fitness classes. Secondly, there may be a difference between the WTP of fitness centres and their customers. Professor William Hanemann (Chancellor’s Professor in the Department of Agriculture & Research Economics and the Goldman School of Public Policy at the University of California at Berkeley) was an expert witness called by Fitness Australia. He observed:
The willingness to pay of the clubs may be lower than that of their customers because of factors that limit their ability to pass on the full increase in the cost of operating classes to the portion of their membership that use these classes.
Even in a market which is not competitive, absent perfect price discrimination, a seller is unlikely to capture the entire WTP of a buyer.
The Tribunal accepts that this may mean that the value placed on music by attendees at fitness classes may not be a precise indicator of the value of that music to the operators of the fitness centres. It was incumbent on PPCA to establish that there was a consistent relationship between the WTP of attendees and of the operators. Fitness Australia claimed that this had been assumed rather than established by the evidence. It said that the fees paid by members of fitness centres cannot be used to deduce a WTP for music in fitness classes. The Tribunal notes the difference with the position in Nightclubs where attendees paid a fee to attend which was primarily reflective of the music played and the nightclub essentially offered a single product.
The Tribunal also notes that attendees also have an incentive to understate the value of recorded music used in classes – if they reveal the true value of the music to them, they may be required to pay higher attendance prices. Thus, it is better that they be asked indirectly, rather than directly, about the value of music. If this value can be determined and there is a reasonably consistent relationship between the value that attendees and fitness centre operators place on the recorded music, this provides useful input into estimating a price for that music. More importantly, to provide a satisfactory proxy, there must be a reasonably consistent relationship between the value placed on the music by attendees and by fitness centre operators. Dr Philip Williams is the Executive Chairman of Frontier Economics, the independent economics consultancy engaged by PPCA (see [93]-[96]). Dr Williams accepted that no simple one to one relationship exists between the WTP of fitness centres and the WTP of attendees. Nevertheless, the Tribunal is inclined to accept that the value placed on recorded music played in fitness classes by consumers is a reasonable if imperfect proxy for the value that the operators of fitness centres place on the recorded music.
Professor David Hensher is Professor of Management and the founding director of the Institute of Transport and Logistics Studies, within the Faculty of Economics and Business at the University of Sydney. Professor Hensher explained that choice modelling offers a means by which to estimate the value of particular product attributes which are not marketed separately, such as the use of recorded music in fitness classes. Choice modelling involves:
…offering individuals various packages of attributes and associated levels, and asking them to review the offerings, and choose which one they most prefer. Through a process of varying the levels of the attributes associated with each alternative across a number of choice scenarios, and having the individuals make a choice each time, we uncover information that effectively tells us about the individual’s preferences for each package and the role that each attribute plays in their choices and ordering of the alternatives.
From this it is possible to estimate the relative importance of an attribute in the total level of satisfaction associated with each alternative offer. Given this, the maximum WTP for the individual attributes tested in the choice modelling can be estimated. WTP is the maximum amount that buyers are willing to pay for a product (in this case, recorded music played in fitness classes) rather than forego the product. In part this depends on the substitutes available and how close those substitutes are to the original product.
Although there was some discussion by the various experts before the Tribunal concerning the appropriateness of choice modelling for the present purpose, it was agreed that practical use is being made of choice modelling and important commercial decisions are being based on the results. Ultimately there was in principle agreement that this approach could be used to estimate the WTP for recorded music used in fitness classes. There was, however, considerable disagreement between the experts as to how the choice modelling survey should be undertaken and the way in which the information obtained could or should be used.
The processes undertaken by and on behalf of Frontier Economics
Frontier Economics was engaged by Gilbert + Tobin on 1 September, 2005, initially to provide preliminary advice about the value of recorded music used in fitness classes. Frontier Economics indicated that it would use the Roberts Research Group to design an appropriate research methodology for this purpose. Roberts Research was to undertake a pilot conjoint analysis (ie choice modelling) to assess the value of sound recordings used during fitness classes relative to other attributes.
The qualitative phase of this project involved 15 interviews of 10 minutes duration at two fitness centres located in Melbourne to identify the attributes that users considered important in choosing, and continuing to attend, fitness classes. The second phase involved a conjoint analysis based on 72 interviews undertaken at six gyms in Melbourne. Respondents were presented with two options describing different fitness centre attributes, based on information from the first phase of the project, and they were asked to choose between them. Based on these choices, it was found that attendees valued the use of music in fitness classes at $6.10 per member per class, and this increased by $0.52 as the quality of the music improved to “favourite”.
In its report of 25 November 2005, Frontier Economics outlined its methodology for dividing the estimated WTP from the Roberts Research conjoint analysis between the relevant parties. This involved an equal division. The relevant parties were assumed to be PPCA, APRA and the fitness centres. Frontier Economics estimated that the value of sound recordings used in fitness classes was approximately $95 per class (after allowing for costs). This is based on a WTP of $7 per person per class (derived from the Roberts Research inquiry), an average class size of 15 and costs of $10 per class. Thus, the value due to PPCA was $31.67 per class, the latter representing a three-way split between fitness centre operators, PPCA and APRA). Dr Williams concluded that:
Roberts preliminary analysis provides evidence that the WTP for classes is substantially greater than the price charged for classes. This is evident from the relatively low importance placed on the cost of class attribute in the choice of whether or not to attend a class, and the share of preference shown for more expensive classes even when low cost choices were available.
Frontier Economics noted the limited sample size and that the results were highly sensitive to the assessment of the characteristics of the fitness centre. Consequently, proposals for a more extensive study were presented to Gilbert + Tobin by Frontier Economics in September, 2005.
The information from the Roberts Research study was used by PPCA to commence a formal consultation process with the fitness industry. PPCA held information sessions with the industry in February and April 2006. In October 2006, at a meeting between PPCA and the Fitness Industry, Dr Williams outlined the proposed study to value sound recordings used in fitness classes. Initially, it was anticipated that this would be a collaborative process between PPCA and the fitness industry but a lack of progress resulted in PPCA’s present application to the Tribunal.
Gilbert + Tobin engaged a number of consultants, including Professor Terry and Associate Professor Tremayne (see from [54]), to collect and analyse information relating to the use of music in sporting situations and in relation to the fitness industry. Early in 2007 Australian Market Research Pty Limited (AMR), the parent company of Online Research Unit Pty Limited (ORU) was engaged to implement and conduct a survey on the internet (the Gyms Survey) using a questionnaire supplied by Frontier Economics. Frontier Economics employed Professor David Hensher and Dr John Rose of the University of Sydney to design the survey instrument to collect data concerning the value placed by attendees at fitness classes on the use of recorded music in those classes.
In October 2007, Gilbert + Tobin retained Allen Consulting to conduct a study, involving four focus groups, to assess consumer perceptions, responses and preferences related to music used in fitness classes. Subsequently, the initial Focus Groups were conducted by Taverner Research on 23 January 2007 in Sydney to produce a set of attributes and levels to incorporate into the survey instrument. A strong positive relationship between the use of music in fitness classes and the level of satisfaction experienced by class participants was identified. This enabled development of a draft survey instrument in late February 2007.
The draft was then presented to a second round of focus groups on 23 April 2007. This resulted in further refinements to the survey instrument to produce the pilot survey instrument which was tested on further focus groups in early May 2007. Taverner reported that respondents completed the survey quickly and easily and encountered no significant difficulties. However, there were suggestions for improvements and the issue of boredom on the part of the respondents was raised. The pilot survey was undertaken in the week beginning 8 May 2007 in Sydney. Twenty responses to the pilot survey were completed and 19 were used to obtain preliminary estimates of relevant variables. Dr Williams reported that:
The average WTP per class of having music relative to having the instructor keep the rhythm and beat is $4.56 per person per class and $2.92 to have music relative to a beat machine provide such a service. In low impact classes, [yoga and stretching] the average WTP per person per class for music relative to having no music was found to be $2.18.
The survey instrument was further reviewed in response to findings from the pilot survey.
The respondents provided comments (undated) on the proposed survey methodology, suggesting that theoretical and other flaws may result in consumer WTP being overstated. Comments on the proposed methodology were also received from the ACCC dated 15 August 2007. Frontier Economics replied to these criticisms in a report dated 11 October 2007. The final survey was then undertaken using a sample of respondents drawn from an existing internet panel.
Early in 2008 Professor Hensher used the statistical output derived from the final survey provided by Professor Robert Bartels (a consultant at Frontier Economics) to derive estimates of the WTP by attendees for recorded music used in fitness classes. The aim was to derive an estimate of the maximum WTP of the fitness centre operators to be able to play recorded music in these classes. It was decided that WTP would be estimated separately for yoga/pilates classes as music served a different purpose in these classes. Based on the choice modelling results it was estimated that WTP for the use of recorded music in rhythmic fitness classes was $14.13 per person per month and in yoga and pilates classes it was $11.95.
PPCA stated that it had provided its results to the Tribunal as a guide for determining an appropriate licence fee to be paid by fitness centres for the use of this music.
The questionnaire
The premise underlying the questionnaire was explained by Dr Williams. He explained that the demand for gym memberships (or WTP) was inversely related to the price of membership – at high prices relatively few memberships will be demanded as the proportion of potential consumers with high WTP is relatively low; at lower prices more memberships are demanded as a higher proportion of potential consumers have a WTP equal to or greater than the price.
Next, Dr Williams assumed that music is played in fitness classes. This shifts the demand curve such that more memberships will be purchased at each price level or to put it slightly differently, WTP has increased to reflect the value added by the music, and so more memberships are demanded at any given price level. From this he concluded that the value added by the use of the music is the difference between the price consumers are prepared to pay for gym membership with and without music.
The final questionnaire began with a screening question intended to ensure that respondents had attended a fitness class with an instructor in the last three months, as well as questions concerning the centre most frequently attended, membership payments, frequency of attendance, the type of classes attended and an assessment of the fitness centre most often attended. Other questions related to age, gender, income and location.
The balance of the questionnaire comprised 6 hypothetical choice sets where the respondent was asked to select from Centres A, B and C where C corresponded to the centre the respondent most frequently attended. Respondents were provided with information about the notional price of membership at their current centre as a basis for comparison. In each of the six choice sets, the attributes offered related to:
a.the range of equipment;
b.the quality of the equipment;
c.the means by which the instructor maintains rhythm and tempo in class;
d.music in classes such as yoga, pilates and stretch classes;
e.the professionalism and quality of instructors;
f.the range of times classes are offered;
g.the range of types of classes;
h.membership fee per month.
These attributes were then varied across the choice sets. In relation to music, for example, respondents were told that music was or was not offered in yoga/pilates classes; or that the instructor maintained rhythm and tempo by calling out but not offering music, or by using a beat machine rather than by playing music.
Criticism of the questionnaire
Wrong variable measured
It was claimed by a number of expert witnesses and by Fitness Australia that in attempting to measure WTP for recorded music used in fitness classes, the questionnaire measured the wrong variable. This is because the aim should have been to measure the value of music from the PPCA repertoire used in these classes, rather than the value of all recorded music used in such classes. The availability of recorded music which is not part of the PPCA repertoire may have the effect of reducing the value of similar music available from the PPCA repertoire because it provides a cheaper substitute to the extent that, for the alternative music, a licence fee is not payable to PPCA. It may also create a problem in determining the nature of the hypothetical bargain (see below).
The Tribunal considers that it would not be feasible to ask respondents to distinguish between recorded music from the PPCA repertoire and non PPCA recorded music. The problems relating to this division have been discussed at [19]-[32]. When the parties familiar with the music industry are unable to agree on the basis on which recordings are to be categorised, it is unrealistic to invite fitness class participants to identify whether or not they are listening to PPCA protected music. Rather, it may be appropriate to allow for this possibility after the data has been collected and processed.
PPCA’s position was that its “blanket” licence covers nearly all sound recordings commercially released in Australia. However, the ACCC argued that the focus should be not on the extent of PPCA’s repertoire but on that part of its repertoire that relates specifically to sound recordings suitable for use in fitness classes. PPCA does not specifically monitor the music used in such classes, instead relying on airplay logs relating to radio airtime, and PPCA admits that this information may not be a good representation of use in fitness classes. The Tribunal considers that this issue has its impact on the distribution of revenue from licence fees, rather than impacting on the licence fee itself.
The Tribunal considers that although in some instances the playing of music from these alternative suppliers does not require a reproduction licence from PPCA, in most cases use of this product in fitness classes in Australia will require a public performance licence, as contended by PPCA. However, so long as fitness centres obtain a PPCA licence, the blanket nature of this licence addresses the issue from the perspective of the fitness centres.

The next question is how a fitness class should be defined. The Tribunal accepts that the present omission of a definition should be rectified. The parties are in dispute on several aspects of the definitions which they have proposed. Somewhat surprisingly, PPCA seeks to limit the definition to fitness classes conducted in a fitness centre, which is further defined in the amended Scheme. This is based upon a view by PPCA that the amended Scheme should only apply to fitness classes conducted in a fitness centre conducted on a commercial basis in dedicated premises, rather than to fitness classes conducted by community groups, employers, instructors not having premises of their own or other “non commercial” operations. Fitness Australia submits that the scheme should apply to everyone conducting a fitness class using PPCA protected music as otherwise commercial operations would face unfair competition from other providers.
It is likely that the PPCA view is not altruistic but reflects the cost and difficulty of administering a licence scheme applicable not only to commercial fitness centres but also to individual freelance providers, community groups and the like. The operations of the latter could be difficult and expensive to identify and monitor. However, PPCA is proposing a very significant increase to the present licence fee. A significant increase to the licence fee would impose a financial burden on fitness centres and it would be unfair to impose that burden on commercial fitness centres alone. As is noted at [37], the fitness industry is not limited to fitness centres. Fitness instructors or organisations who run a business of providing fitness classes otherwise than at fitness centres should also be subject to the licence. The application of the licence scheme to classes conducted by fitness instructors or organisations (whether in a fitness centre or otherwise) would also deal with the problem of fitness classes being conducted out of doors. PPCA proposed that the amended Scheme would only apply to fitness classes conducted out of doors by a fitness centre. That draws attention to the artificiality of a distinction between fitness classes offered by fitness centres and fitness classes offered by freelance fitness instructors or organisations other than fitness centres who offer fitness classes as a business and employ fitness instructors.
The burden should not, however, fall on community groups, local government bodies and the like which simply make premises available for use by fitness instructors and their clients. Where it is the instructor who is gaining the commercial advantage of using the PPCA repertoire then it is that person who should bear the licence fee.
A further point of difference between the parties concerns whether the definition of “Fitness Class” should be limited to classes directed by a fitness instructor. A separate licence scheme applies to background music played in fitness centres. The amended Scheme would relate only to protected music played specifically for fitness classes. There is some evidence of classes (for example, circuit classes) being offered by some centres without an instructor. These classes run more or less continuously and participants may enter or leave them as they choose. The classes are directed not by an instructor present in the class but by recorded instructions or automatically generated instructions in the form of words or sounds. The Tribunal considers that the presence of a human instructor is not essential to the definition of a “Fitness Class”. The essential criterion is that the activity must take place in a class environment with direction as to the exercise which is being undertaken. That is the essential difference between a fitness class and individual exercise undertaken collectively. In the Tribunal’s view, the licence scheme should apply to fitness classes conducted in or by a fitness centre or by a fitness instructor or organisation for which a fee is charged by the fitness centre (whether that is a membership fee or a fee for casual attendance) or by the fitness instructor or organisation. The burden of paying the licence fee in relation to the fitness class will fall on the person or body charging the fee for the class.
The Tribunal does not accept that any distinction should be drawn between yoga and pilates classes and other fitness classes. Although music performs a different function in yoga and pilates classes than in rhythmic classes the same is probably true of some other kinds of non rhythmic classes. The Tribunal takes the view that where music is played specifically in a fitness class for the purposes of the class it is integral to the exercise experience. In those kinds of classes where music is not essential to the class, such as yoga and pilates, it does not have to be played. Where music is played for the class, no distinction should be drawn.
The parties are also in dispute as to whether the definition of “Fitness Class” should include a reference to music being played as an integral part of the class. The current Tariff V is expressed to cover the use of protected sound recordings when used as an integral part of fitness classes. Fitness Australia seeks to maintain that wording. Fitness Australia would prefer the wording to appear in the definition of “Fitness Class”. PPCA opposes using the words in the definition and would prefer to see them omitted altogether. The Tribunal considers that a variation on the present wording should be included in the scheme but the words are not necessary to include in the definition of “Fitness Class”.
The reason why a licence applies to music in fitness classes that is different from the general background music licence is that the scheme applies to music which is played specifically in fitness classes. The Tribunal accepts that the licence scheme should identify that purpose. However, the Tribunal does not intend that the licence scheme would apply to only some of the music that is played specifically in fitness classes. Provided that music is played specifically in a fitness class (rather than simply being the general background music available in the rest of a fitness centre) the licence scheme will apply. The specificity of the music played reflects that it is integral to the conduct of the class.
The third and fundamentally important issue for the Tribunal to resolve is the rate which should be paid under the scheme determined by the Tribunal. The Tribunal has made a number of findings bearing upon that issue. It has rejected the Gyms Survey as a reliable measure of the WTP for music in fitness classes. It has also rejected the proposition that there is a “going rate” for a licence for protected recordings played in fitness classes. There is an existing rate in the current Tariff V and in the APRA licence scheme but if an existing rate is considered to be a “going rate” it is hard to see how any change could ever be justified. In the ABC case the ABC asserted that the parties had, by a course of dealing over many years, established what a fair market value for the music at issue in that case was, and that there should be no change to that position. The Tribunal rejected that argument because the existing formula did not reflect the true value of the scheme. The position is the same here.
The Tribunal was referred to international comparisons but, while there are a range of licence fees applicable internationally, the Tribunal is not privy to the circumstances in which those rates were fixed or the basis upon which they were fixed. The Tribunal has taken the view that there is no “going rate” to which it can refer.
The Tribunal has found assistance in the Roberts Research study which preceded the Gyms Survey. The Tribunal has accepted on that evidence (and in general terms, the other evidence available, including the Gyms Survey) that it is valid to assume that playing recorded music in fitness classes adds value from the perspective of attendees and hence increases the profits of fitness centres. Music is integral to the enjoyment of fitness classes and the willingness of participants to attend them over a period of time for the reasons explained earlier. The Roberts Research analysis found that the value of music in fitness classes attributable to PPCA was $31.67 per class, representing a three way split between fitness centres, PPCA and APRA. The Tribunal proceeds on the basis that that figure is the only available starting point for the judicial estimation of a licence fee. The Tribunal recognises that the Roberts Research study was limited in its purpose and application. Accordingly, the figure derived from that study is a starting point only and cannot of itself be the basis for the fixing of a licence fee.
The Tribunal confirms that it does not accept that there is any correlation between “favourite music”, also examined in the Roberts Research study, and PPCA music. Rather, it is necessary to consider by reference to the evidence what discount should be applied to the PPCA share of music as valued, recognising that not all recordings played in fitness classes are protected within the PPCA repertoire. The evidence on what proportion of music played in fitness classes is on PPCA records was equivocal and, to some extent, controversial. The most detailed analysis was that of Ms Small and her evidence came under sustained attack from Fitness Australia. Ultimately, PPCA was willing to concede that up to 40 per cent of music played in fitness classes is on unprotected records. Fitness Australia thought the figure could be as high as 60 per cent but that view, in the Tribunal’s opinion, depends heavily on an assumption that the use of popular Les Mills recordings in fitness classes does not require a PPCA licence (see [72]). Fitness Australia conceded that the figure could be as low as 40 per cent (see [29]).
Taking a cautious approach, the Tribunal concludes that a discount of 40 per cent should be applied to PPCA’s share of the value of music in fitness classes, as found in the Roberts Research study. This produces a figure of $19 (just below the figure of $20 sought by PPCA in Option 2 of the further amended reference). The Tribunal regards the figure of $19 as somewhat high, taking into account the limitations on the Roberts Research study and the other factors referred to earlier bearing upon the process of judicial estimation. The Tribunal has concluded that a fair and reasonable per class rate would be $15.
The other question concerns an appropriate rate for individual attendance in a fitness class. The evidence indicates that the average attendance in fitness classes is as high as 15. While lower estimates were also available, the Tribunal prefers to take a cautious approach of using the higher figure of 15. On that basis, the appropriate rate on a per-attendee per-class basis is $1.00.
Fitness Australia proposes that there should be no cap on the rate fixed in the licence scheme. The Tribunal agrees. However, the Tribunal rejects the PPCA contention that there should be a minimum amount per class as that would be inconsistent with the principle that a per-attendee per-class rate is necessary to provide fairness in the case of small class numbers. A class may comprise one or more participants.
Fitness Australia also proposes that the rate for flexibility or stretching classes (eg yoga and pilates) should be half that for rhythmic classes. The Tribunal accepts that the evidence establishes that music plays a different role in flexibility classes than in rhythmic classes. For practical purposes, music is essential to the conduct of rhythmic classes. While providing benefits in flexibility classes, it is not essential. The Tribunal does not accept that a reduced rate is justified. As already noted, music is integral wherever played specifically for a fitness class. However, as also already noted, music is not essential to yoga and pilates classes. A person or body conducting yoga and pilates classes who does not want to pay a licence fee for music can avoid payment of the fee altogether by not playing music. There is no need for a discounted fee. The evidence does not support a discount as the only evidence, derived from the Gyms Survey, was that the difference in WTP for the use of recorded music in rhythmic classes and yoga and pilates classes was relatively small.
The Tribunal is aware of the fact that these amounts are considerably higher than the amounts payable under the present licence arrangements. However, this application to the Tribunal has permitted the first comprehensive examination of the use of music in fitness classes. It has revealed that recorded music is an essential accompaniment to such classes. Without it the classes would not function in the manner in which they are presently conducted and which fitness class attendees have come to expect. No evidence was provided of satisfactory alternatives to the provision of music as an accompaniment to the classes. In the Tribunal's view, the amount currently being paid does not reflect this essential nature of music in classes. The Tribunal believes that it is appropriate that users of recordings in fitness classes should pay an amount that reflects the value of music to such classes.
This is not the first occasion on which licence fees have been significantly increased by the Tribunal. The licence fee determined by the Tribunal in the Nightclubs case was described by the Full Federal Court in Australian Hotels Association v Copyright Tribunal [2008] FCAFC 37 at [4] as “a huge increase over those fixed by the previous scheme which had operated since 1994”. The size of the increase was not a material factor for the Court. The Court noted at [24] that the statutory mandate of the Tribunal is to confirm or vary a scheme “as the Tribunal considers reasonable in the circumstances”. That is what the Tribunal in this decision has sought to do.
THE ROLE OF THE ACCC
As has previously been noted, this is the first occasion on which the ACCC has taken advantage of s.157B of the Copyright Act which provides as follows:
The Tribunal may make the Australian Competition and Consumer Commission a party to a reference or application made under this Subdivision if:
(a) the Commission asks to be made a party to the reference or application; and
(b) the Tribunal is satisfied that it is appropriate that the Commission be a party to the reference or application.
The section was enacted in 2006 as part of the Government’s response to the Copyright Law Review Committee Report on the Jurisdiction and Procedures of the Copyright Tribunal.
On 30 April 2007 the ACCC sought leave from the Tribunal to be joined as a party to the reference and filed an affidavit in support, which stated relevantly that:
Due to its statutory function the ACCC is ideally placed to assist the Tribunal to take account of any market power that can be exercised by collecting societies and balancing the public interest in public access to copyright material with the legitimate interests of copyright owners;
In light of the ACCC’s statutory function in preparing and issuing pricing principles and guidelines, the Tribunal’s consideration of this Reference is likely to influence the way in which the ACCC performs that function in the future; and
The ACCC is able to offer the Tribunal independent assistance in the public’s interest, in the course of the Reference, without advocating any existing party’s position.
As a consequence of its statutory function the ACCC is in a position to assist the Tribunal with a number of issues that arise in Copyright Tribunal proceedings, including:
(a)       providing an independent critique of the economic arguments put to the Tribunal by the parties;
(b)       providing its own independent economic evidence;
(c)       making submissions to the Tribunal in respect of the economic evidence.
During the course of the hearing, both orally and in writing, PPCA expressed concern about the role being played by the ACCC. To some extent, those criticisms of the ACCC were not criticisms of its conduct, but of its submissions. Nevertheless, PPCA submitted that the ACCC exceeded its role, especially in the cross-examination of PPCA witnesses who were not economists. In particular, PPCA became concerned that the scope of the cross-examination of certain witnesses indicated that its blanket licence and repertoire were contested by the ACCC. That was, however, not borne out in the ACCC’s closing submissions.
The ACCC made the following submissions bearing upon its status as a party:
9. As with all other respondent parties to a reference, the Commission’s joinder derives from a process of intervention. As a party it has both the benefits and burdens of a party. There is nothing in subsection 154(2) that provides for a differential status dependent on the mode of a person’s joinder or for the incidents of that status to differ in any way. Indeed, regulation 34(2) of the Copyright Tribunal (Procedure) Regulations 1969 mandates that the Tribunal shall give every party to a proceeding before it an opportunity of putting a case. So, too, subsection 154(4) mandates that, in a reference under section 154, the Tribunal must give the parties to the reference an opportunity of presenting their cases.
10. The Commission’s status as a party is to be contrasted with other, more limited, forms of participation. The Commission does not appear as, or have the status or role of, an amicus curiae; nor is its intervention circumscribed by specific rules: compare, for example, O 58 r 3 FCR which provides that the Commissioner of Patents may appear and be heard, but is not a party to, proceedings in the Federal Court of Australia, other than for certain appeals.
11. In Corporate Affairs Commission v Bradley (Commonwealth Intervener) [1974] 1 NSWLR 391 Hutley JA at 396 said:
A person accepted as an intervener becomes a party to the proceedings with all the privileges of a party. Thus he can appeal, tender evidence and participate fully in all aspect of the arguments. His position is quite different from that of an amicus curiae.
12. The status and role of an amicus curiae was discussed by a Full Court of the Federal Court of Australia in United States Tobacco Company v Minister for Consumer Affairs (1988) 20 FCR 520 at 533-539. An amicus curiae has no entitlement to lead evidence. The role that an amicus curiae plays is a matter entirely within the discretion of the court: see, also, Bropho v Tickner (1993) 40 FCR 165 at 172-173.
The ACCC submits that it has articulated its case consistently with its proper role.
The Tribunal does not consider that the ACCC acted inappropriately in this matter having regard to its status as a party. Counsel for the ACCC was entitled to cross-examine those witnesses made available for cross-examination and exercised restraint in doing so. While some questioning of certain PPCA witnesses gave rise to a concern in the mind of counsel for PPCA that the ACCC’s interest in the proceedings may be broader than had been anticipated, the ACCC’s submissions to the Tribunal were appropriately limited to matters bearing upon the reference before the Tribunal. The Tribunal has been assisted by those submissions.
It is appropriate, given that this is the first occasion on which the ACCC has appeared as a party, to make some general observations on the Tribunal’s view as to the appropriate role to be played by the ACCC. First, the purpose of joining the ACCC as a party to a proceeding before the Tribunal is to assist the Tribunal in the performance of its functions under the Copyright Act, not to assist the ACCC in the performance of its functions under the Trade Practices Act 1974 (Cth). While there may be no conflict between the statutory interests of the ACCC and its role in assisting the Tribunal to perform its functions, the ACCC should be cautious to ensure that the performance of its role does not give rise to a perception that its involvement in a particular proceeding before the Tribunal is part of a broader interest or objective than that which appeared from the terms of a particular reference. There is a risk that any blurring of the distinction between the role of the ACCC in assisting the Tribunal and its broader statutory interests might leave the ACCC open to the criticism that it was involved as a partisan player.

Secondly, while no artificial restraint should be placed on the evidence that might be brought or tested, or the submissions that might be made by the ACCC in a particular matter, the Tribunal will be most assisted by receiving evidence and submissions from the ACCC which deal with matters about which the ACCC has particular expertise, namely competition policy, economic theory and practice and technical issues bearing upon the consideration of a market rate, a notional bargain rate, comparable bargains or judicial estimation in the determination of a reference.
The Tribunal is satisfied that the role played by the ACCC in this matter was consistent with the observations set out above. Nevertheless, the Tribunal is mindful that recent proceedings before it have been quite lengthy and complex, and at substantial cost to the parties. The length and complexity (and hence the cost) of proceedings is likely to be increased where the ACCC chooses to be represented throughout a hearing, and to participate in the introduction and testing of evidence. If there are deficiencies in the cases presented by other parties it should not be necessary for the ACCC to make good those deficiencies. The ACCC might in the future consider whether its role could be performed effectively through written submissions.
Conclusion
The amended Scheme in the further amended reference should be varied by the adoption of Options 2 and 3, with the licence fees determined as stated above and the amendment of the definitions as indicated above. It should be called the Fitness Class Licence Scheme. These variations and amendments are detailed in Appendix 2. PPCA should bring in short minutes to give effect to these conclusions.

I certify that the preceding three hundred and twenty-four (324) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Tribunal.
Associate:
Dated: 17 May 2010

APPENDIX 1
FITNESS CENTRE LICENCE SCHEME

Tariff Category Fitness Class Use Centre Type Rate

V1 The use of Sound Recordings by a Fitness Centre for Fitness Class Use Full Service Fitness Centre

Where C is the total number of Fitness Classes per month at the Fitness Centre

Where P is the total number of PPCA Classes per month at the Fitness Centre

V2 Specialist Yoga Centre

V3 Specialist Rhythmic Only Centre

NOTES:
1.Tariff V licences will be issued subject to PPCA’s Standard Terms and Conditions for Licences for the Public Use of Protected Sound Recordings, as set out below.
2.Fitness Centre means a fitness centre (including, without limitation, gymnasiums, health clubs, aquatic centres, recreation centres, leisure centres, sport centres, incidental fitness amenities and specialty centres) including offering periodic memberships (whether called by that name or any other name) which entitle its Members to attend Fitness Classes.
3.Fitness Class means a:
·structured form of exercise conducted in a Fitness Centre;
·accompanied by sound recordings;
·which may or may not be directed by a fitness instructor;
·and includes, without limitation, the following types of classes:
·aerobics,
·circuit,
·dance,
·cycle/spin,
·strength/resistance,
·circuit,
·hybrid,
·boxing/combat,
·flexibility/stretching/abdominal,
·specialty,
·aqua, and
·age/lifestage.

4.Fitness Class Use means the use of Sound Recordings to accompany Fitness Classes.
5.Sound Recordings means sound recordings the copyright in which includes the exclusive right to cause the recordings to be heard in public under the Copyright Act 1968 and the Copyright (International Protection) Regulations 1969.
6.Member means a person who is entitled to attend the Fitness Centre periodically or during a given period at any time (eg monthly membership). Typically membership involves payment of a regular set fee (eg a monthly payment).
·Note: if a Fitness Centre facility is located in a larger membership facility but has a different membership for its Fitness Centre, a Member is one of the latter class of members.

7.Active Member means a person who is entitled to attend the Fitness Centre periodically or during a given period at any time (eg monthly membership) and is not subject to a temporary disentitlement owing to their entry into an arrangement with the Fitness Centre to suspend their membership. Typically membership involves payment of a regular set fee (eg a monthly payment).
·Note: if a Fitness Centre facility is located in a larger membership facility but has a different membership for its Fitness Centre, an Active Member is one of the latter class of members.

8.Full Service Fitness Centre means a Fitness Centre which offers both Rhythmic Type classes and Yoga Type Classes.
9.Pay Per Visit Attendance means attendance at a Fitness Centre on the payment of a once off fee by a Casual Attendee, not being attendance on a membership basis.
9.PPCA Class means a Fitness Class in which Sound Recordings comprising part of the PPCA repertoire are used (either for the entirety of the class, or part only).
10.Casual Attendee means a casual attendee who is not a member (ie. neither an Active Member, nor a member subject to an arrangement with the Fitness Centre to suspend their membership).
11.Rhythmic Type Class means a Fitness Class which is conducted in a rhythmic tempo and involves keeping time with a beat or pace, whether synchronously or asynchronously.
12.Specialist Rhythmic Only Centre means a Fitness Centre that only provides Rhythmic Type Classes.
13.Specialist Yoga Centre means a Fitness Centre that only provides Yoga Type Classes.
14.Yoga Type Class means a Fitness Class which is not a Rhythmic Type Class and includes classes such as Yoga, Pilates and Stretch classes.
15.This tariff is applicable from the date ordered by the Tribunal (the Commencement Date) and the rate specified is GST inclusive.
16.The Consumer Price Index (CPI) means the index of that title All Groups Australia published by the Australian Bureau of Census and Statistics or any authority substituted by Statute, related to the year 1989-90 equals 100, and Most Recent Available Quarter means the most recent quarter year CPI figures available.
17.Fees for all licences issued under this tariff will increase on 1 July each year by the percentage increase in the CPI between the Most Recent Available Quarter and the corresponding quarterly figure for the previous year.
18.The rate specified is current as at June 2009 and is subject to adjustment for CPI which is to apply from June 2009 in order to provide the tariff applicable at the Commencement Date.
19.This tariff does not cover the public exhibition of music video clips, including DVD, or any other similar medium (Tariffs "W" and /or "W-E" are applicable).
20.This tariff is subject to Special Conditions A and B.
Special Condition A:

(1) The Fitness Centre agrees that PPCA may in writing, notify the Fitness Centre that it wishes, on a day specified in the notice, being an ordinary working day of the Fitness Centre specified in the notice not earlier than 7 days after the day on which the notice is given, to do such of the following things as are specified in the notice:
(a)       assess the amount of public performance of Sound Recordings comprising part of the PPCA repertoire carried out at the premises of the licensee;
(b)      inspect all the relevant records held at those premises that relate to the public performance of Sound Recordings comprising part of the PPCA repertoire;
(c)       inspect such other records held at those premises as are relevant to the assessment of the amount of equitable remuneration payable by the licensee to PPCA.
(2) Where PPCA gives a notice, a person authorised in writing by PPCA may, during the ordinary working hours of the relevant Fitness Centre on the day specified in the notice (but not before 10 a.m. or after 3 p.m.), carry out the assessment, or inspect the records, to which the notice relates and, for that purpose, may enter the premises of the Fitness Centre.
(3) Fitness Centre shall take all reasonable precautions, and exercise reasonable diligence, to ensure that a person referred to in subpara (2) who attends at the premises of the licensee for the purpose of exercising the powers conferred by that subsection is provided with all reasonable and necessary facilities and assistance for the effective exercise of those powers.
Special Condition B:
Fitness Centre to provide to PPCA on a quarterly basis month-by month reports indicating the number of Fitness Classes conducted at Fitness Centre, the number of PPCA Fitness Classes conducted at Fitness Centre, the number of Active Members at Fitness Centre, the number of Active Members attending and not attending Fitness Classes at Fitness Centre, the number of Pay Per Visit Attendances at Fitness Centre and any other supporting documentation PPCA may reasonably require to verify the per member per month rate applicable to Fitness Centre.

[Option 2]
Fitness centre licence scheme

Tariff Category Fitness Class Use Rate

V The use of Sound Recordings by a Fitness Centre for Fitness Class Use $20 per PPCA Class
[Note: the conditions, other than Special Condition B, are the same for this option.]
[option 3]
Fitness centre licence scheme

Tariff Category Fitness Class Use Rate

V The use of Sound Recordings by a Fitness Centre for Fitness Class Use $X per Attendance per PPCA Class

[Note: the conditions, other than Special Condition B, are the same for this option.]
APPENDIX 2
FITNESS CLASS LICENCE SCHEME

Tariff Category Fitness Class Use Rate

V The use of Sound Recordings accompanying a Fitness Class conducted as a business by a Fitness Centre, an organisation other than a Fitness Centre employing fitness instructors or a Freelance Fitness Instructor
$15 per PPCA Class
Or $1.00 per attendance per PPCA Class

NOTES:
1.Tariff V licences will be issued subject to PPCA’s Standard Terms and Conditions for Licences for the Public Use of Protected Sound Recordings when used specifically for Fitness Classes, as set out below.
2.Fitness Centre means a fitness centre operating on a commercial basis as a business (including, without limitation, gymnasiums, health clubs, aquatic centres, recreation centres, leisure centres, sport centres, incidental fitness amenities and specialty centres) including offering periodic or casual memberships (whether called by that name or any other name) which entitle its Members to attend Fitness Classes.
3.Fitness Class means a structured form of exercise conducted in a class environment in or by a Fitness Centre or other organisation conducting fitness classes on a commercial basis as a business or by a Freelance Fitness Instructor:
· accompanied by sound recordings;
· which is directed (whether by a fitness instructor or otherwise);
and includes, without limitation, the following types of classes:
·aerobics,
·circuit,
·dance,
·cycle/spin,
·strength/resistance,
·hybrid,
·boxing/combat,
·flexibility/stretching/abdominal, including yoga and pilates,
·specialty,
·aqua, and
·age/lifestage.

4.Fitness Class Use means the use of Sound Recordings to accompany Fitness Classes.
5.Freelance Fitness Instructor means a fitness instructor who provides fitness instruction on a commercial basis as a business, otherwise than at a Fitness Centre or as an employee of an organisation conducting Fitness Classes.
6.Sound Recordings means sound recordings the copyright in which includes the exclusive right to cause the recordings to be heard in public under the Copyright Act 1968 and the Copyright (International Protection) Regulations 1969.
7.Member means a person who is entitled to attend the Fitness Centre periodically or during a given period at any time (eg monthly membership). Typically membership involves payment of a regular set fee (eg a monthly payment).
· Note: if a Fitness Centre facility is located in a larger membership facility but has a different membership for its Fitness Centre, a Member is one of the latter class of members.
8.PPCA Class means a Fitness Class accompanied by Sound Recordings comprising part of the PPCA repertoire which are used either for the entirety of the class, or part only.
9.This tariff is applicable from the date ordered by the Tribunal (the Commencement Date) and the rate specified is GST inclusive.
10.The Consumer Price Index (CPI) means the index of that title All Groups Australia published by the Australian Bureau of Census and Statistics or any authority substituted by Statute, related to the year 1989-90 equals 100, and Most Recent Available Quarter means the most recent quarter year CPI figures available.
11.Fees for all licences issued under this tariff will increase on 1 July each year by the percentage increase in the CPI between the Most Recent Available Quarter and the corresponding quarterly figure for the previous year.
12.The rate specified is current as at the commencement date and is subject to adjustment for CPI which is to apply from that date to provide the tariff applicable at the Commencement Date.
13.This tariff does not cover the public exhibition of music video clips, including DVD, or any other similar medium (Tariffs "W" and /or "W-E" are applicable).
14.This tariff is subject to Special Condition A, and either Special Condition B or C at the election of the licensee. An election may not be varied for a period of 12 months after having been made.
Special Condition A:

(1) The licensee agrees that PPCA may in writing, notify the licensee that it wishes, on a day specified in the notice, being an ordinary working day of the licensee specified in the notice not earlier than 7 days after the day on which the notice is given, to do such of the following things as are specified in the notice:
(a)      assess the amount of public performance of Sound Recordings   comprising part of the PPCA repertoire;
(b)      inspect all the relevant records that relate to the public performance                of Sound Recordings comprising part of the PPCA repertoire;
(c)      inspect such other records as are relevant to the assessment of the                amount of equitable remuneration payable by the licensee to PPCA.

(2) Where PPCA gives a notice, a person authorised in writing by PPCA may, during the ordinary working hours of the relevant licensee on the day specified in the notice (but not before 10 a.m. or after 3 p.m.), carry out the assessment, or inspect the records, to which the notice relates and, for that purpose, may enter the premises of the licensee.
(3) The licensee shall take all reasonable precautions, and exercise reasonable diligence, to ensure that a person referred to in subpara (2) who attends at the premises of the licensee for the purpose of exercising the powers conferred by that subsection is provided with all reasonable and necessary facilities and assistance for the effective exercise of those powers.
Special Condition B:
The licensee is to provide to PPCA on a quarterly basis month-by month reports indicating the number of Fitness Classes conducted by the licensee, the number of PPCA Fitness Classes conducted by the licensee and any other supporting documentation PPCA may reasonably require to verify the per class rate applicable to the licensee.
Special Condition C:
The licensee is to provide PPCA on a quarterly basis month by month reports indicating the number of attendees in Fitness Classes conducted by the licensee, the number of attendees in PPCA Fitness Classes conducted by the licensee and any other supporting documentation PPCA may reasonably require to verify the attendee per class rate applicable to the licensee.

Citation:	Phonographic Performance Company of Australia Limited (ACN 000680 704) under section 154(1) of the Copyright Act 1968 [2010] ACopyT 1
Parties:	REFERENCE BY PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED (ACN 000 680 704) UNDER SECTION 154(1) OF THE COPYRIGHT ACT 1968
File number:	CT1 of 2006
The Tribunal:	DRIVER FM (DEPUTY PRESIDENT) PROFESSOR DENNIS PEARCE (MEMBER) DR RHONDA SMITH (MEMBER)
Date of judgment:	17 May 2010
Catchwords:	COPYRIGHT – Proposed licensing scheme – reference of scheme to Tribunal for approval under s.154(4) of the Copyright Act 1968 (Cth) – licences for use of sound recordings in fitness classes – calculation of licence fee –rate of increase – whether calculated by monthly membership of fitness centres, or by attendance at fitness classes or by reference to the classes conducted – choice modelling survey – measurement of the value of sound recordings in fitness classes – measurement of willingness to pay for recorded music – flaws in survey – alternative basis for calculation of licence fee – consideration of bargaining principles – consideration of competition issues – whether only fitness centres should pay the licence fee – consideration of definition issues in the proposed scheme – observations on the role of the ACCC in Tribunal proceedings.
Legislation:	Copyright Act 1968 (Cth), ss 22, 85, 89, 136, 154, 157, 157B Copyright (International Protection) Regulations 1969
Cases cited:	Audio-Visual Copyright Society Ltd v Foxtel Management Pty Ltd (No 4) [2006] ACopyT 2 Australian Hotels Association v Copyright Tribunal [2008] FCAFC 37, (2008) 75 IPR 449 Copyright Agency Ltd v Department of Education NSW (1985) 5 IPR 449 Reference by APRA [2006] ACopyT 3 Reference by Phonographic Performance Company of Australia Limited under s.154(1) of the Copyright Act 1968 (2007) 73 IPR 162
Dates of hearing:	16, 17, 19, 23, 24, 26, 27, 30, 31 March, 6-9, 14-17 April, 29-30 June, 1-3 July 2009
Place:	Sydney
Category:	Catchwords
Number of paragraphs:	324
Counsel for the Applicant:	Mr R Cobden SC with Mr C Dimitriadis
Solicitor for the Applicant:	Gilbert + Tobin
Counsel for the First Respondent:	Mr J V Nicholas SC with Ms K Richardson and Ms J M Beaumont
Solicitor for the First Respondent:	Minter Ellison
Counsel for the ACCC:	Mr D M Yates SC with Mr J M Hennessy
Solicitor for the ACCC:	Norton Rose

REFERENCE BY:	PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED (ACN 000 680 704) UNDER SECTION 154(1) of the COPYRIGHT ACT 1968
THE TRIBUNAL:	DRIVER FM (DEPUTY PRESIDENT) PROFESSOR DENNIS PEARCE (MEMBER) DR RHONDA SMITH (MEMBER)
DATE OF ORDER:	17 MAY 2010
WHERE MADE:	SYDNEY

REFERENCE BY:	PHONOGRAPHIC PERFORMANCE COMPANY OF AUSTRALIA LIMITED (ACN 000 680 704) UNDER SECTION 154(1) of the *COPYRIGHT ACT 1968*
THE TRIBUNAL:	DRIVER FM (DEPUTY PRESIDENT) PROFESSOR DENNIS PEARCE (MEMBER) DR RHONDA SMITH (MEMBER)
DATE:	17 MAY 2010
PLACE:	SYDNEY

Tariff Category	Fitness Class Use	Centre Type	Rate
V1	The use of Sound Recordings by a Fitness Centre for Fitness Class Use	Full Service Fitness Centre	Where C is the total number of Fitness Classes per month at the Fitness Centre Where P is the total number of PPCA Classes per month at the Fitness Centre
			V2	Specialist Yoga Centre
V3		Specialist Rhythmic Only Centre