Merlin GC: Independent minded

In a music world dominated by iTunes, Merlin general counsel Charlie Lexton is sticking up for the independent labels

Charlie Lexton
Charlie Lexton

While the music industry continues to be dominated by the major labels, one company is doing its utmost to ensure that the independents are not marginalised.

Merlin is a global digital rights agency that represents the recorded music rights for artists outside of the major labels. Indeed, the company says it is is the first rights body ­focused on the interests of the global independent recorded music sector.

Buzz lane

At Merlin’s heart is general counsel and head of business affairs Charlie Lexton, a former DJ Freeman media lawyer who has spent much of his career in-house. Lexton is now at the centre of one of the most dynamic ­industries on the planet.

Merlin is a non-exclusive, member-based organisation that represents independent record companies collectively on their online deals, the use of their repertoire and copyright protection. The idea is to get a better deal for members on deals with the likes of Spotify, iTunes or Google than they could individually.

By value Merlin, which is just about to come up to its fourth year of trading, represents around three-quarters of the independent sector, counting the top five labels and the top two or three distributors (or ’aggregators’ in internet terminology) among its clients in most territories.

“Via that we’ve built a strong network,” says Lexton. “So if a new service is launched we tend to know.”

That contacts book is invaluable in helping Merlin’s members reach new clients around the world.

“If you’re a label in Sweden then it’s not that easy to get into the US,” explains Lexton. “We can open doors.”

Merlin was launched in May 2008 by CEO Charles Caldas and Lexton was in at the start. He turned to KPMG corporate lawyers in Holland to help with structuring the tax issues related to setting up the company in the Netherlands (Merlin is a Dutch-registered business).

For corporate matters Lexton tends to instruct his former boss at DJ Freeman, now a partner at ­Olswang, Tony Leifer, while for libel-related matters and other contentious work the firm instructs West End firm Aslan Charles Kousetta – also peopled with former DJ Freeman colleagues.

“We’ve also used Norton Rose on a contentious copyright-related matter that isn’t yet settled,” he adds.

Another major issue that Lexton regularly faces is anti-trust. Merlin is an organisation of competitors, ­although its non-exclusive nature means it effectively competes with its members, making anti-trust compliance a hot area for the company.

“We’re vigilant on competition issues and work with European and US anti-trust counsel almost daily,” says Lexton. “We have a board meeting during Midem [this week] and items one, two and three on the agenda will relate to anti-trust issues.”

Cloud pleasing

The major industry-wide debate Lexton will address at Midem ­tomorrow (31 January) will be music services in the ’cloud’. Lexton will address the opportunities offered by cloud computing to rights owners and music services, and the licensing issues that could arise from the development of cloud-based music services.

In Lexton’s opinion, the current legal position in the US, where many providers say they have no responsibility for uploaded content regardless of its origin, is potentially the most problematic.

“In the US various cloud companies say they have no responsibility to police content uploaded to their servers, but our members, as rights owners, have no way of finding out if it’s their music that’s being uploaded and listened to,” says Lexton. “That’s wrong. We’d like there to be systems that identify music that’s uploaded – which can be done – and then agree payment mechanisms for it. We’re not of the mindset that you shouldn’t be able to take advantage of technology: we just want our members to be paid a fair price for people listenting to their songs.”

Another issue in which Lexton gets involved is anti-piracy. Fifteen or so years ago that kind of work tended to be low-value, such as shutting down plants manufacturing fake CDs. Now, the big matters are online cases that, according to Lexton, are worth hundreds of millions of dollars. In these cases independents have often been left without representation because they lack the know-how and resources. “Representing them on these cases is a key service we can provide,” adds Lexton.

Merlin has been involved in seven settlements including a copyright dispute with streaming service Grooveshark, which settled in 2010, and a class claim for infringement against Sirius XM in the US, which settled last year.

On the latter Merlin worked with Los Angeles firm Mitchell Silberberg & Knupp while Sirius was represented by Kramer Levin Naftalis & Frankel. The result, which included a multimillion-dollar payout and involvement by Merlin in negotiations on how the money would be distributed was, says Lexton, “new ground for independent record labels”.
Lexton has long been involved in the music business. While at law school he co-founded UK independent label Dorado Records. After qualifying at DJ Freeman he worked in the media department handling corporate and commercial transactions.

Lexton moved to Universal in 2000 working with general counsel Richard Contant. He left to join EMI as head of business affairs for Emea in 2002. While doing consultancy on digital deals after leaving EMI in 2005 Lexton set up management company CityRockers Artists.

“I still have one band, Sunshine Underground,” says Lexton. “Managing them got me back into the independent world, which is when I was approached by Merlin.”

James Duffett-Smith
Head of licensing business affairs, Spotify

It’s an exciting time to be a lawyer in the digital music space. Changing consumption patterns in media mean there’s an increasing amount of attention on the ability of distributors such as Spotify to deliver meaningful revenues to the creative industries. 

The speed of change in the digital music industry and the passion of its participants mean it attracts a lot of debate. While some focus on piracy, there’s no doubt that creating compelling legal alternatives that are attractive to consumers and rights-holders is essential to establish a vibrant future for artists and musicians.

Ensuring those who have invested time and money in music get their share of the digital pie is part of this. We pay out the vast majority of our revenues to rights-holders, and the total keeps growing. It’s important to us all: everyone at Spotify is here because they love music.

In the next few years I’m going to be looking at efforts to simplify music licensing. Licensing digital music in an international context is challenging and particularly complex on the publishing side.

There are a number of initiatives, such as the Global Repertoire Database, the forthcoming European directive on collecting societies and, in the UK, the Digital Copyright Exchange, that could simplify the process of licensing music online.

Chris Johnstone
Head of legal and business affairs, Music Choice

The ’cloud’ offers the usual mix of rewards and risks: for consumers, better ways to experience their music; for musicians and labels, its another licensed route to market music, but another administration nightmare and another risk of uncompensated use/piracy; for copyright lawyers, it’s another big headache as they try to shoehorn new concepts into tired old laws.

Of course, the principal raison d’etre of Merlin is to give smaller independents sufficient scale and muscle to generate bigger licence fees from big online music service providers (whose revenues are already squeezed by the majors and publishers). Nothing gives leverage like scale. As such, nothing will be exercising the collective minds of Merlin more than Universal’s acquisition of EMI Music. The press indicates that there may be a hostile merger referral to the European Commission per the famous Impala case. On one hand, this deal gives even greater market power to Universal, arguably to the detriment of the independents (the lifeblood of new music) and to downstream music service providers. On the other, Universal is well-placed to rejuvenate EMI and we live in a very different world where CDs and record shops are virtually extinct. The old principles may no longer apply. Also, as Music Choice knows well, competition matters in Brussels have a habit of timing themselves out.

Title: General counsel and head of business affairs

Industry: Music rights, licensing and protection

Reporting to: CEO Charles Caldas

Company turnover:£20m-plus

Employees: Six

Annual legal spend:Around £200,000 plus litigation costs

Legal capability:One