Understanding the Skiza tunes royalties ruling

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I think the best way to start this conversation is to give a little background. Skiza is a content sales platform that is owned and operated by Safaricom (Kenya’s largest telco). It‘s a simple concept, use the telco’s network to sell content and have subscribers pay via their airtime or mobile money. This idea isn’t new; the whole world does it. It’s just that here in Kenya (and most of Africa), the absence of a robust formal music distribution infrastructure presented a unique chance of success. In Kenya it was started in 2009 and has since grown to become one of the biggest revenue earners in Safaricom’s portfolio of premium services. Between June 2015 and February this year alone Safricom was ready to pay out approximately Ksh. 150 Million to content owners. This means that Skiza generated Ksh. 1 Billion in that period.

So how does Skiza work? There’s a great blog by Bernard Kioko available here on this but let me try to summarize.

The Skiza Platform is owned by Safaricom, but the day-to-day management of the database that contains the content, content acquisition, metadata, etc etc is outsourced to several companies. These are what you call Premium Rate Service Providers (PRSPs) or Content Servive Providers (CSPs). This arrangement is ideal for Safaricom because it shields them from contracting every single content owner out there and takes away any need to do management of the content in house. So in short, to get your content onto the platform you contact one of these PRSP and they do it for you. I think Safaricom sets some minimum standards that they must adhere to.

At this point let me share with you the Skiza revenue split.

  • 15% is paid to PRSP to be shared with artiste according to whatever deal they have
  • 10% Excise Duty paid to the Government of Kenya (GoK)
  • 16% VAT paid to GoK
  • 5% paid to PRSP for database management
  • Safaricom retains the 54%

When the rights owners collect the cash they are still also supposed to pay 5% withholding tax. So content owners pay taxes three times on the same revenue.

For instance if your song made Ksh. 1,000,000 it means that:

  • The musician will get Ksh. 75,000
  • VAT will be Ksh. 160,000
  • Excise duty will be Ksh. 100,000
  • PRSP share from your contract will be ksh. 75,000
  • PRSP share from Safaricom deal will be Ksh. 50,000
  • Safaricom share will be Ksh. 540,000.

In most PRSP contracts, the content owner would be offered a take it or leave 50/50 split after costs. Which sounds okay assuming your PRSP is doing services for you as a content owner that you deem useful e.g adverts, bankrolling videos, below the line marketing, bulk sms etc. Also for a lot of content owners this was a new revenue stream that seemed to manage itself so very few people were interested in looking under the hood to see exactly how their money earned by their content would flow. For a while everything went swimmingly but it was a black box. So the first issue was that some PRSPs were paying people sums of money but there was hardly ever any data to see exactly how much money the content was making.

Second issue around this set up was that in situations where there were multiple content owners for the same song e.g like in a collabo, the PRSP would only pay the person who brought them the song. As a result, not all people who were due monies were paid. Thirdly, because Safaricom outsourced content acquisition, they had little knowledge of situations where content was on the platform without proper documentation until it was too late. As a result they were sued a few times by content owners and they had to make payouts. The most famous being the JB Maina case. JB Maina is the man known for the songs Tiga Kumute and Muiritu wa Kabete.

So a new system was proposed by the collective management organizations (CMOs); MCSK (composers and authors), KAMP (producers) and PRISK(performers). CMOs would make sure all rights owners of the song would be paid and therefore not only insulate Safaricom and Skiza from lawsuits but also do the dirty work of splitting the revenues amongst collaborators. It would also mean that content owners did not need to split revenue 50/50 with anyone and so they would be getting their full 15% share less an administration fee. And since these 3 bodies are the only ones legally mandated to collect money on behalf of right owners it was a no brainer. It was also a huge market disruption. The PRSPs role would be now only to manage the db and issue content codes. All cash would go thru CMOs to artistes.

So under new deal, if your song made Ksh. 1,000,000 it would be split as follows:

  • You get Ksh. 150,000 (less admin costs)
  • Ksh. 160,000 goes to GoK for VAT
  • Ksh. 100,000 goes to GoK for Excise duty
  • Ksh. 50,000 goes to your PRSP
  • Safaricom gets Ksh. 540,000.
  • You still must pay 5% of your share to GoK again for with-holding tax

It’s not heaven but it’s better. Best thing about it is that all rights owners would be paid by the various CMOs. So no more backstabbing and underhand sales of music without consulting everyone who has a claim to it.

Most good PRPSs and well intentioned guys simply adjusted and went on with life offering artistes other deals and finding ways to keep going. However, some engineered a series of court cases blocking the payment of cash. The last of these was the petition to the constitutional court, which challenged the very idea that artistes should be paid through CMOs at all. The argument was that it was unjust since CMOs were member organizations and would therefore only collect money for their members. Their second argument was that the law that gives the right to equitable pay for performers and producers was unconstitutional. The premise was that once a publisher acquires copyright, all revenues collected must be paid to them and only them.

But Justice Mumbi delivered a brilliant ruling (Read HERE). May she live forever. She made the argument that there’s nothing in the law that stops the CMOs from collecting and paying non-members. She also instructed CMOs and Safaricom to give each content owner logs of their content’s performance on the Skiza platform. This is a seismic shift. Now we get full 15% and get logs so we can see the performance and do some market analysis and even sell licenses from a more informed position. It’s not heaven but we will take this and keep going.

Next battle is to negotiate for a better share with Safaricom but also to request government to waive these taxes on this that are extremely punitive right now. 26% on Gross and 5% on net earnings, is very steep.

Thanks for reading next time I write we can talk about the appeal. Which I am sure will come because the sums of money in question here are very, very large.

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