On the Trail of Missing Millions in Emerging Europe: What Happened to a Fortune in Slovenian A/V Rights Due to Artists and Producers?
By Noah Charney.
Branko Djuric, who goes by the nickname Djuro, is one the biggest film and television stars of the former Yugoslavia. His repertoire includes fistfuls of films, popular TV series, plays and even albums, spanning decades, so he is entirely used to receiving royalty statements and checks each time one of his past creations runs in cinemas, on television, or on the radio. But one morning not long ago he opened an envelope and was confused by what he saw. It was a pay statement for royalties ostensibly due based on the usage of his entire repertoire within Slovenia, where he has lived for many years. These royalties were not accompanied by a royalty statement. “Normally you get a list of when and where your work appeared, so you can see how your royalties were calculated. This time, nothing. I was immediately suspicious.”
Djuro had good reason to be wary. In the past, his royalties had been managed by SAZAS (Slovenian Author’s Society), a non-profit Slovenian collecting society, and a member of CISAC, a huge organization which currently has 227 member societies from 120 different countries. CISAC represents more than three million authors and rights-holders in the fields of music, literary works, audiovisual works, journalism, architecture, and visual arts and SAZAS is its representative in Slovenia.Within Slovenia, SAZAS manages the repertoire of the leading Slovenian creators of audio-visual and musical content. In the past, usage of Djuro’s works was carefully monitored by SAZAS, which collected for the enormous international lineup of AGICOA and many others. SAZAS and its sister organizations monitor broadcasts for content, meticulously calculate who was owed what (based on a complex algorithm of when content, such as TV shows or songs, run and how many people divide up the creative rights to them), and sent an itemized report to authors and rights-holders, so it was clear to the author just how their royalties for that term were calculated. All of a sudden Djuro received a report from a new organization, not tried-and-true SAZAS, and with no accompanying information. “It was as if the amount on the report had been pulled out of a hat.” This sort of reaction was not unique to Djuro – suspicions rose among a broad array of creators and producers in Slovenia, which prompted an investigation. What was found looks like it might be an elaborate, multi-faceted scheme to save cable providers millions of Euros, and to make disappear millions due not only to creators of A/V material in Slovenia, but also to cheat major foreign firms, including Sony, Time-Warner and Universal. While the story is specific to Slovenia, it acts as a warning to countries worldwide, of how a small band of corrupt individuals in any emerging EU nation can hide millions, and get away with it.
From 2000 to 2011, SAZAS served as the collector of royalties for the creators of audio-visual content used in Slovenia for any CISAC members, the world over. The independent right-holders (creators or producers), from around the world, would create content (TV shows, movies, music videos) which was used by broadcasters (TV and internet stations) and which reached viewers through cable and IPTV operators, who brought the broadcasts into their homes. The cable and IPTV operators would have paid an appropriate percentage of the money paid by viewers to cable and IPTV operators into a collecting society, in this case SAZAS, which then distributed these royalties transparently to the creators of the A/V content, in Slovenia and abroad, including major rights management organizations like AGICOA, which collects not only for Djuro, but for the repertories of major foreign firms like Sony, Universal and Time Warner – a total amounting to upwards of $100 million Euros per year. SAZAS was originally granted a license by the relevant Slovene government, called SIPO (Slovenian Intellectual Property Office) to fill this function, but the license was temporary because SAZAS was primarily a music-collecting society. As explains Matjaz Zupan, the president of the Managing Board of SAZAS, “In our wildest dreams we never imagined that the government would revoke a license that we were implementing so well for AV rights-holders, only to place it into the hands of a phantom organization.” By 2011, SAZAS was collecting and distributing some 8 million Euros per year’s worth of royalties and remunerations to pay the many A/V right-holders they represented, Djuro included – a fair sum for a market such as Slovenia.
But a small group of clever individuals seem to have seen a way to exploit the situation. The temporary license was revoked from SAZAS and was placed into the hands of a newly-founded organization, AIPA (Authors, Performers and Producers of Audio-Visual of Slovenia). Tomaz Grubar, the biggest Slovenian A/V rights holder, with the most hours of broadcast A/V works in the Slovenian cable system over the last ten years, suspected that something was amiss, with a possible conflict of interests. “AIPA was founded by the very people such an organization was meant to protect against—the users of the works, as opposed to the creators of them.” In the first year of work of AIPA, the income on royalties in Slovenia dropped from around 8 million Euros to around 2.1 million Euros. This, it seems, would prove to be no coincidence.
AIPA claimed to have the legal prerequisites to apply for the license to collect these royalties instead of SAZAS. There were many irregularities surrounding AIPA’s foundation and activities, which raised suspicions. Tomaz Grubar continues: “Once we went to SIPO to look into AIPA’s application for the license, we noticed that they claimed to represent a huge repertoire that was actually managed not by them, but by AGICOA. They claimed that they represented all of the Hollywood royalty rights, due to some mysterious distribution agreement that AIPA founders held. Meaning they were the guys that distributed the Hollywood studio films into to Slovenian cinemas and there for claim they own royalties on that! Crazy! This was one of the first alarms that suggested that something was wrong, and that there might be some strings being pulled for AIPA within the Slovenian government.” Further investigation showed that AIPA had been founded based on statutes that were improperly filed or were not ratified by the founders, nor were they entered into the official court register. Further, in their application to SIPO for this license, AIPA also presented an inaccurate representation of the repertoire.
In fact, it seems that AIPA had only a tiny repertoire, if any at all – nowhere near what they claimed. Tomi Cegnar, a producer and specialist in A/V contracts, concurs: “Once I looked into AIPA, I noticed that even the music videos I had created to were ostensibly managed by them, even though I never signed onto their repertoire.” Grubar continues: “Once AIPA was founded, the biggest rights holders were never actually invited to participate in AIPA at all. While we were following the procedure of SIPO issuing the license to AIPA, we identified that the statutes of this organization, which are the basis for their receiving the license, were never legally ratified or registered in the court register, because they did not have the express consent of the founders. We also saw that AIPA misled in their application that they managed a large repertoire – in fact, they listed rights-holders that they did not manage in any way. This raised a lot of question-marks.”
In order to qualify for a license to collect royalties, the applicant has to prove that they are able to protect rights and manage a repertoire, and that they have an international collaborators (since the majority of works broadcast in Slovenia are foreign), demonstrated by showing “reciprocal agreements” with foreign collective organizations. SAZAS was the only one capable of proving this in their application, because it has a repertoire, through its reciprocal agreements, in the millions of works created. AIPA seemed to have none of this, at least none that appeared to be real. Despite this, AIPA was awarded the license at the end of 2010.
With AIPA now collecting instead of SAZAS, the annual royalty income suddenly dropped. In 2011, an estimated 11 million Euros was due to be collected, but AIPA only collected 2.1 million. This meant that the cable and IPTV operators in Slovenia saved 8.9 million that year. This, despite the fact that there was no drop in use of the A/V material. And that was just A/V rights. Music rights that year should have amounted to 3.45 million Euros, but less than one-hundred thousand Euros were collected – a gap of around 3.3 million. What happened to the difference? It ended up in a number of pockets, not those of the creators to whom this was due. Nor should it be thought that only private individuals lost out. The Slovenian government, over the course of four years, lost approximately 4 million Euros in taxes that the cable and IPTV operators were not obliged to pay, despite the use of materials. The simple and obvious question is: why AIPA was collecting so much less than the actual use required?
Now that AIPA had the license, they sought to invite more Slovenian authors, with even the smallest of repertoires, to fill out their very small repertoire. They put out an ad featuring two guys sitting on a pier, complaining about how they are broke – one doesn’t have the cash to pay his electric bill, the other doesn’t even have enough for a beer. Then one suggests to the other that they go enroll into AIPA, and their problems will be solved. The message was that AIPA is a sort of charity, handing out small amounts of cash in exchange for authors signing on, regardless of whether these “authors” have any A/V works that have been used. AIPA claimed that these small payments were meant as “cultural stimulae.”
The people behind AIPA seemed to have seen an opportunity in the temporary nature of SAZAS’ government license to step in and take over the collection of royalties. By somehow reducing the amount that they collect to 2.1 million, they saved the cable operators millions of Euros, possibly pocketed millions themselves, and wound up screwing over the rights-holders, from small-scale individuals to major international corporations like Sony and Universal. While a screenwriter living in rural Slovenia, who makes a few hundred Euros in royalties per term, might not be able to stand up and fight, Sony and Universal certainly could. Their rights are managed by AGICOA, an enormous firm with knife-wielding lawyers on staff. AGICOA is used to receiving around 2 million per year from Slovenia, but that number has dropped to zero, since AIPA took over. AGICOA has been informed about what is happening, and the real question is, why aren’t they doing anything about it?
While the application was still open, AGICOA also applied for a license to collect A/V rights for themselves in the Slovenian market but, for unknown reasons, in the second half of 2014 AGICOA withdrew their application. AGICOA also applied for participation in the authorization of AIPA, but SIPO rejected their application, leading AGICOA to sue the Slovenian government – and win. They were granted the right to participate in the licensing, but they never followed-up and did so. In an email interview, a representative of AGICOA was forthcoming, but did not explain AGICOA’s plan moving forward and what they planned to do about the situation. Requests for comment emailed to two of the founders of AIPA went unanswered.
Royalties are calculated based on frequency of use, and which time slot they appear in (primetime, morning, night). The expense of calculating and keeping track of which works run when is about 10-15% of the money owed, so 85-90% of the money is actually sent back to rights-holders. AIPA was collecting and distributing without “proven use” – without demonstrating via playlists and recordings when which A/V works were used. This is what Djuro spotted when he got a report with no explanation for the amount. AIPA arbitrarily decided to deduct around 29% of the money they took in for their own “expenses,” claiming that they distributed the rest. Out of what they did distribute, some 500 Slovene “rights-holders” received mid-three figures to low-four, as long as they enrolled in AIPA. But to enroll in AIPA, no one had to prove that they had a creative repertoire. “You could bring your grandmother over to enroll in AIPA,” says Tomaz Grubar. They also issued no report on how rights-holders products were used, so no one could check. AIPA distributed just enough among those who enrolled to keep people content. But this bizarre activity did not go unnoticed.
Tomi Cegnar was working for a television network during the day and occasionally producing music videos on the side, when he approached SAZAS about joining their ranks of rights-holders. “AVA, which was composed of the most prominent Slovenian audiovisual creators, has merged with SAZAS. I thought, Great, this organization, that we knew and trusted for years, will make sure that we are getting paid for whatever we create. That’s when we realized that this new organization we’d never heard of, this AIPA, had just wrested the license away from SAZAS, so we asked ourselves, Who are these guys? We began to investigate and, very quickly, saw that their founding statute had been signed by non-existent individuals, and that they were falsely claiming to represent the repertoires of thousands of rights-holders, including Djuro. It was clear immediately that they were running some sort of scam.”
To date, nothing has changed. For the time being, AIPA remains in control of gathering money for rights-holders, and the institution continues to collect and distribute only a fraction of what SAZAS believes is due. AGICOA is still receiving millions less than it appears due, meaning its rights-holders, famous and small alike, are being cheated out of their income – and they have yet to take strong, definitive action, although it is well within their rights to do so. While it may be hard to shed a tear for some of those affected, the millionaire stars like Alicia Keys, Barbara Streisand, Bob Dylan and other big-name creators, we must keep in mind the thousands of “small fish” rights-holders, some of whom barely scrape by month-to-month, who have lost out on what they are owed, because of these irregularities. While this case is based in Slovenia, it effects artists around the world, and it provides a warning as to how loopholes and shadowy corners of the system can be exploited, particularly in the ragged realms of emerging Europe.
Noah Charney is a professor of art history and best-selling author. He teaches courses on writing at University of Ljubljana and for the Guardian Masterclasses. For more information visit www.noahcharney.com or join him on Facebook.
 Voice-recorded interview and approved quote.
 Agico letter to SIPO.
 Agico letter to SIPO.
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