BumaStemra has drawn up the budget for 2021. We are sharing this with our members in a somewhat different form than you may be accustomed to from us. That has everything to do with the societal and economic reality in which we live. Because there is great uncertainty about the near future, we decided to draw up four scenarios alongside the budget. We share these with you in this financial portal.
BumaStemra prepared its 2021 budget in autumn 2020, the period in which it became clear that the 2020 results would turn out less negative than initially feared. Some of the coronavirus restrictions were also relaxed during that period and there were hopeful prospects about the successful development of vaccines. This strengthened our expectation that we would see a cautious recovery in our markets in 2021.
At the beginning of December 2020, when the budget was presented to the Supervisory Board for approval, the second wave of coronavirus took hold and the coronavirus measures were once again intensified. In the weeks that followed, the Netherlands even entered a more restrictive lockdown, partly because of the threatened rise of coronavirus mutations.
The growing uncertainty with respect to developments in 2021 prompted us to decide at that point to work out a number of possible scenarios, ranging from the original moderately optimistic budget to a scenario in which there would be no recovery in 2021.*
The provisional results for 2020 are now available. These are more relevant than the budget for 2020, which was drawn up before anyone saw the coronavirus crisis coming, and we therefore present these figures alongside the forecast for 2021. The provisionally realised collection of royalties was €13.8 million (6.4%) lower than budgeted for 2020. The coronavirus impact of approximately €32 million was partly offset by the strong growth in the Online market segment. The actual 2020 figures could deviate from these provisional figures and will be communicated after an audit, via the annual reports, in the runup to the General Members’ Meeting of 2 June 2021.
Scenarios for 2021
The collection of royalties in 2021 especially involves great uncertainty. When will it be possible to organise events again? How long will restaurants and bars and sales areas still be faced with closure? What impact does all of this have on whether invoiced royalties can be collected?
The scenarios calculated by us range from €193.8 million to €153.6 million in collections for 2021. That is approximately 5% to 25% lower than the provisional realisation for 2020, which was in turn 7% lower than the realisation for 2019. Taken into account here is the fact that the coronavirus impact on 2020 collection by foreign sister societies will only be visible in a decrease in the amounts to be paid on to BumaStemra in 2021. Moreover, in contrast to 2020, there will be substantially less of an opportunity in 2021 to collect additional royalties from previous years with better usage. As an indication: in 2020, over €50 million was collected additionally for usage in previous years. In the previous years, that was around €43 million.
Distribution and costs in 2021
As a result of the lower collection in 2020/2021, the distribution in 2021 will also be lower than in 2020. Furthermore, the distribution of copyright royalties for RTV and live performances was paid out in 2020 over five periods as a one off, instead of four quarters, by the realisation of a structural acceleration. The budgeted distribution for 2021 (including €8.6 million allocated to the Fund for Social and Cultural Purposes) is €172.8 million. This is €11.2 lower than the provisional realisation for 2020. Buma expects a decrease of €23.1 million, but Stemra expects an increase of €11.9 million. The coronavirus impact has been significantly less for Stemra than for Buma and additional distribution of older private copy fees is expected in 2021.
Despite the fact that the effects of the coronavirus will still be clearly perceptible in 2021, we believe the coronavirus crisis is temporary. We are saving on costs where possible, but are not taking any structural measures towards phasing out the organisation. We are, however, ensuring that we will be ready when the market picks up again and are preparing BumaStemra for the future. We have formulated a new strategy entitled: To the Beat of the Drum. The music world will be up and running again and we will be keeping pace. Growth is important in that process. Not just in volume, but also in quality. We also emphatically aim for collectivity. In order to make that possible, we have to strengthen the organisation and optimise processes.
The costs budgeted for 2021 are consequently higher than for 2020. The main reason for this is the necessary replacement of our outdated IT system. Delaying this replacement any further could jeopardise the continuity of our service provision and by extension our position in the market. The new IT system will be further developed in 2021 and 2022 and will be put into use in phases. The replacement investment has a positive business case: by automating activities that are currently outsourced, BumaStemra will earn back the investment within the depreciation term.
With a view to possible cost saving in 2020/2021, BumaStemra submitted applications in the context of the Temporary Emergency Bridging Measure for Sustained Employment (the NOW scheme). Since it is still unclear at this point whether the applications will be granted, the provisional realisation for 2020 and the scenarios for 2021 do not yet take into account any contribution towards the personnel costs.
Expense ratio and withholding rate
The changing ratio of collection to costs temporarily means a higher expense ratio. Depending mainly on how collection evolves in the course of 2021, the different scenarios come to an expense ratio of between 16% and 20% for BumaStemra jointly. Without the impact of the coronavirus, the budgeted expense ratio would have remained below the standard of 15.0%. We will continue to consider the phasing of improvement and change initiatives, but our cost basis is largely fixed.
In 2021 BumaStemra will only use predetermined withholding rates for the administration fee. These rates have remained the same or even decreased in all categories with respect to the old method, in order to prevent extra impact on the funds available for distribution. If collection is disappointing, the amounts withheld will not cover the costs and the year will close with a deficit. We expect to be able to cushion this with the available reserves.
Just as in 2020, BumaStemra will continue to stand up for support for music makers in 2021. There are still funds available for the Music Industry Emergency Fund (Noodfonds Muziek) and additional work contributions will be available for new music. In cooperation with the industry organisations, it has been agreed in principle with music users via VNO/NCW that no copyrights need to be paid over the period that an organisation was forced to remain shut. The starting point is that we are collectively facing difficulties and will therefore collectively have to find solutions.
We are looking forward to contributing in 2021 and subsequent years to ensuring that music continues to be the connecting factor in a society that needs this more than ever.
Bernard Kobes, CEO
Marleen Kloppers, CFO
* Realisation may deviate from expectations, for example because assumed events do not occur as expected and the influence this has may be significant. The realisation can also emerge to be outside the bandwidths mentioned, therefore.