Napster “thin edge” of wedge dismantling Canadian cultural protections: Punnett

Napster’s entry into Canada is an example of how foreign music services will threaten Canadian cultural protection measures, says the author of a new report on digital technologies and the music industry. Sam Punnett, president of FAD Research, recently made public his study, The Changing Face of Music Delivery: The Effects of Digital Technologies on the Music Industry, written for Canadian Heritage’s Sound Recording Policy and Programs Directorate. In it, he predicts that foreign music services, unencumbered by Canadian content regulations, will pose a challenge to firms such as Canadian-owned Moontaxi Media Inc., owner of the Puretracks site. "Today may be a historic moment," Punnett tells Canadian NEW MEDIA on the occasion of Napster’s entry into the Canadian marketplace. "Napster is the thin edge of the wedge when it comes to dismantling the Canadian regulatory structure." He adds that music is a level playing field, and that Canadians won’t care whether they buy their music from a Canadian- or American-owned site. "Brand is everything," he says. It has been widely suggested that American companies such as Napster and Apple Corp. have been struggling to better understand the Canadian marketplace, but a May 26 media release from Napster indicates that it is anxious to begin the business of selling downloads in Canada - even before a bitter dispute between record labels and music publishers over download royalties is solved (CNM, May 14/04). The company will employ Canadian staff in Richmond Hill ON, and the company’s launch here coincides with the announcement of a mutually exclusive marketing alliance with the iconic brewer Molson. Napster officials did not return calls requesting comment about the regulatory environment. In his report, Punnett writes: "In 1998, as a result of the New Media and Broadcast Hearings, conducted by the CRTC (Canadian Radio-television and Telecommunications Commission), it was determined that the federal government would not engage in regulatory activity associated with new media content and services, ‘…the Commission will not regulate new media activities on the Internet under the Broadcasting Act.’ FAD Research appeared at these hearings as an expert witness and there is potentially a large problem with this hands-off approach now that Internet sources of content are quite indistinguishable from traditional broadcast media sources. The ‘problem’ occurs if you believe that the current broadcast regulatory scheme is the only way to secure the production of Canadian culture in electronic media. Capabilities and possibilities are approaching a point where the chaos associated with digital technologies and the music industry may be a backwater compared to the torrent of effects that other content services may have on cultural media consumption like films and TV." Punnet emphasizes that music downloading will likely be a commodity business in the next few years, with low margins and heavy competition. He says it’s unlikely that Puretracks and Archambault Music - currently the sole Canadian services - will be joined by any other homegrown businesses as Napster leads a charge of foreign-owned brands into the marketplace."There will be likely no more new Canadian owned, music distribution services that provide their own catalogue, back-end, and billing. Uncertainties in the marketplace (some associated with copyright protections) and increased competition will marginalize investment. It would make no sense from an investors point of view to back a Canadian service unless it had some value proposition towards export," the report notes. He further notes in his report that the business is still relatively small. He writes that Canadian download services would have sold approximately $1.75 million worth of tracks until February 2004, while old-fashioned CDs did $290.5 million in business. To help, Punnett recommends that public funding programs be broadened to include digital music businesses, with assistance in the form of seed capital, business acumen, technology development aid, marketing and export support, support for music production, support for knowledge exchange, and encouragement for partnerships between stakeholders. He singles out Telefilm Canada’s Music Entrepreneurs Program (MEP) as a particularly successful initiative that could be broadened into the digital sphere. He writes: "There is no bank that will finance innovation for the music industry. Further there is some requirement for marketing support for labels promoting Canadian artists to Canadian audiences through digital means. A policy decision will likely have to be made soon about support in the marketing initiatives of Puretracks and Archambault...We would extend the consideration to include initiatives constructed both for the domestic marketplace and to the far more lucrative export market." Moontaxi has long advocated public support for its efforts in the face of increasing competition.

Napster “thin edge” of wedge dismantling Canadian cultural protections: Punnett

News | 05/28/2004 4:00 am EDT

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