Combined CSI-SOCAN tariffs could sink mobile music: wireless carriers

With as many as 750,000 song titles available for download between them, it would stand to reason the mobile music services of Canada’s three largest wireless operators would be on the road to financial sustainability. But at a recent hearing at the Copyright Board of Canada, representatives from each testified that selling music for use on mobile phones is slim pickings at present. Andrew Wright, director of business development at Bell Mobility, characterized his company’s service as "very, very thin margin to no profitability at this stage," while Upinder Saini, VP of new products and content development at Rogers Wireless, noted that "adoption is also very low at this moment." Wright, Saini and Nauby Jacob, director, browsing and messaging services, Telus Mobility, agreed that with limited flexibility in pricing due to competitive pressures, the best way to bolster the mobile music download market was through economies of scale: increasing the number of sales, rather than profitability. And, although high sales volume is absent at this early stage of the game, costs aren’t: all three panellists cited the same costly in-house infrastructure and outflow of payments to third parties. The representatives from the three mobile firms appeared at the Copyright Board last month as part of a broader hearing on online music services. The Canadian Musical Rights Reproduction Agency (CMRRA) and its Quebec counterpart, la Société du droit de reproduction des auteurs, compositeurs et éditeurs au Canada (SODRAC), collect royalty payments on behalf of music publishers when businesses that use music make copies of songs. CMRRA/SODRAC (known as CSI), as well as the Society of Composers, Authors and Publishers, have filed a series of tariff requests that would see them get as much as 40% of the gross revenues of digital music services – whether wired or wireless – if approved. The copyright collectives have already won one victory in the emerging digital music download market: on August 18, the Copyright Board approved SOCAN’s request for a 6% share of gross revenues derived from the sale of ringtones over the 2003-2005 period (RoW, Aug. 25/06). However, the various offerings covered by the online music services tariff proposal differ from the ringtone market in that they entail the reproduction and communication of full tracks, rather than just a short snippet to be used as a ringtone. When asked by Johnston & Buchan LLP’s Jay Kerr-Wilson – who represented Rogers at the hearings – what the combined effect of the CSI and SOCAN tariff proposals might be on their businesses, the wireless industry representatives were as blunt as their wired Web counterparts: any tariff – indeed, any increased cost or payments to third parties – would have a profound negative effect on music content services for mobile phones. "Does an increase to the cost structure put this in a precarious position? My answer is yes," Bell Mobility’s Wright said. Kerr-Wilson then turned his questioning to the difference between ringtones and full tracks, a subject "that’s been of some interest in this hearing," he noted, since CMRRA’s proposed tariff on full-track music downloads and streaming audio services to mobile handsets is predicated on SOCAN’s earlier Copyright Board victory with its ringtone tariff. Bell Mobility’s Wright, however, dismissed any practical connection between the two types of offering. "I think they’re very much two separate lines of business for us," he said, noting that full-track download and streaming audio services allow users to create custom play-lists and listen to their titles over and over again, whereas a ringtone is "much more of a customization tool." In addition, the two are priced differently and are made available in different file formats. "Ringtones are more to express yourself, whereas full tracks are more to entertain yourself," Saini agreed. The full track market is also limited at present because less than 2% of Bell Mobility’s handsets are capable of playing a full song today, Wright said, compared with a 30% capability rate for ringtunes and more than 50% for other types of ringtone. The hearing concluded on September 20, and the Copyright Board will deliberate CSI’s application until at least April next year, when a hearing on SOCAN’s proposed online music services tariff gets underway.Earlier testimony from the CSI camp predicted that the ringtone market would soon wither and die – meaning a loss of income for both copyright collectives and retailers of digital music – but the three panellists claimed the opposite was true. Where CSI had argued that high-quality full-track downloads could easily be cut and edited into ringtones, thus negating the need to buy two versions of the same song, Wright, Saini and Jacob noted that the digital rights management (DRM) technology in place on the full-length tracks they sell prevents such tampering. "We believe the ringtone business as a standalone will continue to grow, and hopefully the full-track business, which is very small right now, will grow as well," said Rogers’ Saini. That optimistic prediction was echoed by Bell’s Wright: "It’s in all of our best interests to ensure these two standalone businesses continue as separate businesses." Both men said that while a small number of Rogers and Bell phones currently have the ability to edit sound files built into the hardware, that feature will disappear in future. A small number of handsets currently also allow user to share or forward content that isn’t protected by DRM, but Saini testified that Rogers had told its hardware partners that capability must be removed from future phones, otherwise they’d be ineligible for use by Rogers. By early next year, he added, all the phones the wireless telco sells should be compliant with that policy.

Combined CSI-SOCAN tariffs could sink mobile music: wireless carriers

News | October 6, 2006

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