One tariff down, one to go for online music

It is said that a good compromise lies in having both parties complain about the outcome. The tariff for online music services set this month by the Copyright Board of Canada may have struck that balance: representatives of both the rightsholder groups and the digital music retailers tell Canadian NEW MEDIA they have issues with the ruling.The tariff filed by the Canadian Musical Reproduction Rights Agency (CMRRA) and the Société du droit de reproduction des auteurs, compositeurs et éditeurs au Canada (SODRAC), which together represent songwriters and music publishers in both French and English Canada, establishes the rates that online music services must pay for reproducing works in the CMRRA/SODRAC repertoires from 2005 to 2007.While CMRRA and SODRAC didn't get the rates they wanted, David Basskin, president of CMRRA and VP of CMRRA/SODRAC Inc. (CSI), says he is not one to judge whether or not the board's decisions are wise and that he has accepted its decision."I think the process by which we got to the decision was fair," Basskin says. "I would have been happier to see a higher royalty rate - there's no point trying to disguise that. But we have to move on."Conversely, Jay Thomson, assistant VP of broadband policy for Telus Corp., says the telco thinks the established rate is too high."As can be expected, we're disappointed that the Copyright Board didn't set a rate closer to what we had proposed, which was lower than what it has certified," notes Thomson. "That being said, we think we can probably live with these rates." He adds that Telus does not anticipate a challenge of the board's decision.Alistair Mitchell, the founder and CEO of PureTracks Inc. - which powers Telus' online music store as well as operating its own standalone digital music download business - says he's concerned about his firm's future competitiveness given the tariff rate."There are issues that we need to contend with, most notably the minimum fee because that impacts our ability to deliver a price point that may well be lower than 99¢ in the coming years," he says. Mitchell explains that, if the average price for a digital track drops in the global market, PureTracks will not be able to follow the trend due to being restricted by the tariff.After hearing testimony from both CSI and objectors to the tariff, the board decided to set a percentage rate for the royalties collected from each of the three digital music purchasing formats - permanent downloads, limited downloads and on-demand streaming subscriptions (see table below).The board's other major decision - to use an earlier tariff set on the act of reproducing music onto a CD for retail as the proxy to establish the online music tariff - has also sparked mixed reviews."We argued strenuously that the ringtone proxy was inappropriate and that the board should rely on the physical CD market," said Thomson. "So we were pleased to see that the board did agree with us in that respect."But Jodie Ferneyhough, the director of creative services for Universal Music Publishing Canada, thinks the board made a mistake by not favouring the ringtone proxy."I would have liked to have seen it based on a digital ," he says. "Was it a completely wise decision? I would say no. I mean, it's theirs to make as they will but it would have been much better based on a digital thing, seeing as we are currently in a digital world."Despite disagreeing with the board's decision on various levels, some of the parties have suggested that this new tariff will have little impact on the various facets of the music industry - Mitchell's objections notwithstanding."The fact that a little bit of progress toward a fair rate has been created, I can hardly see that that's harmful for the people out there selling music," says Basskin.Ferneyhough even goes so far as to suggest that the decision will help to relieve confusion and allow the e-commerce business to achieve a state of normalcy."I don't think it's going to disrupt service or make service faster or slower," Ferneyhough says of online music services' connection to the new tariff. "I think now we'll finally see some money and they'll be able to move forward on clearing out their books."He also doesn't believe the board's decision will have a significant impact on Canadian record labels. Instead, the tariffs just help to clarify the rates that have to be paid. "I think that it's a certain comfort level to know what rates can be," he notes. "If anything, it's probably going to make it easier because now they at least have a guideline to work with."Thomson adds that he's not sure how this tariff decision will impact Telus' mobile music business. He suggests that a lot will depend on what rates are established by the Copyright Board for Tariff 22, the levy proposed by the Society of Composers, Authors and Music Publishers of Canada (SOCAN) that would require various types of websites to pay monthly fees for communicating the music in SOCAN's repertoire over the Internet."This is only one part of two heads of liability," says Thomson. "I suppose there's always an option within any business to change your strategy, to adapt to changes in the marketplace including external obligations and financial requirements. We're a very nimble company so we would respond as necessary."Mitchell refers to the CSI tariff and its role in the legislative process of managing the digital music market as "one chapter in a story that's yet to be fully told." Like Thomson, he says much relies on the board's decision on Tariff 22, and that the parties involved have to acknowledge its potential repercussions in the global digital realm. "We are not divorced from the wider world," he notes.He suggests that while downloading prices in Canada are currently comparable to those in the United States, if American companies were to drop their prices in the future and Canada could not follow suit due to tariffs, it could attract negative attention from Canadian consumers: "We have a huge file-sharing and piracy issue in this country and the last thing we want to do is pour oil on that."Brian Gray, a partner with McCarthy Tétrault LLP in Toronto and the national head of the firm's intellectual property group, reciprocates Mitchell's concerns about future complications that the tariffs may cause. "I posit that there's really a limit to what you can charge for a song," he says. "If it's too high then people will just keep downloading for free."But Claude Majeau, the secretary general of the Copyright Board, is confident that the board will be able to address future concerns in the digital age from music industry representatives."The board believes that as long as it has the necessary resources, both human and financial, it will be able to keep up with the pace of change with regard to the music industry," says Majeau.Gray disagrees, suggesting that copyright decisions are already not as rapidly forthcoming as needed. "I don't think we can, at least from judging the past behaviour of the government, expect to see quick changes to copyright legislation," he says. But regardless of the outcome regarding SOCAN's application, Basskin suggests that the board's decision on the CSI tariff was a reasonable compromise of the wishes of the parties involved."Going to the Copyright Board is an expensive and a difficult process. Our preference is always to try to negotiate directly, but sometimes going to the Copyright Board is the right thing to do. In this case, it was," says Basskin. "We could have done a great deal worse, I suppose. But the point is, sometimes people say that when everybody is a little bit dissatisfied, that's probably a sign that you're right."Final Digital Music Tariff Rates, as set by the Copyright Board of CanadaPermanent Downloads8.8% of the amount paid by a consumerMinimum fee - 4.5¢ per file in a bundle, 5.9¢ per file in all other casesLimited Downloads (subscriptions)5.9% of the amounts paid by subscribers57¢ per month per subscriber if portable device reproduction is allowed, 37.4¢ if notOn-demand Streaming (subscriptions)4.6% of the amounts paid by subscribersMinimum fee - 29.2¢ per month, per subscriberNOTE: Rates do not include a transitional 10% discount applied during the period covered by this tariff only (2005-2007).

One tariff down, one to go for online music

Broadcast | April 2, 2007

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