Hearings on revised SOCAN Tariff 22 kick off

Perhaps emboldened by the Copyright Board of Canada's decision last month on a similar tariff filing, opponents of the revised Tariff 22 advanced by the Society of Composers, Authors and Music Publishers of Canada (SOCAN) slammed the new application as out of touch with market realities and pressed the board to reject the application as it currently stands.Hearings into SOCAN's latest tariff, which covers the transmission of musical works, began today at the Copyright Board's Ottawa offices. Gowling Lafleur Henderson LLP's Gilles Daigle, appearing on behalf of SOCAN, was first to offer an opening statement. Of course, in contrast to those that would follow, his comments strove to build the case for the tariff as most recently proposed.Daigle noted that the last time an audience had gathered in the Copyright Board's hearing room to discuss Tariff 22 was May 15, 1998, when the Bill Clinton's presidency was wracked by impeachment hearings. That hearing, dubbed Phase I, was intended to examine questions of jurisdiction and other legal procedure.A SECOND TRY FOR SOCANSince 1998, Daigle continued, much has changed: SOCAN's original filing, which covered all Internet-based activities that made use of its repertoire, was in part disallowed by the board the following year because it proposed tariffs against ISPs, a group SOCAN claimed facilitated communications of musical works.SOCAN appealed the board's move before the Federal Court in 2002, which backed up the Copyright Board's decision except in the matter of caching: the board asserted that caching data was essential to Internet traffic and therefore not expressly part of communicating musical works, while the Federal Court disagreed and made ISPs caching musical works subject to the tariff.That decision was in turn appealed at the Supreme Court of Canada by a coalition led by the Canadian Association of Internet Providers. In its 2004 judgment, Canada's highest court reaffirmed that caching was a technical requirement of the Internet, and "should not, when undertaken only for such technical reasons, attract copyright liability."Fast-forward to the current Phase II proceeding, which covers the years 1996 to 2007, and SOCAN's revised statement of case. The collective has abandoned efforts to have a levy imposed on all players in the Internet content chain with its latest filing, and instead targets portals and websites which make musical works available to Internet users. That move, of course, has triggered renewed objections from Internet content providers of all descriptions.Daigle did throw in a concession to a prolific but underfunded form of new media. He said SOCAN has studied podcasting and found that, on average, it makes use of SOCAN's repertoire in less than 20% of instances. That, coupled with the fact that it's a very low- or negative-margin business, has led SOCAN to propose a $60-a-year flat rate for podcasters, with no retroactivity past 2004."For a number of issues, including the appropriate rates, there's no doubt there is disagreement between SOCAN and the objectors," Daigle said. "However, there is also much common ground."Daigle noted that many of the objectors, such as the Canadian Association of Broadcasters (CAB) and the CBC, don't object to paying SOCAN tariffs on principle. In fact, both already do compensate songwriters and music publishers through SOCAN thanks to rates on their conventional broadcast properties. However, Daigle continued, both the CAB and the CBC plan to argue that paying once for "first-window" broadcast of a program is enough, and any fees for subsequent Internet transmissions should be greatly discounted.CAB TALKS UP ITS OWN TARIFFIndeed, the need to provide compensation for transmitting music wasn't in doubt among the broadcasters present. McMillan Binch Mendelsohn LLP's David Kent, acting as counsel for the CAB, said his client will present its own "freestanding affirmative case" for a different, discounted payment schedule for use of the works in SOCAN's repertoire.The CAB wants to translate the existing royalty regimes for conventional television and radio to the websites of TV and radio broadcasters. It is proposing that radio and TV programs simulcast online be totally excluded from Tariff 22, instead falling under Tariffs 1A, 2A and 17, which respectively cover commercial radio, commercial conventional TV, and specialty and pay TV.For musical programs such as radio online, the broadcasters group proposes paying the radio rate set out in Tariff 1A for revenues attributable to music only; if that exact amount can't be determined, then the CAB suggests paying the radio rate on 30% of total website revenue. The group's proposal for TV online is similar, except the TV rate from Tariffs 2A and 17 is used as the base, depending on the nature of the service, with the rate payable on just 1.5% of total website revenue if the exact amount can't be determined.Kent also attacked the witnesses SOCAN plans to call during the proceeding, saying that one in particular - Professor Stanley Liebowitz from the University of Texas at Dallas' School of Management - will testify "that there's nothing but gravy and profit when you switch from the physical world to the Internet." In fact, Kent continued, the inverse is true: at a time when the profitability of online operations is still unstable, any tariff for use of SOCAN-linked works online should be vastly lower than that for similar uses in the bricks-and-mortar world.Finally, Kent criticized SOCAN's move in the latest filing to divide up possible uses of its work online into increasingly specific categories: music sites, which include permanent and temporary downloads as well as on-demand streaming; audio webcasts by pay audio services and conventional broadcasters of various descriptions; webcasts of radio station signals; audio-visual webcasts; webcasts of television station signals; game sites; and other sites.Noting that many of those categories could overlap in a single transaction, thus triggering multiple payments to SOCAN, Kent noted that from the CAB's perspective, "the net effect of slicing the pie into ever-smaller slices is that you end up with a smaller slice but you pay more."Aiden O'Neill, who recently joined Fasken Martineau DuMoulin LLP as part of the law firm's acquisition of Ottawa's Johnson & Buchan LLP, laid out the CBC's case in his opening statement. He referred to the revised Tariff 22 as "ill-conceived and completely unworkable" because it applies "cookie-cutter treatment" to all broadcasters. He pointed out that the CBC is a publicly funded broadcaster, not motivated by return to shareholders and profit, and therefore should be exempt from any revenue-based tariff.The public broadcaster also has a mandate to reach all Canadians, and as such covers 95% of Canada's population with its terrestrial signal, making online transmission of its programming incidental. Those who choose to tune to an Internet simulcast, he said, are merely exercising a technical choice as to which platform they receive the signal on. "It's the same signal...there's no discernable increased value," he said.Given that, and the fact that the public broadcaster argues that since it already pays remuneration for use of SOCAN's works on its radio properties under Tariff 1A, it shouldn't be required to compensate SOCAN any further for what it sees as incidental usage during Internet simulcasts.In addition, the majority of content the CBC makes available on demand over the Internet consists of spoken-word excerpts, such as interviews, from its conventional broadcast properties. Despite that fact, O'Neill said, the CBC is prepared to offer SOCAN a step-up fee of 5% of what it pays SOCAN under Tariff 1A for the use of its repertoire in on-demand streaming audio over the Internet.As for television over the Web - mainly drawn from the CBC Newsworld and Réseau de l'information specialty services -the CBC argues it shouldn't have to pay anything to SOCAN above and beyond what it already remits for first-window broadcast under Tariff 17.And in special cases such as CBC Radio 3 and the Bande-a-Parte service available through Sirius Satellite Radio Canada, programming is drawn from the works of independent Canadian artists who must acknowledge that they, and not SOCAN, own all the rights to the content. In short, O'Neill concluded, SOCAN's proposal is "grossly excessive and bears no relationship to the actual use CBC makes of SOCAN material."A TALE OF TWO TARIFFS Last month, the Copyright Board issued its decision and a final approved tariff for online music services on behalf of CMRRA/SODRAC Inc. (CSI), which represents songwriters and music publishers when mechanical reproductions of their work are made. After a hearing last September, the Copyright Board approved a tariff of 7.9% of the selling price for permanent full-track downloads, plus 4.1 cents for each track in a bundle and 5.3 cents for each standalone track - roughly halfway between what CSI had asked for and what those in opposition had counter-offered.Different formulas were used to set rates on other services, such as non-permanent or time-limited song downloads (a flat rate of 4.1% of revenues as well as a minimum of 26.3 cents per subscriber) and online streaming audio services (a flat rate of 5.3% of revenues as well as a minimum of 51.3 cents per subscriber if downloads can be moved to a portable device, 33.7 cents per subscriber otherwise).Taken together, CSI's approved rate and SOCAN's proposed tariff could mean as much as 17.9% of a site's revenues for full-track permanent downloads alone, plus an additional amount for each track sold.Small wonder, then, that the combined-rate model of a percentage share of revenues backstopped by a per-subscriber minimum raised the hackles of those objectors in the business of selling such downloads.Representing Bell Canada, Rogers Communications Inc., Shaw Cablesystems GP and Telus Communications Inc. - a group collectively dubbed "the cable/telcos" - another recently minted Fasken Martineau lawyer, Jay Kerr-Wilson, decried SOCAN's aggressive stance to nascent and fragile online services. "If the activity produces revenue, SOCAN will receive a share of that revenue," he promised.However, most online activity isn't revenue-positive at the moment, Kerr-Wilson said. In addition, many of the cable/telcos present feature a vast array of content besides music on their portals, including news, web search functionality, access to e-mail, and more. Therefore, a per-subscriber rate would grossly overcompensate SOCAN for use of its work, he said.The cable/telcos are asking for a sliding scale of rates for audio-visual and audio-only works depending on whether or not the stream's content is made up of more than or less than 20% of SOCAN-represented works. Those rates range from 0.8% of revenues for audio-visual streams with less than 20% SOCAN content, to 4.2% for audio streams made up of more than 20% SOCAN content.Kerr-Wilson also maintained that the act of paying to download music from an online source is a point-to-point transmission, and therefore doesn't make use of the "communication of musical works" right administered by SOCAN. If the board finds otherwise, he added, SOCAN members are still compensated under CSI's reproduction tariff.Apple Inc. and the Canadian Recording Industry Association (CRIA) filed a joint opposing statement of case to the tariff. Stikeman Elliott LLP partner Randall Hofley, representing the two organizations, pointed to the CSI tariff hearings as instructive and said they settled many of the questions before the board in the current proceeding.Market conditions should be the starting point for any SOCAN tariff, Hofley continued, taking into consideration the as-yet-unprofitable nature of online music services. He noted such services face stiff competition from peer-to-peer file-sharing, and the CSI and SOCAN tariffs could have the effect of driving even more users into the arms of such unauthorized and uncompensated sources, he cautioned.As such, Apple and CRIA propose a modified version of SOCAN's Tariff 22: 6% of revenue directly attributable to use of SOCAN's repertoire for permanent downloads with or without previews; 4% for temporary downloads with or without previews; and 3% for streaming music services. The two organizations are also adamant that the amount payable under CSI's tariff be subtracted from the pool of money collected on behalf of SOCAN.

Hearings on revised SOCAN Tariff 22 kick off

Broadcast | April 17, 2007

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