Reproduction, communications royalties for song downloads total $7.5M annually: Estimate

A digital “communication right” recognized under the Copyright Act would be worth about $2.1 million in annual royalty payments from Canadian music download retailers, according to an estimate calculated by The Wire Report. That $2.1 million would be in addition to the approximate $5.4 million in royalties that online music distributors in Canada collectively pay to clear reproduction rights under the act, according to The Wire Report estimate. The Supreme Court of Canada is considering whether copyright collective the Society of Composers, Authors and Music Publishers of Canada (SOCAN) can collect communication rights tariffs from online music distributors such as iTunes. The Copyright Board in 2007 approved an application by SOCAN, known as tariff 22.A, to collect communication rights royalties from online music track distributors in the amount of 3.1 per cent of revenues earned from subscribers for the years 1996 to 2006. SOCAN has collected those royalties from the music distributors but has not yet distributed the funds to its rights holders. The copyright collective has also filed similar, slightly higher tariff proposals covering subsequent years. The 22.A tariff ruling from the Copyright Board is now under question at the Supreme Court, which heard two related cases, Entertainment Software Association v. SOCAN (case No. 33921) and Rogers Communications et al. v. SOCAN (33922) together on Dec. 6. The communication right, applied to services like Apple Inc.'s iTunes, is a separate and additional royalty to the reproduction tariff paid to copyright collectives CMRRA/SODRAC. In 2007 the Copyright Board approved those rights societies to collect a tariff rate of 7.9 per cent of revenues from download purchases. The Wire Report estimated the value of the rights based on the number of song downloads purchased in Canada. According to data provided by Nielsen Soundscan, there were 67.9 million digital tracks sold in Canada in 2010. Assuming $1 per track in revenues, a levy of 3.1 per cent of sales would generate $2.1041 million in tariff fees for SOCAN for the year. At 67.9 million tracks sold, a 7.9 per cent levy for reproduction rights totals $5.36 million for CMRRA/SODRAC for the year. Anne Godbout, associate general counsel and director of legal services at SOCAN, said in an interview that the copyright collective's tariff collection revenues are confidential and that she had no comment on The Wire Report estimate. “We haven't distributed it yet,” she said. “We're waiting. As you know, we're before the Supreme Court on tariff 22.A and the communication right.” The Wire Report estimates do not include royalty payments from less popular streaming services, from which SOCAN is entitled to charge 6.8 per cent of revenues for the communication right. CMRRA/SODRAC also charges a percentage of revenues from streaming services, the amount of which is derived from a combined measurement of revenues and the number of song plays. The estimate also does not account for the purchase of entire albums on iTunes or other download services, for which the copyright collectives charge less. Itunes, which sells music tracks for about $1 each, is the largest online music retailer in Canada and North America. Since its debut, users worldwide have downloaded 16 billion music tracks from the service, which now offers a catalogue of 20 million songs, Tara Hendela, a spokeswoman for Apple, told The Wire Report by email. The purchase of music online is growing as the Supreme Court considers whether to uphold lower court and Copyright Board rulings that have supported the application of a communication right tariff. Data provided by Nielsen Soundscan shows that digital track sales in Canada have more than doubled since 2007, when they totalled 25.8 million tracks. Annual digital track sales were recorded as 40.7 million in 2008, 56.3 million in 2009 and 67.9 million in 2010, according to Nielsen. The data for 2011 is not yet available. At the Dec. 6 hearing, Supreme Court justices questioned SOCAN lawyers about the so-called “layering” of rights for new technologies and whether a third right should be applied to Internet downloads. The issue is whether purchasing a file online is “to communicate the work to the public by telecommunication” under the Copyright Act, which would give SOCAN the right to charge for downloads as a form of public performance. Several justices questioned whether the communication right is an additional, separate right of remuneration or whether it is “included” within the existing rights for performance and reproduction. “It's easy to understand that the , reproduction and performance go for different activities,” Justice Marie Deschamps said. “When we're looking at this case, the reproduction and the communication go for the same activity. That's why it would make sense to say it's included.” Chief Justice Beverley McLachlin pointed out that a consumer can purchase a CD in a music store without paying a communication right. She asked what happens if a consumer downloads a music track but never listens to the song. “I'm having difficulty seeing that difference, and having difficulty actually seeing how, if I buy the music on the Internet but don't listen to it, I still have a communication of the music. It's counter-intuitive to me, but you can keep working and maybe I'll get it,” Justice McLachlin said during a presentation to the court from a SOCAN lawyer. Supreme Court Justice Michael Moldaver also questioned whether communication should be a third right in addition to the rights to reproduce and perform. Lynne Watt, a partner with Gowling Lafleur Henderson LLP in Ottawa who is acting for SOCAN in the case, said at the hearing these are “separately compensable rights.” “It's a third right,” Watt said. “It started with radio communications, because the public performance right, when these acts were first written, that's all there was. There was the band show public performance right ... It's not just performance anymore.” The Conservative government's proposed Bill C-11, an omnibus copyright reform bill, would resolve the issue with a new “making available right” for the distribution of works online, which would effectively legislate a communication right. One source familiar with the bill said if the Supreme Court quashes the communication right by overturning the Copyright Board and lower court decisions, C-11 as drafted would “put us back to a situation where all Internet transmissions are subject to the communication rights.” sdoyle@thewirereport.ca

Reproduction, communications royalties for song downloads total $7.5M annually: Estimate

Broadcast | January 3, 2012

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