Music rightsholders, service providers tackle tariff rates at Copyright Board

Royalty rates and how they might apply to music-streaming services—including those that have yet to come to Canada—are poised to be a significant part of hearings at the Copyright Board of Canada over the next two weeks. On Tuesday, the board heard opening arguments from lawyers representing those that create and hold rights to music, as well as from lawyers representing Apple Inc. and Pandora Media Inc., which indicated they are considering launching their streaming music services in Canada. Lynne Watt, a lawyer with Gowlings, who spoke on behalf of the Society of Composers, Authors and Music Publishers of Canada (SOCAN), said the proliferation in recent years of networks and devices that can facilitate Internet-based music streams has increased the value of the music used on such services. “When the board was first looking at these things—streaming, for example in 2006 and 2007 in the first CSI and SOCAN hearing—we were talking only about computers. … But now we’re talking about mobile phones and tablets,” she said. “And there’s also this whole host of Internet appliances that are capable of streaming music—Internet TV such as Apple TV, game consoles, Internet radio in cars, and now with the ability of Bluetooth technology to sort of broadcast from your iPhone or your iPod to stream music and broadcast it around your house or in your car or on the dock at the cottage.” The Society of Composers, Authors and Music Publishers of Canada (SOCAN) says on its website that it “represents of the Canadian performance rights of millions of Canadian and international music creators and publishers.” Watt said SOCAN is looking for is looking for tariffs on “fully interactive and semi-interactive streams” of 8.6 per cent, up from 7.6 per cent currently. “Interactive” services allow listeners to choose their materials, as opposed to “non-interactive” webcasting services, meaning those that provide content which can’t be specifically selected by listeners. Casey Chisick, Toronto a lawyer with Cassels Brock, spoke for CSI, a joint venture of the Canadian Musical Reproduction Rights Agency (CMRRA) and the Society for Reproduction Rights of Authors, Composers and Publishers in Canada (SODRAC). CSI says on its website that they “represent the vast majority of songwriters and publishers who’s music is active in the Canadian marketplace.” CSI proposed that “non-interactive” webscasters should pay 3.24 per cent of their revenues from their services to CSI, with a per play rate of 0.22 cents. He said “interactive” services should pay a tariff of 4.5 per cent, plus a per play rate of 0.42 cents. “A further adjustment is necessary, we say, to reflect the value of the interactivity itself,” Chisick said. He said the per-play rates were important due to service providers that “rely heavily on ad-supported models and simply don’t generate enough revenue to lead to fair and equitable royalty payments to rightsholders. So without per-play rates, rightsholders would effectively be subsidizing inefficient business models that generate very little revenue.” David Kent, a Toronto-based lawyer with McMillian representing Pandora—which had a music streaming service in Canada up until the mid-2000s—said there has to be careful consideration on how tariffs apply to different levels of interactivity in music services. Kent said the services Pandora offers were being categorized by SOCAN as “interactive,” while it more accurately should be described as “semi-interactive.” “A consumer cannot access on a service like Pandora a given song at the time chosen by the consumer,” he said. Kent said the current tariff to SOCAN for online streaming services is 5.3 per cent, a level Pandora wants to remain in place. “SOCAN complains that Pandora seeks to reduce the tariff from 7.6 per cent to 5.3,” he said. Describing his discovery of this SOCAN position, Kent added: “I think I broke a pencil at that point, saying ‘What the heck?’ or words to that effect. Where did the 7.6 come from? How is it that we’re asking for a reduction? When I dug in, I realized the old on-demand rate was 7.6 per cent. But the old webscasting rate for not on-demand, for semi-interactive, is 5.3 per cent. This is what happens if you stop paying attention to the distinctions between the uses.” Michael Koch, a Toronto-based lawyer with Goodmans, spoke on behalf of Apple, which he said is studying the feasibility of bringing iTunes Radio to Canada. He said Apple is also supportive of a 5.3 per cent tariff for SOCAN on such a service, and a 1.7 per cent tariff for CSI. He said those rates use commercial radio tariffs as a baseline and add 25 per cent to take into account the added value of an all-music format over a combination of talk and music. He said iTunes radio is “not an on-demand service nor is it fully interactive. A customer cannot determine what song she listens to or when. Semi-interactive is a more appropriate characterization of this service.” Consumers would be best served by “a competitive market that encourages multiple new entrants who offer listeners more choice and better, more innovative offerings,” Koch added. “Rather than requiring online music services to pay significantly more than sellers of physical CDs or commercial radio undertakings for the bundle of rights required from composers, authors and publishers, market efficiency should be maximized,” he said, “to encourage appropriate incentives for investment and innovation in the Canadian online music industry.” The hearings are scheduled until Nov. 28, and the Copyright Board is expected to issue a decision six to 12 months later. —With reporting by Derek Abma at dabma@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Music rightsholders, service providers tackle tariff rates at Copyright Board

Broadcast | November 19, 2013

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