[IP] Canadian Collectives Demand iTunes Tariff
------- Original message -------
From: Michael Geist <mgeist@xxxxxxxxx>
Sent: 18/4/'05, 6:47
Dave,
Of possible interest to IP -- my regular Law Bytes column (posted below)
reports that SOCAN, a leading Canadian copyright collective, recently filed an
applicat
ion that targets all websites that communicate music to the public. The tariff
proposal calls for payment of an astonishing 25 percent of gross revenue for mus
ic download services and 15 percent for webcasters. When combined with other
tariff proposals, Canada's collectives are seeking at least 40 percent of gross
re
venues from music download services, representing a far greater threat to the
business model than peer-to-peer file sharing.
Freely available, hyperlinked version of the column at
http://www.michaelgeist.ca/resc/html_bkup/april182005.html
Toronto Star version at
<http://geistitunestariff.notlong.com>
MG
Michael Geist
April 18, 2005
THE REAL THREAT TO THE MUSIC DOWNLOAD MARKET
The Canadian Recording Industry Association's (CRIA) legal campaign against
music file sharing heads back to court later this week. A three judge panel
will he
ar an appeal of last spring's decision that denied a request for identifying
information on 29 alleged file sharers due to insufficient evidence, privacy
concer
ns, and doubts about proof of infringement under Canadian copyright law. CRIA
is likely to use the hearing to again argue that peer-to-peer file sharing is
hur
ting Canadian artists and the industry, which at long last is seeking to
develop fee-based alternatives such as Apple iTunes, Napster, and Puretracks.
Despite all the rhetoric, there remains much doubt about whether peer-to-peer
is really responsible for declining sales. The industry's own numbers suggest
oth
erwise since the popularity of DVDs, changes in the retail distribution of
music, and reduced retail pricing on CDs have all played significant roles in
the ind
ustry's self-proclaimed woes (which themselves are not so woeful with sales
increasing by more than 10 percent in the six months following the federal
court dec
ision last year).
Moreover, there is little doubt that Canadian artists' royalty losses have been
offset by the private copying levy system. The Canadian Private Copying Collect
ive has collected approximately $120 million over the past five years with much
of that revenue earmarked for Canadian artists.
While CRIA has argued that the private copying levy was not intended to cover
music downloading those claims ring hollow in light of recent statements and
colle
ction practices. Last month, the industry acknowledged to the U.S. Supreme
Court that users have the right to copy their CDs in order to listen to the
same son
gs on devices such as the Apple iPod. Given that $30 million was collected
from Canadians last year, it must surely have been paid for something other
than act
ivities already permitted under the law.
In fact, the real threat to fee-based alternatives in Canada does not come from
the peer-to-peer systems. Rather, Canada's copyright collectives are poised to
kill the nascent industry by demanding the creation of a new iTunes tariff that
would require music download services to surrender at least 40 percent of their
revenues to the collectives.
The Society of Music Composers, Authors, and Publishers (SOCAN) recently filed
a revised Tariff 22 proposal that directly targets music download and streaming
s
ites. SOCAN had previously focused Tariff 22 on Internet service providers.
That led to a lengthy legal battle that culminated last year with the Supreme
Cour
t of Canada's ruling that ISPs should be treated like common carriers who
rarely face liability for the transmission of data on their networks.
In search of a new deep pocket, SOCAN has reformulated Tariff 22 by targeting
websites that communicate music to the public. The largest tariff - an
astonishin
g 25 percent of gross revenue - is reserved for sites or services that permit
users to select, listen to, or reproduce music for later listening (ie. music
down
load services). By comparison, the top SOCAN tariff for commercial radio
stations in Canada is currently 3.2 percent of gross revenue.
SOCAN's proposal does not stop with music download services. The new Tariff 22
also calls for a tariff of 15 percent of gross revenues from both audio webcast
s
ites that feature content similar to conventional radio stations as well as
from established radio stations that webcast their signal. Moreover, gaming
sites t
hat communicate musical works as part of their games face a potential tariff of
ten percent of gross revenues. In fact, to ensure that no one escapes Tariff 22
, SOCAN envisions a tariff of ten percent of gross revenues for all other sites
that communicate music.
If this SOCAN proposal were not damaging enough, it does not stand alone.
SODRAC, a Quebec-based collective, has teamed up with the Canadian Musical
Reproducti
on Rights Agency (CMRRA) to propose a pair of new tariffs to cover the
reproduction rights associated with online music. The SODRAC/CMRRA proposals
demand the
greater of either 15 percent of gross revenues or ten cents per permanent
download. Webcasters would also be hit with a minimum tariff of five percent
of gross
revenues.
Incredibly, the 40 percent of gross revenues envisioned by these tariffs may
not cover all the rights associated with commercial music download services.
It re
mains possible that other groups, including collectives representing music
performers and producers, may come forward to demand their share of
compensation by f
urther cutting into online music services' revenues.
Although the tariff proposals are not final - the Copyright Board of Canada
will set the ultimate tariff after conducting hearings that are certain to
attract f
ierce opposition - the starting point for discussion is discouraging since this
short-sighted cash grab fails to recognize that a smaller share of a larger pie
may often be better than a large share of a small pie.
In the U.S., large collectives such as ASCAP and BMI have struck more
reasonable deals for webcasting royalties. BMI expects to collect US$400 in
2005 from eac
h local radio station that webcasts its signal, while ASCAP has built the
webcasting right into its existing over-the-air royalty structure.
The Canadian Independent Record Production Association (CIRPA) has pegged the
value of the Canadian market for music downloads at $100 million. While the
estab
lished players have negotiated agreements with the record labels, the future
growth of the industry depends upon the development of an economically viable
model
. The true threat to that future does not come from peer-to-peer downloads
that is already subject to compensation through the private copying levy but
rather
from collectives that seem determined to receive a very large share of a very
tiny market.
-- **********************************************************************
Professor Michael A. Geist
Canada Research Chair in Internet and E-commerce Law
University of Ottawa Law School, Common Law Section
57 Louis Pasteur St., Ottawa, Ontario, K1N 6N5
Tel: 613-562-5800, x3319 Fax: 613-562-5124
mgeist@xxxxxxxxx http://www.michaelgeist.ca
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