Canadian music publishers and record labels at odds over proposed tariff

Canada’s music publishers and record labels are at odds over a surprise filing by the Canadian Musical Reproduction Rights Agency (CMRRA) that would slap a hefty fee on digitally downloaded music and streaming music services. On May 1, the Canadian Recording Industry Association (CRIA) discovered that after months of negotiations toward a settled rate, CMRRA and its Quebec counterpart the Société du droit de reproduction des auteurs, compositeurs et éditeurs au Canada Inc. (SODRAC) had proposed a tariff with the Copyright Board of Canada for music reproduction rates that includes a suggested $0.10 per track or 15% of gross revenue - whichever is greater - levy on permanent music downloads. The proposal also includes a royalty of 7.5% of gross revenue or $0.75 per subscriber for online music services offering on-demand music streams, or 10% of gross revenue or $1 per subscriber for services that also offer limited downloads in addition to streaming services. The royalty proposal would authorize online music buyers to reproduce works for their own private use, but not to use the tunes in re-mixes or to share the files. The filing, says CRIA president Brian Robertson, came without warning to the association, which represents the five major music labels in Canada. He was guarded in his comments when contacted by Canadian NEW MEDIA, and would not say whether the association plans to object to the proposed tariffs. He did say, however, that the industry will have to treat royalty rates for online music services carefully since the business model is still unproven. Copyright holders would be advised, he says, to tread carefully since profit margins in the business are small. "I don’t believe that it is a process that you can exploit. There is a fragility there." On the other side of the issue, CMRRA president David Basskin says the two sides were too far apart in their proposed rates, and that a Copyright Board hearing will be the fairest way to settle the issue and allow multiple stakeholders to make their case for a fair rate. The dispute occurs in the context of an October 2003 agreement between the labels and music publishers that created a framework for offering music on the Internet. While critics have long scoffed at efforts by the music industry to create a legal alternative to file-sharing and offer music online, the labels and copyright holders have had to struggle with a Byzantine system of copyright and contract law that sees the entire catalog of published music made prior to the late 1990s subject to contracts that never foresaw the need to license digital uses. For years, the industry has been working to secure those rights, and last year the work paid off with a framework agreement by which online services could offer music on terms with which copyright holders were comfortable. The framework agreement led ultimately to the launch of Puretracks.com by Moontaxi Media Inc., and has also been signed by Napster and MusicNet. Uncertainty has remained, however, since the agreement was drafted without an agreed-upon rate at which copyright holders would be paid. The original October 2003 agreement was to have been in place for one year, during which time the price tag would be worked out, with a provision for commercial arbitration should there be an impasse on the royalty rate. Since that agreement was signed, Napster has confirmed that it will enter the Canadian marketplace, and larger players including Apple Corp. (iTunes) and Wal-Mart are widely expected to join the fray. Puretracks and Archambault Music combined have sold about a million tracks, and the proposed tariff will have a multi-million dollar effect on the marketplace. MusicNet representatives are directing media queries to CRIA, and Napster has not responded to requests for comment. Moontaxi president Alistair Mitchell says he has no plans to object to the proposed tariff, and won’t say whether the rate is acceptable or would boost the price of tracks outside the $0.88-$0.99 per track that consumers have come to expect. Careful with his comments, Mitchell says his company will do its best to help the board understand the economics of selling music online. The company counts on both labels and publishers as partners in their business, he notes, and Mitchell will say only that the new tariff proposal is the beginning of a "healthy dialogue" on pricing. "We’re very sensitive to making sure that we meet the needs of publishers," he says. It is too hypothetical to say what effect the proposed rate would have on the company’s pricing, he says. Basskin tells CNM that he is willing to honour the original agreement and submit the dispute to commercial arbitration if the labels wish to go that route, but that CMRRA will pursue a hearing at the board no matter whether that goes forward or not. Echoing Robertson’s assertion that the online music market is crucial to the future viability of the music industry, Basskin says this first round of negotiation will be critical. "We want a process that everyone can take part in," he says, noting the French and English nature of board hearings, and their openness to participation by multiple interested parties. "Having this aired in public puts an end to any perception of a put-up job," he says. A Copyright Board hearing won’t occur until sometime in 2005. There is no indication of what the labels represented by CRIA were starting with as a proposed rate, but Basskin says it was one of the lowest being discussed in any of the countries where similar negotiations are taking place, and that the difference between what it and the CMRRA are proposing is too great to hammer out a mutually acceptable rate. Basskin says that whatever rate arrived at by the Copyright Board will be in place for three years, during which time the CMRRA and other stakeholders will watch to see how the business unfolds. The agency considers the rate to be fair at this point in time, he says, and believes it can make its case before the board. "We don’t play the game of shoot for the moon then settle for what we can," he says when asked how flexible the CMRRA will be when the issue comes to a hearing. "It’s my firm belief that we can make the case we’ve proposed." He says a board process will ensure a full disclosure of the pertinent metrics that can be used to set a fair rate. "(The labels) don’t run around opening their books to the world without a good reason." Universal Music Group Canadian executive Graham Henderson says, however, that the rate being proposed is grossly unfair. He won’t say what rate the labels were seeking, but notes that their proposal was in line with that being proposed around the world. "I can’t comment on a matter that is the subject of a private arbitration. But hypothetically, any rate proposal that we would or would not make would in any case have been consonant with rates under active consideration by publishers in virtually every other territory in the world." The rates under discussion have generally been around 8% of wholesale, roughly $0.06 cents of retail at the $0.99 per track price point that has been common. Henderson argues that the CMRRA proposal is being made in tandem with the Society of Composers, Authors and Music Publishers of Canada (SOCAN)’s proposal for a blanket licence on ISPs that would further add to the price of songs communicated to the public that would go to many of the same rightsholders. "It’s nothing short of outrageous," he says, arguing that communication and reproduction royalties - if SOCAN wins its Tariff 22 case, could amount to a 25% levy on songs. Henderson says that the labels have put in excess of a billion dollars worldwide into new infrastructure without a corresponding investment by the publishers that would justify as a high a rate as is being proposed.

Canadian music publishers and record labels at odds over proposed tariff

Broadcast | May 14, 2004

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