Apple, Pandora challenge SOCAN on streaming tariffs

OTTAWA — Lawyers representing two streaming music services told the Copyright Board of Canada in hearings this week that a request from the not-for-profit group that represents Canadian songwriters and music publishers to increase usage fees is too much to ask. The dispute that pits streaming music providers Pandora Media Inc. and Apple Inc. against the Society of Composers, Authors and Music Publishers of Canada (SOCAN) boils down to how the online music services should be defined and thus how their monthly royalty fee will be determined. SOCAN told the hearing on Monday that services like Pandora streaming music service, which was available in Canada until 2007, and Apple’s iTunes Radio, which launched in the United States in 2013 yet remains unavailable north of the border, should pay a tariff similar to the current rate for on-demand online streaming. In fact, SOCAN’s lawyer told the hearing that the monthly tariff, set in 2006 before the advent of many of the most popular online streaming music services, should be raised to 8.6 per cent from 7.6 per cent. Lawyers for the streaming services argued that Apple’s and Pandora’s services, which create playlists based on a user’s choice of genre, artist or song, are “semi-interactive” and thus do not meet the “fully interactive” criteria for on-demand streaming needed to pay the higher rate. The companies claim their services should be charged under Tariff 22.F, which sets a licence fee of 5.3 per cent for audio websites that use 80 per cent or more of SOCAN’s repertoire. They told the hearing that the tariff rate for online music services should be similar to that for commercial radio stations that stream online, 4.2 per cent per month, with a small adjustment to reflect the increased amount of music played on announcer-free online streams versus radio stations. The streaming services said they had shown that such an adjustment would end up with the 5.3 per cent already applicable under the current 22.F rules. The hearing, which took place over Monday and Tuesday before the three members of the Copyright Board, was for oral arguments on the issue of online music services, the final step before the Copyright Board makes its decision. Opening arguments were heard in November, and during the process the board called on experts to give evidence about the technical aspects of these streaming services as well as the economic and legal basis for the tariffs. Lynne Watt, a lawyer with Gowlings representing SOCAN, said Tariff 22.F, which covers audio websites, was not intended to apply to a platform like Pandora, and that such streaming services were not covered by that tariff as they did not exist when the tariff was discussed in hearings before it was decided in 2006. “Commercial radio is non-interactive,” she said. “It's SOCAN's submission that semi-interactive is more like on-demand than it is like passive, non-interactive.” The difference in tariffs, Watt said, was an “interactivity premium.” “ is precisely why SOCAN says that Tariff 22.F is not appropriate for a semi-interactive or a fully interactive service and why we submit that 8.6 is the correct rate,” she added. “That is because of the increased interactivity that the services, semi-interactive like Pandora or fully interactive like Rdio, offer. That's why SOCAN submits that those services should pay a higher rate.” David Kent, the lawyer who represented Pandora at the hearing, argued that Pandora was actually available in Canada in 2005 while Tariff 22.F was being discussed, and that as a semi-interactive service it should be covered by Tariff 22.F because it does not provide on-demand access to songs. “Pandora doesn't offer on-demand and it offers audio,” he said. “That's what 22.F is said to do by even SOCAN, and that's what it does.” Pandora withdrew the service from Canada in May 2007 due to uncertainty over royalty rates. Watt argued that raising the tariff to 8.6 per cent is necessary because there was no previous tariff for semi-interactive services until the group sought a recommended stream tariff for 2011. Kent said that SOCAN's move to divide online services into non-interactive, semi-interactive and on-demand was "just fine," yet the copyright group's assertion that no previous tariff existed was wrong. "It's by pretending the past away that you can say things like that," he said. "If you don't know where you've started, you're bound to get the analysis of where we're going wrong." Michael Koch, a Toronto-based lawyer with Goodmans representing Apple, said iTunes Radio service was designed to comply with the licensing rules for “non-interactive webcasting” in the United States but that its service could be deemed “semi-interactive” in the Copyright Board proceeding. Apple, as well as BCE Inc., Quebecor Inc. and Rogers Communications Inc., all support using the rates for commercial radio as a reference for online streaming services, according to Koch and Gerald Kerr-Wilson, who represented the three Canadian companies. Kerr-Wilson said that the entire tariff structure is too complex and makes it difficult for the companies he represents to comply. “The solution is not to certify tariffs within an ever-increasing number of narrowly defined subcategories of services trying to capture all the possible services that may launch,” he said. “In our submission, the best approach is to have broad, general categories that are open an flexible enough to accommodate innovative new features that might be rolled out.” The hearing concluded on Tuesday, with a decision expected in six months to a year. Another decision from the Copyright Board affecting tariffs paid for online music streaming is expected this Friday. The board is to rule on a proposal, called Tariff 8, by Re:Sound Music Licensing Co., a collective for Canadian music performers and recording companies, to receive royalties of 30 per cent on gross revenue or a fee of 0.22 cents per play, whichever is greater, on every Re:Sound licenced music file played via simulcast, non-interactive audio website or semi-interactive webcast. The collective has argued its proposal is necessary to support the music industry as music consumption migrates from CD purchasing and downloads to online streaming services. In 2012, Pandora told the Copyright Board it would not re-launch in Canada if it must pay royalties on a per-play rate, as proposed by Re:Sound. — With reporting by Peter Henderson at phenderson@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Apple, Pandora challenge SOCAN on streaming tariffs

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Apple, Pandora challenge SOCAN on streaming tariffs

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