[Politech] Canadian music industry groups demand iPod taxes [ip]

From: Declan McCullagh (declan@private)
Date: Wed Apr 20 2005 - 19:18:37 PDT


-------- Original Message --------
Subject: 	Canadian Collectives Demand iTunes Tariff
Date: 	Mon, 18 Apr 2005 06:47:28 -0400
From: 	Michael Geist <mgeist@private>
To: 	declan@private



Declan,

Of possible interest to Politech -- my regular Law Bytes column (posted
below) reports that SOCAN, a leading Canadian copyright collective,
recently filed an application 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 music download services and
15 percent for webcasters.  When combined with other tariff proposals,
Canada's collectives are seeking at least 40 percent of gross revenues
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 hear an appeal of last spring's decision that denied a
request for identifying information on 29 alleged file sharers due to
insufficient evidence, privacy concerns, 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 hurting
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 otherwise 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 industry'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 decision 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 Collective 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 collection 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 songs 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 activities
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 sites.  SOCAN had previously focused Tariff 22 on Internet
service providers.  That led to a lengthy legal battle that culminated
last year with the Supreme Court 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 astonishing 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 download 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 sites that feature content similar to conventional
radio stations as well as from established radio stations that webcast
their signal.  Moreover, gaming sites that 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 Reproduction 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 remains possible that other groups, including collectives
representing music performers and producers, may come forward to demand
their share of compensation by further 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 fierce 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 each 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 established 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@private              http://www.michaelgeist.ca
_______________________________________________
Politech mailing list
Archived at http://www.politechbot.com/
Moderated by Declan McCullagh (http://www.mccullagh.org/)



This archive was generated by hypermail 2.1.3 : Wed Apr 20 2005 - 20:00:47 PDT