5 Things You Need To Know About The Copyright Board of Canada’s Ruling On Digital Streaming Services

On Friday May 16, just before the long weekend, the Copyright Board of Canada made a long-awaited ruling on the royalties that digital streaming services would be expected to pay to rights holders. The resulting tariff, Re:Sound Tariff 8 – Non-Interactive and Semi-Interactive Webcasts, 2009-2012, was the Board’s response to the statements filed by Re:Sound Music Licensing Company, the private Canadian, not-for-profit collective society authorized under the Copyright Act to administer the performance rights of both performers and record labels in their sound recordings, back in 2008 and 2011.

As an FYI, the Copyright Board is an economic regulatory body empowered to establish, either mandatorily or at the request of an interested party, the royalties to be paid for the use of copyrighted works, when the administration of such copyright is entrusted to a collective-administration society. The Board also has the right to supervise agreements between users and licensing bodies and issues licences when the copyright owner cannot be located. [Copyright Board Mandate]. It’s important to note that the Copyright Board sets rates based on what it considers to be “fair” as opposed to using market rates as benchmarks.

So yes, it did take a long time for the Board to render its ruling – which is unfortunately the norm in these cases. This is partially what experts believe is responsible for the slow growth of streaming services within Canada – while streaming services are able to sign interim agreements with Re:Sound to enter the Canadian market, some (Pandora, most notably) have opted to wait for the Copyright Board to set rates to get a certain level of cost certainty to their business operations.

The contents of Tariff 8 are important for music companies and artists alike – so here’s a rundown of the 5 things you need to know:

1.       What type of activities does this ruling cover?

Re:Sound Tariff 8 covers a series of activities, specifically the following:

  • Non-interactive webcasting by commercial webcasters and the CBC. Non-interactive webcasts refer to any audio streaming that the user doesn’t exercise any control over the content or timing. A good example would be any sort of Internet radio – i.e. Pandora.
  • Semi-interactive webcasting by commercial webcasters and the CBC. Semi-interactive webcasts are those in which the recipient has some level of control over timing or content. An example would be Songza, where you can skip, pause and change playlists.
  • All webcasting activities that are undertaken by non-commercial webcasters.

It’s also important to note that this ruling is backdated – since the original statement was filed back in 2008, Re:Sound is now entitled to collect any royalties from any of the above activities starting on January 1, 2009.

 

2.       What were the rates certified by the Copyright Board?

In the May 16 decision, the Board outlined the following tariffs:

CBC

  • Webcast
  • Minimum Fee

 

  • 13.1¢ per 1,000 plays
  • $100 per year

Commercial Webcaster

  • Webcast
  • Minimum Fee

 

  • 10.2¢ per 1,000 plays
  • $100 per year

Non-commercial webcaster

  • Minimum Fee

 

  • 25$ per year

 

These rates are determined following a consultation process, both with Re:Sound (who presented their own suggested tariff rates) as well as the objectors. These included representatives from Pandora, NCRA, CAB, Quebecor, Shaw and Rogers, among others. The hearing took place over a 10-day period in 2012.

Interestingly, the Board noted that their per-play rates (as listed above) came closer to what was proposed by the music services rather than what was proposed by Re:Sound (Source: News Release, Copyright Board of Canada). In their news release, Gilles McDougall (Secretary General of the Board) stated that “I believe that royalties to be paid in respect of the tariff set today are fair and equitable for both the users and the copyright owners. These royalty rates will not be an impediment for webcasters to do business in Canada”.

Furthermore, the rates are less than 10% of the rates already negotiated by Re:Sound in its direct agreements with streaming services that already operate in Canada, and less than 10% of the rate used in the US. The Copyright Board rejected the use of American market rates as relevant benchmarks, choosing instead to base their rights on what the commercial webcasters suggested (in addition to fundamentally misunderstanding the differences between terrestrial radio and webcasting).

3.       What was Re:Sound suggesting in terms of royalty rates?

According to the Copyright Board’s documentation, Re:Sound was suggesting a per-play tariff of $1.00 – $2.30 per 1,000 plays. This is closer to the rate currently paid out by these services in the United States as set out by the Copyright Royalty Board ($1.10 per 1,000 plays) – which Re:Sound argues is the market rate.

In their own press release, Re:Sound’s President Ian MacKay offered the following quote. “We are disappointed that the rates certified by the Board do not reflect market rates in Canada and are a small fraction of the rates payable by the same services in the U.S. While the rates are low, the fact that they are based on a per play formula ensures that rights holders are compensated for each and every use of their music, regardless of the business model of the particular service”.

4.       What does this mean for commercial webcasters in financial terms?

The decision also provided an estimate of what this decision would mean financially for commercial webcasters, and gave an idea of what kind of royalty payments Re:Sound can expect to receive.

  • For very-large webcasters (i.e. Pandora): At about 3,000 million plays per year that gross about $5,800,000 in revenues annually, they can expect to pay out about $306,000 in estimated annual royalties.
  • For large webcasters (i.e Songza): At about 70 million plays/year and that gross about $130,000 annually, they will be looking at paying out about $7,140 per year.
  • The CBC, for its part, is looking at approximately $36,000 annually in royalties.
  • McDougall estimated that Re:Sound can expect to receive approximately $500,000 annually from this newly instated tariff.

 

 5. What does this really mean?

It means that Canada has set one of the lowest rates for music streaming in the world! This decision is a major setback for artists, and the labels who support them. To put the numbers into perspective:

  • An artist would need 12,647 plays to be able to purchase their own song on iTunes.
  • Want a TTC metropass? You’ll need 1.3 million plays to buy one!
  • A tank of gas to be able to go on tour? Your song will need to be streamed 588,420 times.

All numbers were obtained courtesy of Music Canada via the I Stand For Music Facebook Page.

 

 Read more on the Copyright Board of Canada’s website:

Fact Sheet

Tariff

Decision