CIMA Submission to National Digital Policy Consultations

CIMA Submission to National Digital Policy Consultations
The Canadian Music Industry in a Digital World by The Canadian Independent Music Association
July, 2010

Submission

  1. CIMA is the Canadian Independent Music Association, formerly CIRPA, which for over 30 years has represented the interests of Canada’s English language domestic music production companies. Today, CIMA has over 160 member companies including recording companies, music publishers, managers, agents and other music professionals from across the country.  CIMA is primarily concerned with the continued production and commercialization of English language Canadian music, and the support of the businesses and creative individuals who make Canada’s music production industry unique in the world.
  2. Canada produces some 2,000 new musical titles (albums in English) every year. This productivity has remained constant over the past several years, despite the substantial issues faced by the industry with the advent of wide-scale file sharing.  Canada has developed a system of regulated Canadian content requirements for radio, combined with financial supports mandated by the CRTC, to produce this outcome.  The Canadian system is much admired and often envied by other countries that did not have the foresight or political will to implement similar systems.
  3. Most of Canada’s current production (and most of the recent catalogue) of musical works has been digitized, and producers are aware of and are meeting the need to distribute their works throughout the world in digital form, with the correct formats to allow the tracking of sales and distribution.  This effort has been ongoing for some time, and is beginning to show results as Canadian companies collect on international sales.
  4. The digital age also brings with it a new means of promotion and a wide array of tools to encourage sales through creative marketing.  It allows immediate access to markets for new materials and makes worldwide distribution possible with considerably lower costs than in the physical world. It makes it possible for creators to connect in new and different ways with a much broader marketplace and therefore brings Canadian creativity to a new audience.  The Canadian music industry has been one of the first of the cultural sectors to embrace this new reality and use it to our competitive advantage worldwide.  The music industry has been one of the most innovative in developing a global marketing and distribution system, one where it is possible to sell Canadian content online in the newest and largest emerging marketplaces, like China and India and growing economies like Brazil and Korea.
  5. Canada also has an extremely well developed system for the payment of copyright obligations of all kinds to copyright owners.  These rights and royalties have been recognized and established by the Copyright Board over many years.  In the digital world, where materials are spread around the globe in a variety of environments, it is even more important to rights holders that they are paid.  It is critical that Canada pursue the collection of approved royalties not only in Canada, but in all countries where similar rights are recognized and ensure that Canadian copyright owners are properly compensated for the use of their works.  To extend this principle into digital space, several independent Canadian producers have formed the Independent Digital Licensing Agency to distribute materials to digital systems around the world and to ensure that royalties are collected on behalf of their clients.  In emerging markets, such as China, the reality is that such rights are not recognized, or if recognized, are not compensated.  And the physical markets in those countries are no more promising with China returning only $86 million in sales in the most recent data, half of which was from mobile sales.
  6. It is also important that Canada support the creation of collectives and other bodies in other countries to expand the collection of royalties.  Without such encouragement, large economic entities such as China and India may never remit on royalties owed.  We should also note that this could include the pending passage of the Performing Rights Act in the United States and expansion of rights and royalties into the EU.
  7. Despite this progress we are still hampered by widespread digital piracy in Canada both at the level of individual consumers and on a more organized basis from P2P sites which operate without restriction.  This has meant a precipitous decline in sales, which has been well-documented.  This decline has negatively impacted the ability of the domestic Canadian producers to create sufficient income to pay their debts and to reinvest in new materials and, most importantly, in Canadian musicians.  Some pundits have suggested that this is only an issue that affects the largest players in the international music industry, but this is a fallacy and a strategy that deflects attention from the Canadian situation.
  8. Although we are now being asked to submit comments on a digital policy, we are also in the midst of another debate on the merits and the prospects of Bill C-32.  In our view, we cannot proceed with any kind of national digital policy until we are quite clear what the final shape of Bill C-32 will be. The reasons for this are quite simple, and consistent with the public record and our approach to copyright reform.  Canada’s digital policy must address the development, sustenance and growth of domestic businesses in the digital world, both in Canada and through access to export markets.  Bill C-32 should contain the elements of copyright law that will make that possible.  Protection from piracy of all kinds, but particularly commercial piracy in the form of P2P sites, is one of the most important components of this.
  9. However, when we compare this bill with the Digital Britain initiative, we can see that it pales by comparison to the British example. Clearly, the UK recognizes that its cultural industries are engines of economic growth, and their protection is vital. Therefore, as we say, they have legislation with the “teeth” necessary to enforce their laws, including the possible disconnection of chronic infringers.  Some have objected that this ignores the rights of individuals to due process.  However, we would respond that the systematic hijacking of our creative content has ignored the rights of copyright owners and creators for over 10 years, and action is needed to address this situation.
  10. Canada’s digital policy must also recognize that Canada’s international trade in cultural goods and services is vital to the sector’s survival and that strong IP protection is a basis for establishing those reciprocal agreements that will allow and encourage international relationships.  New forms of distribution which will assist the recovery of the music market in Canada will not be started unless the developers are assured that in Canadian law their investments are protected from cannibalization.  The WPPT anticipated this when it included digital locks as protected copyright materials.  It is therefore critical that we settle the outstanding issue of Canada’s copyright laws, updating them to be WIPO and WPPT compliant, and ensure that our trading partners are aware of both our compliance and our willingness to act to protect intellectual property.  Recent experience in the negotiations with the European Union to establish a new trade relationship with Europe will require this level of compliance. It is in Canada’s best interest to structure our IP protection and policies to reflect international standards.
  11. Fair compensation to creators and rights holders for their work when used, copied or sold in digital form must be respected in any digital policy.  For example, if Canada is willing to allow an exception for format shifting in Bill C-32, then we should be prepared to compensate rights holders for their loss of that potential market.  The proposed extension of the Private Copying Levy to DAR’s does recognize that right.  The proposed lack of compensation in Bill C-32 does not.  Other countries, for example France, have managed to support both a vigorous private copying and copyright regime.  Canada could do the same.
  12. In Canada, we have always recognized that regulated services, which are granted regional or near-monopolies based on a controlled entry marketplace, then owe an obligation to the content providers for the use of their material.  Canada’s ISP’s have benefitted enormously from the ability of their customers to freely download illegally obtained material across their networks.  This has been acknowledged in many recent studies, such as those on which the Olivennes Commission in France based its recommendations for a three-strike graduated response in that county.  The content owners have received no compensation for this, as the ISP’s have reaped enormous profit.  The CRTC recently refused to take the appropriate steps to establish a fund to ensure that these unauthorized uses which underpin the success of the ISP’s would result in appropriate compensation.  Content creators who have lost substantial income (in the case of music, since the year 2000, the wholesale value of recorded music in Canada has declined by about 50%) due to this free-riding should be compensated commensurately.
  13. A corollary to the point directly above is the lack of innovation and support shown by Canadian ISP’s and other content distributors, and the lack of strong entrants in the digital distribution marketplace. This situation cannot be allowed to persist. The Canadian marketplace for digital musical content is about one half of that in the United States.  Where Britain and Germany have over 50 and 40 legal digital music download sites respectively, the Canadian number is less than half that, and many are simply white label copies of one another. And where mobility systems such as Nokia’s Comes with Music and many others proliferate outside of Canada, the Canadian market has been remarkably stagnant with respect to new entrants.
  14. So Canada fails on both domestic development of digital distribution services, and, we should add, in our collective support for access and commercialization of music in export markets. With respect to the latter particularly, as the Prime Minister recently noted, it is a “global economy”. We should add, a “global entertainment industry” with no lack of competition or new entrants, abetted by the new technologies. Where Canadians are well-prepared to sell in this marketplace, Federal support for the commercialization of cultural goods and services in export markets is declining.  It is a strange paradox, inasmuch as the official recognition of the importance of these markets is positive but there are fewer programs to support our activities.  Certainly, one area where all governments can assist creators is in supporting access to public/private capital resources (like VC funds supported by government) that allow our industries to invest in their infrastructure to compete globally. This goes beyond project support (which is still needed), and would allow long term investments to mature over several years as companies use those investments to enlarge their global presence.
  15. As we noted above, Canadian ISP’s are licensed to a controlled market where in reality only a limited number of entrants could survive and profit.  Certainly, this type of regulated oligopoly should come with obligations, similar to those which govern broadcasters.  The boundary between broadcasting and digital content distribution is no longer clear, but it is clear that ISP’s are not in any way held responsible for their “broadcast-like” activities, nor do they contribute to the sustenance of a content creation industry. This has been tolerated by regulatory agencies to the detriment of the content owners, as the latter have seen their materials widely distributed as the ISP’s expand their footprint across Canada.
  16. ISP’s in Canada charge some of the highest prices in the G20 according to recent studies by the OECD published on their website.  At the same time, the country has relatively high penetration, so income per population “connected” is amongst the highest as well.  Some have speculated that the high costs of connectivity mitigate against the sale of content, as consumers seem to think they have paid sufficiently for their connectivity with little benefit beyond e-mail, EXCEPT the pirated material they download.
  17. In the matter of net neutrality, it is our view that ISP’s cannot be allowed to independently manage their services without some form of regulatory control that will ensure that they act within rules that are developed in the interests of all users.  Network management occurs today. The ISP’s have the ability to determine what is flowing across their networks in what volumes and what content is “clogging the pipes”.  To some degree this could be beneficial.  Canada cannot allow the IP infrastructure to be overwhelmed by recreational users downloading terabytes of illegally copied cultural content.  Nor can we pretend that these networks have infinite capacity.  The internet is a national public resource.  As an outgrowth of the telecommunications and cable infrastructure, its development has benefitted from Canada’s unique public/private partnerships in the communications and broadcast sectors.  To that end, the Federal government has an obligation to assert its authority with respect to the use and development of the network, to ensure that it continues to service the maximum public benefit, including its many commercial applications.  This applies to network management practices which should be transparent and subject to approval at the Federal level.  ISP’s cannot be allowed to develop such practices independent of regulation and outside of public perusal.  With respect to managing network access as a method of collecting additional revenues for preferential treatment, we would suggest that the ISP’s first reduce their prices and broaden their services before they are allowed to even propose new profit centres based on preferential treatment.
  18. As Canada enters the digital age, we will require new skills to operate the new infrastructure. Already our companies are training employees in multiple skillsets to operate their digital tools.  For the last three years, CIMA has been an ongoing supporter of the Cultural Human Resources Council (CHRC), which has recently released a number of documents on going digital and the HR requirements inherent in the change.  We recommend that these documents be used as resources for this consultation and in particular we refer to the “Technology Roadmap for Digital Media Content Creation” as an excellent resource.

For more information please see The Digital Economy in Canada