A New Report by C.D. Howe Says Canadian Music Is Undervalued

Posted on
February 23, 2015
Tagged as
c.d. howe institute, CIMA News, copyright, copyright board of canada, economic analysis, policy, research



The C.D. Howe Institute, an independent not-for-profit research institute that specializes in economic policy, has just published a report on copyright that is of interest in rights holders in the music industry.

Entitled "The Value of Copyrights In Recorded Music: Terrestrial Radio and Beyond" and written by respected economist Marcel Boyer, this report examines the issue of how to properly value intellectual property, and consequently, determines that royalties for the use of recorded music should be at least 2.5 times higher than the current payout.

How does he determine this?

Boyer proposes that the most equitable way to determine the true economic value of recorded music is through finding the marginal value of recorded music content. To calculate this proxy for market value, he assesses how music is valued by players in the terrestrial radio industry.

Without delving too far into the economic theory behind this, the marginal value of recorded music content is essentially the point where the value of the last minute of talk content equals the value of the last minute of music content.

What does this mean for Canada?

He applies his economic theory to the Canadian context. Using existing research to determine the marginal value of recorded music, he finds that the current terrestrial radio system in Canada has a 60/40 split in the music:talk ratio, and that talk content takes up about 18.3% of total revenues. You can extrapolate from that number that music should therefore be 18.3% x 1.5 (the 60/40 ratio) for a total of 27.5% of revenues.

Based on the revenues grossed by terrestrial radio in 2012, Boyer asserts that 27.5% of these revenues would mean that copyright holders would have received $440 million. This $440 million figure is 2.5x higher than what was actually received in 2012 ($178 million).

He suggests that a fair and equitable valuation of recorded music would use this kind of calculation, while the technological differences between terrestrial radio would mean that it would be better to use a per-play rate, which comes out to 0.316 cents per play. 

In other words...

Boyer's analysis suggests 3 major findings:

  1. The Copyright Board's approach to determining the competitive value of copyrights in the commercial radio industry is wrong, and thus under-compensating rights holders. Boyer's research says the actual royalty payouts should be 2.5x higher than what they are now.
  2. When the board uses the erroneous calculation referenced in point 1 for other services (i.e. Internet webcasting), this systemic underpayment is then extended to other emerging industries, compounding the problem further.
  3. His final finding is that by failing to recognize the fundamental technological differences between terrestrial radio and these emerging technologies, both parties are negatively impacted.

Why does this matter for CIMA members?

CIMA supports artists and rightsholders receiving fair compensation for the use of their music, whether that music is used on terrestrial radio or through new, emerging services. This should come as no surprise, as CIMA has consistently lobbied on behalf of its members and the broader industry with regards to issues surrounding copyright protection and fair compensation. Most recently, CIMA was a member of the I Stand For Music coalition that mobilized in support of Re:Sound's application for judicial review of Tariff 8.


To check out the full-report, please click here: http://www.cdhowe.org/pdf/Commentary_419.pdf

Marcel Boyer has a piece in the Globe & Mail summarizing his research: click here to read.

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