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Tariff 8 Q & A

On May 16, 2014, the Copyright Board of Canada issued its decision setting rates for Re:Sound’s Tariff 8 – Non-Interactive & Semi-Interactive Webcasts, 2009-2012.  Tariff 8 sets the royalty rates that music streaming services must pay to Re:Sound to play sound recordings.  Tariff 8 does not apply to the use of musical compositions, which are subject to separate tariffs administered by Society of Composers, Authors and Music Publishers of Canada (SOCAN) and CMRRA/SODRAC (CSI).

Since the Board’s decision, 78 music industry associations and labels, led by Music Canada, CIMA, ADISQ and Canadian Council of Music Industry Associations (CCMIA), have joined together to form “I Stand for Music”, a coalition that continues to raise public awareness about the disastrous effects of the Tariff 8 ruling.  For those who are interested in exploring the issue further, here are some questions and answers to help you dig deeper.

 

QUESTION How does the Tariff 8 decision “impoverish” artists? Isn’t Tariff 8 just one revenue source for artists? Don’t artists benefit from royalties they receive from a number of copyright collectives?
ANSWER For these types of services (Songza, CBC Music etc.) Tariff 8 income is the only guaranteed source of income for an artist (performer). It is only in cases where the performer is also the composer that additional royalties may come from CMRRA/SODRAC (CSI) or SOCAN.The reality in the market is that sales of CDs and even downloads are declining, while music streaming is on the rise.   That’s why it is so important that artists are fairly compensated for their work in the context of web-based services.

 

QUESTION Isn’t it unfair to assert that artists will make less than 10% of their international counterparts such as in the U.S. because of Tariff 8? Aren’t there many additional fees available to artists in Canada that are not available in the United States?
ANSWER In a comparison of the rates payable for the same rights for the same activities (non-interactive and semi-interactive streaming of sound recordings) the rates certified for Canada are less than 10% of those payable internationally.

 

QUESTION Doesn’t it stand to reason that Tariff 8 would be lower than the U.S. equivalent since the Canadian repertoire during that period was about half as large as the U.S. one?
ANSWER Even were the rates certified by the Canadian Copyright Board doubled they would still be less than 20% of international rates for the same rights. But even more to the point: Re:Sound negotiated commercial deals with digital services doing business in Canada during the period. These agreements indicate precisely the marketplace value of the rights in question in Canada. The negotiated rates were submitted to the Board to demonstrate what the rates are and ought to be in Canada. The Tariff 8 rate represents about 10% of the Canadian marketplace rates.

 

QUESTION Isn’t internet streaming just like radio?   Doesn’t it make sense that the Board certified a rate for music streaming based on the commercial radio rate?In fact, shouldn’t a spin on the radio be considered more economically valuable than a “stream” by one consumer, since a spin may reach hundreds of thousands of listeners simultaneously?
ANSWER Comparing broadcast radio spins to digital service streams is comparing apples to oranges. Setting streaming rates based on the rates payable for over-the-air commercial radio broadcasts ignores the much greater value streaming services derive from recorded music. Streaming services offer a variety of genres and sub-genres of music not available on radio, which can be customized to individual preferences and accessible anywhere at any time through mobile devices. With their ability to substitute for, and cannibalize music sales, streaming services are far more comparable to on-demand streaming and download services than terrestrial radio.

 

QUESTION Isn’t it true that the Board’s decision will pave the way for new online music services to enter the Canadian market and result in more choices for consumers?
ANSWER There are many reasons why digital services may or may not have entered the Canadian market including uncertainty regarding rates. Given the extreme discrepancy between the Tariff 8 rate and international standards, and knowing it applies to a period of time that has already ended and that it may be years before the rate for the current period is known, the Copyright Board decision does not erase the uncertainty that has clouded the Canadian market.

 

QUESTION Doesn’t the Copyright Board’s Tariff 8 decision simply establish that the relative values of the rights of creators and their publishers on the one hand (“authors’ rights”), and of the record companies and performers on the other hand (“neighboring rights”), are generally equal and should be treated as such?
ANSWER The Copyright Board rejected marketplace rates, throwing out years of precedential agreement and North American precedents. They did this because the “authors’ rights”, i.e. SOCAN rates, were so low they conflicted with marketplace rates freely negotiated in Canada (and equivalent to those in the U.S. and around the world) for artists and the music companies that invest in their careers. If the Board were to certify Re:Sound’s suggested rates for Tariff 8 royalties, they would have to raise SOCAN rates by 90%. Since they were not prepared to address the issue of low SOCAN rates, they devalued the rights of record companies and performers to bring everyone down to the lowest common denominator.

 

QUESTION As online streaming services become more established, build their paid subscriber bases and generate more ad revenue from free subscriptions, doesn’t it make sense that compensation to rights holders would increase as the economics metrics for their businesses improve?
ANSWER The Tariff 8 rate places such a low value to a stream in Canada it may very well have an impact on the international standard as music companies in other jurisdictions argue that they should pay 90% less for content. This race to the bottom will only further devalue music. Even as the digital services companies become more economically viable, it does not stand to reason that devaluing the streams will lead to fair compensation for rights holders later. Tariff 8 was an opportunity to certify that music in Canada has the same value as music in the United States and elsewhere around the world. Even royalty rates in the United States – which are 90% higher – are hotly contested as musicians, including songwriters, fight for fairer compensation. With Tariff 8 rates set at 10% of a standard that is already considered to be far too low, it will make it even harder for Canadian musicians to make a living and to thrive internationally while digital music companies continue to grow and flourish.

 

 

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