Copyright Board of Canada Defends ‘World’s Lowest Royalty Rate’: “Maybe it’s too high. I don’t know.”

Are you even allowed to call it a "royalty" rate if you're being paid $0.00012 per play?

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Aug 14 2014, 6:09pm

Since the Copyright Board of Canada released a decision setting artist royalty fees for online music streaming services in May, the recording industry in Canada has been up in arms criticizing a perceived gulf between the rate prescribed by the decision and others like it across the globe.

Dubbed Tariff 8, the decision requires commercial webcasters in Canada to compensate recording artists at a royalty rate of 10.2 cents per 1,000 plays. You don’t have to do a lot of math to deduce that this means that whenever someone listens to music through a streaming service, the musicians that provided it are only being granted micro-pennies: $0.00012 per play. But it might be more complicated than that.

According to Re:Sound Music Licensing Company, the collective society which initiated the configuration of the tariff with a royalty proposal to the Copyright Board in 2008, that rate is at least 90 percent lower than any royalty rate in the world. They applied to the Federal Court of Appeal for a judicial review of the Copyright Board’s Tariff 8 decision on June 16, and more than 70 labels (from indie stables like Paper Bag Records and Sonic Unyon to major companies like Universal and Warner) and other music associations responded to that news with a joint statement in support of the review.

In July, Music Canada—the leading non-profit lobby agency acting on behalf of the nation’s recording industry—launched a social media campaign called I Stand For Music in an attempt to rally further industry associations and labels to voice their opposition to Tariff 8 and support for Canada’s music community.

In a telephone interview with Noisey, Gilles McDougall, the secretary general of the Copyright Board of Canada, defended the Board’s decision against some of the criticism it’s received from the industry regarding the rate set by Tariff 8. He was quick to suggest that the international rates being brought into the discussion are flawed.

“There are so many differences between the copyright—even the act is completely different in the U.S. than it is in Canada. In order to do a useful comparison you need to make sure that the tariffs you’re comparing encompass the same rights, the same permissions to use the music,” said McDougall. “You cannot just compare the numbers and assume that it’s apple-to-apple comparison.”

Indeed, Canada’s Copyright Act outlines as many as six exclusive rights associated with streaming music over the Internet. The Tariff 8 decision is only concerned with payments regarding two of them: the equitable remuneration to which performers are entitled when a published sound recording of a musical work is communicated to the public by telecommunication and the same remuneration to which makers are entitled. Preexisting Canadian tariffs are concerned with other associated rights, some of which are not granted payment by American copyright law. This means that, while the American royalty rate in 2012 was a comparatively generous (USD) $2.10 per thousand plays, royalty revenue for music streaming in Canada is more compartmentalized, consisting of multiple, smaller lines of revenue as opposed to a (larger) lump sum.

“A [Canadian] webcaster will need to knock to [sic] SOCAN’s door and ask for a license to operate. That same webcaster might need to go to another collective society, CMRRA-SODRAC [the Canadian Musical Reproduction Rights Agency and the Society for Reproduction Rights of Authors, Composers and Publishers in Canada], and ask for a license to reproduce these various types of rights,” said McDougall. “What we have done by setting Re:Sound Tariff 8 is setting really just a part of the copyright payment that a webcaster will need to pay. It’s far from being the only source of income for a particular artist. It’s just a small part of the puzzle.”

This isn’t to suggest the criticisms Re:Sound and Music Canada are aiming at Tariff 8 are unfounded; as presented they are just logically vulnerable and shortsighted. A more comprehensive assessment of the international streaming royalty landscape may very well show that the compiled monies brought in by Canada’s streaming rights watchdogs are still far behind those of other countries, but, McDougall is quick to play devil’s advocate against that type of argument, too: “Who’s to say that it is the U.S. tariff that is correct—that is the good comparator? Maybe it’s too high. I don’t know.”

While international comparisons have become the lightning rod for much criticism of the Board’s decision, a host of other details are worthy of further scrutiny. For a discussion regarding what royalties musical performers should receive for the use of their labor product, in the 80-page report documenting the Board’s decision, there was less mention of an attempt to assess the worth of that labor than there was a discussion about what their beneficiaries can afford to spend.

According to McDougall, that’s because “what the Board does is not determining what artists should receive for their work and for their contribution,” but instead “assess[ing] the value of a very specific, particular right,” implying that those are somehow two mutually exclusive things. “In the Board’s assessment, the fair and equitable value of the use of that right was set as… you know, whatever, 10 cents per thousand plays or something like that. But it’s not to say that the work overall of an artist is of no value.”

The tariff also refuses to grant royalties to artists that are relative to the duration for which they are listened to, paying the same rate for a song played for five seconds as another that is played all the way through; further diminishing artists’ returns, Tariff 8 requires that artists split these micro pennies 50/50 with their labels.

The former just seems counterintuitive: if webcasters paid a play duration-relative royalty, that would free up a bulk of money that could be better put to use paying out more representative royalties to user-demanded, longer-played songs. The latter is a vestige of the Copyright Act that packs the potential to undermine established business agreements between labels and their rosters; there are plenty of artist-to-label agreements across the world that see labels foregoing any cash earned by their talent’s streams, and while it’s easy to imagine that many of them are honest enough to make good on those promises and rewire these royalties through some simple accounting maneuvers, in those cases this clause necessitates administrative work that is cash and time costly.

A judicial review of the tariff could require changes to any or none of the above circumstances. “If that happens, then we are being ordered by a superior court to make whatever changes they ordered [us] to make and we have to do it,” said McDougall. “But at this point I have no idea what will happen.” When that will come about is another story.

The Copyright Board will not be involved in the process of the appeal, but—if applicable—will have to bend to the court’s reconfiguration of the tariff. If Re:Sound is dissatisfied with the Court of Appeal’s decision, they could appeal that to the Supreme Court for further review.

The Board is not unfamiliar with these types of proceedings, of course, but when asked if he could offer any insight into how long the appeal process could take, McDougall still hesitated to offer any predictions due to the inherently uncontrollable variables at play. He did, however, allow that it could take as many as “a few years.” Tariff 8 applies to the period beginning Jan. 1, 2009 through the end of 2012, and regardless of the appeal process, it will continue to apply on an interim basis until a new tariff is certified.

It’s long been suggested that foreign streaming services have avoided Canada because of the length of time it takes to make decisions about royalty rates, so Tariff 8 (which took six years to be approved, let’s not forget), represents something of a breakthrough for them. Up until now Pandora and Spotify (the latter of which has spent the past year under fire for its $0.007 a play royalty rate, among other things) have only circled Canada from a distance, but in the wake of the Tariff 8 decision, both announced plans to set up shop in Canada, and today, Spotify began allowing Canadian users to access its services. Tariff 8 seemingly eliminates a major impediment for them, but it’s impossible to tell if they’ll stick around in the event of a judicially ordered adjustment to its royalty rate.

With all of the uncertainty surrounding Tariff 8 and the widespread rejection of its rates, one might expect McDougall to reserve some longing for a takeaway from this episode that will somehow help inform future Board discussions regarding the recording industry. But when asked about any hopes he might have for how Tariff 8 and the judicial review of its terms might affect Canadian copyright administration, he was unwaveringly mum: “I cannot comment on hopes or expectations that I could have or not on the decision. Whatever decision the Federal Court takes, we’ll comply and do what we have to do.”

Tom Beedham is a freelance arts and culture journalist living in Toronto. He’s on Twitter - @Tom_Beedham