Every year on March 31 Canadian Collective Societies (Collectives) file tariff proposals with the Copyright Board of Canada. These tariff proposals set out what the Collectives believe businesses should pay for the use of music, audio-visual works (e.g. movies) and literary works (e.g. books).
In this first issue of the 2012 Copyright Tariff Report we look at the proposals published in the Canada Gazette on April 30, 2011 applicable to Online Music Services and Non-Commercial Radio Stations by CMRRA-SODRAC Inc.
What is a Collective Society?
A collective society is an organization that administers rights in copyrighted works as set out in the Copyright Act of Canada (the "Act"), such as CDs, movies or books. Collectives operate on behalf of the thousands of copyright owners who are its members. Collectives monitor and collect compensation for the use of creative works where it would otherwise be unmanageable or inefficient for individual copyright owners to do so on their own due to the large number of users involved. For example, it would be challenging and costly for an individual copyright owner to monitor and collect compensation from restaurants across Canada who may play her music as background music. Collectives also simplify the act of licensing by allowing businesses to make one payment rather than potentially hundreds to use copyrighted works in their day-today operations.
Are Collective Societies legal?
Yes, under Canadian law Collectives are legal in Canada. Many Collectives are given rights under the Act or granted rights by the Copyright Board of Canada.
What is a tariff?
A tariff is a legal document drafted by a Collective which sets out the terms and conditions for using copyrighted works in a business. Tariffs set out the royalty (i.e. dollar amounts) a user must pay, how these royalties are calculated (e.g. based on square footage or a percentage of revenues) and any reporting or administrative provisions a user must comply with (e.g. reporting songs used or number of copies made). Tariffs can be proposed by the Collectives and certified by the Copyright Board of Canada to be paid for multiple years.
Who do tariffs apply to?
Tariffs apply to businesses that play music or show videos as background in their establishments (e.g. a fair, a restaurant or a fitness facility). Businesses who sell music are also required to pay tariffs (e.g. background music suppliers, online music retailers). Educational institutions or businesses that photocopy articles or textbooks must pay tariffs as well. Television and radio stations are required to pay tariffs for using copyrighted works such as music, movies, or television programs.
What is the Copyright Board of Canada?
The Copyright Board of Canada (the "Copyright Board") is an economic regulatory body located in Ottawa. The Copyright Board is empowered to establish and certify the tariffs to be paid for the use of copyrighted works in Canada, following a formal public legal proceeding. When the Copyright Board certifies a tariff this means that it has determined the tariff is enforceable under Canadian law.
Why do tariffs matter?
The enforcement of tariffs can result in businesses paying significant royalties that directly affect their bottom-line. Businesses may also be liable to make payments under more than one tariff. While large broadcasters are aware of their obligations to make royalty payments to the Collectives, many small Canadian businesses or industry associations may not be aware of the tariffs or the multitude of Collectives who administer these rights. While the tariff process may seem confusing or daunting, with expert advice the smallest player can advance its interests and meaningfully participate in Copyright Board proceedings, potentially influencing the outcome of decisions that directly impact profitability.
When do tariffs apply?
Tariffs apply for the entirety of the time frame proposed by the Collective and as approved by the Copyright Board. As a result, the tariffs discussed in this document that were filed on March 31, 2011 will apply from January 2012 onwards. While the formal certification process by the Copyright Board may take years (e.g. the tariff may not be certified until 2015), the Collective is within its rights to seek payment back to the beginning of the proposed period (i.e. January 1, 2012), with interest.
How to become a party to a Copyright Board proceeding?
The tariff's publication in the Canada Gazette serves as official notice to Canadians of the tariff's existence. A business wishing to object to a tariff proposal filed by a Collective must, on its own or through its representative, file a notice to the Copyright Board within 60 days of its publication in the Canada Gazette. The business then becomes an "Objector" and is entitled to make its views known as part of the royalty rate-setting proceeding at the Copyright Board.
What generally happens during a Copyright Board proceeding?
Once the list of objectors has been confirmed, the Copyright Board will set a schedule for the formal legal proceeding in consultation with the Objector(s) and the Collective that filed the tariff. This schedule includes the opportunity to ask questions of the other parties. Following a period of questions, each party will file their Statement of Case (the Collectives generally go first) and the Collective will also file a Reply Case in response to the arguments of the Objector(s). The proceedings occur in Ottawa and can last anywhere from a day to a few weeks depending on the complexity of the proposed tariff.
CMRRA-SODRAC Inc. ("CSI") is a joint venture between the Society for Reproduction Rights of Authors, Composers and Publishers in Canada ("SODRAC") and the Canadian Musical Reproduction Rights Agency ("CMRRA"). On behalf of authors, composers and music publishers, CSI issues licences to reproduce musical works and represents most of the world's music repertoire.
On April 30, 2011, CSI filed two tariff proposals for 2012: Online Music Services 2012 and Non-Commercial Radio 2012. Interested parties have until June 29, 2011 to file an objection to one or both tariff proposals with the Copyright Board. Filing a timely objection will ensure that an objector is made a party to the proceeding.
Online Music Services 2012
This tariff entitles an online music service (and its authorized distributors) to reproduce a musical work in CSI's repertoire for the purpose of transmitting a file to consumers in Canada via the internet (or another similar network). It also entitles an online music service (and its authorized distributors) to permit a person to reproduce the work for the purpose of delivering to the service a file that can then be produced and transmitted in the manner outlined above.
CSI's currently approved Online Music Services Tariff for 2005- 2007 applied to i.) On-Demand Streams, ii.) Limited Downloads, and iii.) Permanent Downloads. An on-demand stream is a file selected by a recipient that is only intended to be copied onto a local storage device for the purpose of allowing one to listen to the file at the same time as when the file is transmitted. A limited download is a download that uses technology that causes the file to become unusable at the end of a subscription. Permanent downloads refer to any download other than a limited download.
Tariffs have been proposed for 2008, 2009, 2010 and 2011. The calculation of the rates for these proposed tariffs are similar in some respects to CSI's approved Online Music Services Tariff for 2005-2007. However, they also differ from the approved tariff and from each other. For example, CSI's proposed Online Music Services Tariff for 2010 adds a rate for services that offer permanent downloads in addition to limited downloads and/or on demand streams. CSI's proposed Online Music Services Tariff for 2011 also adds rates for interactive and non-interactive webcasting.
For 2012 CSI is proposing the same rates as 2011:
i.) On Demand Streams: For online music services that offers ondemand streams with or without webcasting - but not limited downloads - the royalty for each month is proposed at the greater of 6.8% of the gross revenue of the service during the month (minus amounts paid for permanent downloads) or, the percentage payable in equivalent SOCAN Tariff 22.A for 2012 (while the 2012 proposal has not yet been published in the Canada Gazette the proposed 2011 SOCAN equivalent is 15.2%); multiplied by the number of plays of files requiring a CSI license during the month; divided by the number of plays of all files during the month. This is subject to a minimum royalty of the greatest of 43¢ per subscriber; 0.15¢ for each play of a file requiring a CSI license; or the equivalent minimum amount payable under SOCAN Tariff 22.A for 2012 (the equivalent minimum payable under the proposed SOCAN Tariff 22.A for 2011 is 96.2¢ per subscriber).
ii.) Limited Downloads: For online music services that offer limited downloads (with or without on-demand streams), the royalty for each month is determined as the greater of 9.9% of the gross revenue of the service during the month or, the percentage payable in the equivalent SOCAN Tariff 22.A for 2012 (the proposed 2011 SOCAN equivalent is 12.6% or 15.6% depending on whether previews are offered); multiplied by the number of limited downloads requiring a CSI license during the month; divided by the total number of limited downloads during the month. This is subject to a minimum royalty of the greater of 96¢ per subscriber if portable limited downloads are allowed and 63¢ per subscriber if portable limited downloads are not allowed; 0.20¢ for each play of a file requiring a CSI license; or twice the equivalent minimum amount payable to SOCAN under SOCAN Tariff 22.A for 2012. The equivalent minimum payable under the proposed SOCAN Tariff 22.A for 2011 is $1.22 per subscriber if portable limited downloads are allowed, and 79.8¢ per subscriber if portable limited downloads are not allowed.
iii.) Permanent downloads: For online music services offering only permanent downloads, the royalty is the greater of 9.9% of gross revenues and twice the applicable SOCAN equivalent in Tariff 22.A (the proposed SOCAN rate for 2011 is 6.8% or 9.8% depending on whether previews are offered) times the number of permanent downloads requiring a CSI license divided by the total number of permanent downloads during the month. This is subject to a minimum royalty of i.) the greater of 4.4¢ per file if the single purchase made contains 15 or more files; and 6.6¢ per file in all other cases; or ii.) twice the equivalent minimum amount payable to SOCAN under SOCAN Tariff 22.A for 2012. The equivalent minimum payable under the proposed SOCAN Tariff 22.A for 2011 is 3.4¢ per permanent download in a bundle that contains 15 or more files, and 4.6¢ per permanent download in all other cases.
iv.) Non-Interactive Webcasting: for online music services that offer only non-interactive webcasting, the royalty for each month is proposed as 3.5% of the gross revenue of the service during the month; multiplied by the number of plays of files requiring a CSI license during the month; divided by the number of plays of all files during the month. This is subject to a minimum royalty of 0.05¢ for each play of a file requiring a CSI license.
v.) Interactive Webcasting: for online music services that offer interactive webcasting but do not offer on-demand streams or limited downloads, the royalty for each month is proposed at 4.5% of the gross revenue of the service during the month; multiplied by the number of plays of files requiring a CSI license during the month; divided by the number of plays of all files during the month. This is subject to a minimum royalty of 0.065¢ for each play of a file requiring a CSI license.
vii.) Services that also offer Permanent Downloads: Where a service also offers Permanent Downloads in addition to the services listed above, CSI is proposing a royalty of the greater of 9.9% of the amount paid by a customer for the download and twice the applicable SOCAN equivalent in Tariff 22.A (The proposed SOCAN rate for 2011 is 6.8% or 9.8% of the gross revenue of the service depending on whether previews are offered). This is subject to a minimum royalty of 4.4¢ per file if the single purchase made contains 15 or more files and 6.6¢ per file if not; or twice the equivalent minimum amount payable to SOCAN under SOCAN Tariff 22.A for 2012. The equivalent minimum payable under the proposed SOCAN Tariff 22.A for 2011 is 3.4¢ per permanent download in a bundle that contains 15 or more files, and 4.6¢ per permanent download in all other cases.
Reporting Requirements for Online Music Services
An Online Music Service must provide CSI with a variety of information depending on its particular corporate structure. Examples of the type of information which must be provided to CSI are:
- the name of the proprietor - if a sole proprietorship
- the name of each partner - if a partnership
- the name of the corporation – if a corporation
- the jurisdiction of incorporation
- any other trade name under which the Online Music Service carries on business,
- the Uniform Resource Locator (URL) of the service
Online Music Services must also provide music use and sales information dependent on the type of services they offer i.e. there are different requirements when a service offers permanent downloads in conjunction with webcasts. Examples of the type of information which must be provided to CSI are:
- the title of the musical work
- the name of each author of the musical work
- the International Standard Recording Code (ISRC)
- if the sound recording is or has been released in physical format as part of an album, the name, identifier, product catalogue number and Universal Product Code (UPC) assigned to the album, together with the associated disc and track numbers
- if the licensee believes that a CSI licence is not required, information that establishes why the licence is not required
- the total number of plays of each file
- the total number of plays of all files
- the extent of use of the service during the month, including the number of consumers who used the service and the total hours of listening
- the gross revenue from the service for the month.
- the number of subscribers to the service at the end of the month and the total amounts paid by them
- the number of plays by non-subscribers
- if the service has engaged in any promotional programs during the month, pursuant to which on-demand streams have been delivered to consumers free of charge, details of those programs
- the number of portable limited downloads and the number of other limited downloads of each and all files
- the number of plays by non-subscribers
- the total number of subscribers
- the number of subscribers entitled to receive portable limited downloads
- whether a permanent download was offered as part of a bundle
- the number of times the file was downloaded as part of a bundle
- the identifier of each such bundle and of the file as included in that bundle
- the amount paid by consumers for each such bundle
- the share of that amount assigned by the service to the file
- a description of the manner in which the service assigned that share to the file
- the amounts paid by consumers for a permanent download
- whether a permanent download is offered at different prices from time to time
- the number of permanent downloads of the file at each different price
- the total amount paid by consumers for bundles
- the total amount paid by consumers for permanent downloads
- the total number of permanent downloads supplied
Non-Commercial Radio Stations 2012
CSI has proposed tariffs for non-commercial radio stations for the years 2008-2010 and 2011. The terms of the tariff changed in 2011 when CSI removed royalty tiers based on increasing levels of income and included simulcasting (i.e. broadcasting the traditional radio signal on the internet).
The rates proposed in 2012 mirror the rates proposed in 2011. CSI is proposing 0.63% of the gross operating costs in the year for which the royalties are being paid; or 0.23% of the gross operating costs in the year for which the royalties are being paid if the station is a non-commercial "low-use station". A "low-use station" is a station that broadcasts works in CSI's repertoire for less than 20% of its total broadcast time, and does not make or keep any reproduction on a computer hard disk or server. While all three proposals will be subject to one Copyright Board proceeding, the rates proposed for 2011 and 2012 are much higher than the 2008-10 filings which did not include simulcasting.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.