The Copyright Board of Canada issued its long-awaited music streaming decision late last week, setting royalties to be paid by Internet music streaming services such as Pandora for non-interactive and semi-interactive streaming for the years 2009 to 2012. This covers passive Internet radio services and services that allow users to influence what they listen to. Given that Pandora left the Canadian market over high tariff rates, the outcome of the decision was destined to be a key determinant over whether many of the missing Internet music streaming services enter the Canadian market.
For fans of Pandora or similar services, the decision brings good news. The board largely rejected the arguments of Re:Sound, the collective responsible for the tariff and settled on rates close to what the Internet services were seeking. While the collective argued for rates similar to those found in the U.S., the Board ruled that the U.S. was not a suitable comparison.
Moreover, it rejected arguments that this form of music streaming cannibalizes music sales, concluding that exposure to music through non-interactive and semi-interactive streaming may increase sales:
We are unconvinced that non-interactive and semi-interactive streaming cannibalizes sales of CDs or downloads. Though the Objectors’ evidence and arguments in this respect are not without contradictions, we agree with them, for the reasons set out in paragraph 157 below, that non-interactive webcasting is similar to over-the-air radio. We find that neither over-the-air radio nor non-interactive webcasting is likely to cannibalize music sales; if anything, they are likely to stimulate them.
The same is true of semi-interactive webcasts. Pandora’s American free and paying subscribers are about twice as likely to purchase CDs or downloads as are non-subscribers. Furthermore, while purchases by Pandora’s subscribers are declining, the decline is not as steep as for non-subscribers.
The end result are tariff rates that the Board estimates would constitute between 4 and 5 percent of Pandora’s Canadian revenues. By comparison, the board says Pandora pays about 50% of U.S. revenues as royalties. If these estimates are accurate, Canada could emerge as an attractive market for music streaming services.
If that is the good news, the bad news is that Re:Sound may well send the issue to federal court for review. Re:Sound lost on many of its points and ended with a tariff far below what it was seeking. No surprise then that its president is quoted as saying:
â€œWe are disappointed that the rates certified by the Board do not reflect market rates in Canada and are a small fraction of the rates payable by the same services in the U.S.“
Re:Sound says it is reviewing the decision and will have more information shortly.
The ugly in this decision is the incredible length of the decision-making process. Re:Sound started this process in March 2008 – more than six years ago. In the years that followed, it adjusted its demands as the market changed. The Board finally heard arguments and evidence over a ten day period in September and October 2012.
The decision therefore comes more than 18 months after that hearing. By virtually any standard – let alone an Internet one – this is an unacceptably long period of time to address an issue. The Supreme Court of Canada has a much bigger workload, yet releases its decisions far faster. Moreover, technology and the market move much faster than the board – consider that the iPhone launched in Canada in July 2008, months after the initial Re:Sound filing. The long delays created significant commercial uncertainty and likely led to delays in new services entering the Canadian market. As I argued earlier this month, the Copyright Board is broken and a serious digital strategy should commit to fixing it.