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Sound Numbers

Appeared in the Ottawa Citizen on May 25, 2006 as Sound Numbers

Copyright reform advocates frequently point to the economic importance of the so-called "copyright industries" to support their view that the government should enact tougher copyright laws. While few doubt that the industries merit attention, the economic angle has been hampered by the relative dearth of Canadian studies on the issue.    

Last year, the Department of Canadian Heritage's Copyright Policy Branch set out to remedy that shortcoming by paying Connectus Consulting, an Ottawa based public policy firm, over $37,000 to study the Canadian economic impact of the copyright industries (the department has also been asked to provide $50,000 to support a Canadian Recording Industry Association backed study that focuses exclusively on the recording industry).

The Connectus Consulting report, entitled The Economic Impact of Canadian Copyright Industries – Sectoral Analysis, has yet to be publicly released.  However, I recently obtained a copy of the final report dated March 31, 2006, under an Access to Information Act request.

The 93-page report should be required reading for those involved in the copyright reform debate since it confirms the importance of the copyright industries (defined in the report as music, movies, radio, television, publishing, theatre, software, and advertising services), yet challenges long-held assumptions about both the performance of the Canadian copyright industries in comparison to those in the United States as well as the economic health of the Canadian sound recording industry.

The report, which spans 1997 to 2004, finds that the copyright industries comprise 4.5 percent of the Canadian economy and contribute 5.5 percent of total Canadian employment.  While that is expected to increase in the coming years (the copyright industries are growing at a faster rate than the overall economy), it pales in comparison to sectors such as finance, manufacturing, agriculture, education, and health care.

Software is the prime driver of copyright industry growth, more than doubling in size from $5.76 billion in 1997 to $12.2 billion in 2004.  That growth has tailed off slightly over the past two years, however, a trend that the report attributes primarily to a disturbing shortage of skilled workers.

Consistent with several Statistics Canada studies, the report confirms that Canada maintains a significant copyright deficit, which it pegs at nearly $2 billion.  Bucking the trend are software royalties and advertising services, which together account for a $550 million trade surplus.

While this data is interesting, the more noteworthy findings are to be found toward the end of the report in two case studies: a comparison of the Canadian performance with the United States and Singapore as well as a comprehensive focus on the sound recording industry.

Given the success of Hollywood and Silicon Valley, it comes as little surprise to find that the U.S. copyright industries are ahead of their Canadian counterparts in contributing a higher percentage to their overall national economy (Singapore trails both Canada and the U.S.).  In recent years, however, the Canadian copyright industries have outperformed the U.S. with respect to growth rates and contribution to national employment.  These facts are worth noting when critics of Canadian copyright law claim that Canada needs to emulate U.S. policy in order to achieve economic success.

The sound recording case study is particularly compelling since the data contradicts both the industry claims and the expectations of the report' s authors.  It begins by stating that "there is little doubt that the Canadian sound recording sector has undergone significant change in the past several years, primarily as a result of illegal music downloading (or peer to peer file sharing) and the consequent impact on the sale of recorded music."

Incredibly, the report's authors marshal no economic evidence to support this unequivocal assertion nor do they offer any legal analysis to back up the claim that peer-to-peer downloading is illegal in Canada.  In fact, the study undermines its own credibility by ignoring evidence that the changes in retail distribution channels, the decline of radio, and competition from other consumer entertainment products such as DVDs and video games are primarily to blame for dropping sales.

Regardless of the reason, the report's authors were clearly surprised when the economic data contradicted their stated thesis.  Warning that "these findings should be treated with caution", the study reports that the Canadian sound recording industry grew steadily from 1999 to 2004, with the GDP contribution jumping from $243 million to $387 million.

The report implausibly attributes the increase to reduced employment, noting that there may be greater efficiencies due to a reduction in the number of record labels and the consolidation of the major multinationals.

Given that a ten percent reduction in employment is unlikely to inject an extra $150 million into the Canadian economy, the report's authors might instead have considered the fact that Canadian music labels have enjoyed unprecedented success in recent years.  With the major foreign multinationals reporting 20 percent employment reductions, the data suggests that Canadian record companies, who are responsible for 90 percent of new Canadian releases, are providing a counterbalance to the multinationals' struggles.

With the economic success of copyright industries, the strong Canadian performance in comparison to the U.S., and the exciting economic growth of the sound recording sector, this Canadian Heritage-commissioned study may leave Canadian Heritage Minister Bev Oda and Industry Canada Minister Maxime Bernier wondering why there is any reason to mess with a Canadian success story.

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law.  He can reached at or online at

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