Score One For The Independent Artist Against The Big Boys

On July 12, Canada’ supreme court did independent labels and artists out there a big favour.

In a landmark decision, the court ruled that the copyright board had erred in classifying paid and unpaid downloads as “communications” (a.k.a. “broadcasts”), entrenching technological neutrality as a copyright principle and, thus, putting the kibosh on Socan’s efforts on behalf of publishers to collect a performance royalty every time part or all of a song is downloaded from the Web. The court also ruled that streaming song previews up to 90 seconds in length constituted fair dealing for research purposes, meaning that such clips should not be included in a communication tariff targeting online music services.

I’ve been a bit of a contrarian in the music industry around the idea of applying the broadcast concept to such digital disseminations ever since it was first conceived, arguing that it is misplaced and deleterious to the overall interests of most of us in this business.

Before I relate the main reasons why I think July 12 was a good day for the bulk of artists and independent labels in Canada, let’s step back a bit to look at how we got to this place. I wrote about some of this a couple of years ago in a blog related to what was happening in the U.S., but with this recent Canadian judicial decision I think it bears repeating.

Mechanical reproductive rights organizations in many nations around the world paved the way over a decade ago when they fought and won the battle to get approval for “mechanical” licenses and tariffs on digital phonorecord deliveries (DPDs). Good on them, for it’s hard to argue against the principle behind such a license requirement. These “collectives” aggressively and effectively promoted their case to their respective copyright boards, legislators, industry and the general public, arguing that digital retailers would otherwise profit unfairly at the expense of what should rightfully be going to song owners and writers.

True to form, the performance royalty collectives (PROs) followed the trail blazed by their mechanical counterparts and loudly beat a similar drum, mainly at the behest of the larger publishers and established writers. They managed to convince copyright boards and legislators in many countries that the very act of electronically supplying a digital file of music over the Internet, whether paid for or as a free sample, constitutes a performance (i.e., “communication”) of the music, regardless of whether the file can be heard during the supply process.

That’s where the logic and justification for applying a communication license tariff to each and every digital download was lost on me. Essentially, the definition of “performance” had been warped from “presentation” to “supplying.” Now, I could see the merit of their argument when it was applied to streamings. Likewise for ringtones, and music used as background to enhance a website’s appeal. But for simply transferring a file from one medium to be stored and used on another? That didn’t compute. It’s one thing to call it a communication when it is offered for listening over the Internet or mobile phone; it is quite another when it is not.

A few years ago, after I got wind that Socan was planning to follow the lead of other PROs in the world and push for this kind of tariff, I voiced my concern to one of the organization’s vice presidents. He seemed quite defensive, and I got the very clear message that he really wasn’t interested in hearing what I had to say. Indeed, voices like mine went largely unheeded as publishers and their representatives lobbied for its implementation. I feel a kind of vindication by the court’s decision, although my main concern was with how this tariff would end up hurting the little guy in this business and less with its dubious merit on technical grounds. Here’s part of what the court said:

“In our view, the Board’s conclusion that a separate, ‘communication’ tariff applied to downloads of musical works violates the principle of technological neutrality, which requires that the Copyright Act apply equally between traditional and more technologically advanced forms of the same media….The principle of technological neutrality is reflected in s. 3(1) of the Act, which describes a right to produce or reproduce a work ‘in any material form whatever’. In our view, there is no practical difference between buying a durable copy of the work in a store, receiving a copy in the mail, or downloading an identical copy using the Internet. The Internet is simply a technological taxi that delivers a durable copy of the same work to the end user.”

How does this court ruling benefit the little guy?

First, it lifts a potential financial burden from the myriad of websites out there that are helping artists and indie labels expose their music to the world by offering the public and industry downloads and streaming previews (note that the court ruled that non-preview streamings are subject to a communication license and tariff).

Some site owners feared they wouldn’t be able to afford such a tariff and, in anticipation of it’s pending implementation, removed some or all of their promotional clips and saleable files from their sites. Socan was unable to give them or anyone a clear idea as to precisely who the proposed tariff would apply to or how and how much they’d be charged, and they didn’t want to take any chances, especially since the proposed tariff was to be retroactive. Pulling music from sites certainly doesn’t help promote music or the artists who make it.

Second, it keeps money in the pocket of countless thousands of independent track owners. How so? Well, when it comes to almost any type of digital tariff, ultimately it’s the party who controls the track that ends up paying it. How’s that, you say?

Unfortunately for artists, digital retailers like iTunes typically don’t raise their price to the consumer to cover a tariff they are required to remit to a collective, nor do they absorb it themselves out of their cut of the sale price. They simply pass the cost of that tariff on to their suppliers–i.e., the track owners–by deducting the tariff amount they remit from their remittance to the supplier. That’s a hit of the wrong kind for artists covering other people’s songs, and one more reason for them to quit recording such material as publishers relentlessly push for more and higher tariffs on song usages. That’s unfortunate, because unestablished artists can often really benefit from having some familiar tunes in their repertoire to help attract new listeners.

You would think that the party “communicating” the track, in this case the online retailer, should be the one paying for the tariff out of their profits. After all, isn’t this digital tariff based on a license to broadcast? Indeed, the broadcast concept is the very basis for the rationale that collectives used in their lobbying efforts to get this particular tariff established.

But our PRO, like others around the world, didn’t go to bat for the average artist or small labels to protect them from being hit with this tariff. They didn’t lobby for regulations to ensure that digital retailers would behave like any other broadcaster in this respect and not be able to just pass this tariff on down the line to track owners. Evidently, independent artist-writers are not who PROs see as their most important constituency, despite the fact that they make up the bulk of their membership. In fact, as I understand it, in most countries where a digital communication tariff is in place there’s nothing set up to prevent artists from getting whacked with a tariff on their own song material, although if self-published they would eventually get almost all of it back from their PRO.

And don’t get me going on the ethics of online retailers who not only subtract the tariff amount they have to remit to collectives from what they send to the track owner, but base their commissions on 100% of their gross sale price, including the tariff, which is outrageous when you think about it.

As useful and important as collectives like PROs may be, they can sometimes end up behaving in a way that in the view of some people both inside and outside of the industry represents an abuse of their powers, actually influencing the structure of the market so as to weaken the degree of competition and growth.

Indeed, collectives seem to have a penchant for monetizing every last usage of music, adopting a “fear of loss” attitude in reaction to the advent of digital, which is not unlike that of the major publishers and record labels. On the other hand, many smaller independent labels and self-published artist-writers, seeing the writing on the wall when it comes to the reality of ongoing rampant file sharing and the borderless digital world, moved beyond that mode of thinking long ago. In fact, for their very survival they see it as absolutely necessary to embrace what is happening and turn it to their advantage.

Allowing music to be accessed by consumers without impediments, sometimes even for free, has become a mantra of sorts for many independents as their traditional world of distribution, promotion and marketing has been turned upside down by digital technology. They see the Internet and mobile platforms more as an avenue for increasing exposure and creating demand than as a primary direct revenue source, and are inclined to rely on things like touring, off-stage sales of CDs and other merchandise, sync placements, endorsements, sponsorships, and anything else that cannot be digitally rendered, to generate money.

Yes, the independent label and artist-writer can sometimes end up on the short end of the stick when copyright regulations bear the stamp of a collective’s lobbying efforts made primarily on behalf of bigger players in this industry. There are some situations in the arena of music licensing where theory can be seen to diverge from reality and common sense. In my view, slapping a communication tariff on downloads and streaming previews was one of them.

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