Neighbouring Rights Collective of Canada

Toronto, September 13, 2009

Dear Mr. Clement and Mr. Moore:

RE: Copyright Consultations

On July 20, 2009 the Government of Canada launched nationwide consultations to solicit Canadians' opinions on the important issue of Copyright. NRCC is pleased to have this opportunity to comment.

NRCC is the Canadian not-for-profit music licensing company created to obtain fair compensation for artists and record companies for their performance rights. On behalf of its members, representing thousands of artists and record companies, NRCC licenses recorded music for public performance, broadcast and new media. Established in 1997, NRCC's member organizations are AFM, APRS, ArtistI, AVLA and SOPROQ.

Artists and creators of music rely on these types of revenue streams and sources of income and the compensation collected by NRCC has become an essential part of the present and future compensation of artists and others who work in the record industry.

In this submission, along with its previous submissions under section 92, to the Standing Committee on Canadian Heritage in 2003, and to Ministers Bernier and Oda in June of 2006, NRCC addresses issues central to its core business as a music licensing company administering the performance rights of artists and record companies as set out in section 19 of the Copyright Act of Canada, (the "Act").

It has been over 10 years since the last major reform of the Canadian Copyright Act. In these years technological change has enabled many new methods of distributing and utilizing music. We believe that this is a good thing and that new and innovative methods of distributing music and new business models should be encouraged. But the creators must still be compensated no matter what the method of distribution. And this is where organizations such as NRCC play a crucial role. Collective licensing is the only viable way to deal with many of the new business models and ensure creators are paid for their works. Organizations like NRCC are innovative themselves. We are making extensive investments in systems to enable the most efficient tracking and payment of royalties to thousands of artists and music creators. We work with music users to enable them to benefit from using music and find new ways of using music, that also ensure creators are compensated. We are living in a world where we are talking about literally millions of micro-transactions that need to be processed and accounted for and this, in itself, requires considerable innovation as well as considerable investment.

With the significant changes and rapid developments in the digital economy, so too must Canadian copyright law be reformed to encourage continued innovation in this industry as well as to allow for the fair compensation of music creators who are key players in these new and emerging business models.

Many countries have sought and secured copyright reform aimed at bringing them in line with their WIPO treaty obligations. They have also sought to ensure that legislative amendments more suitably recognize and react to the rapid changes and technological developments, which have impacted multiple industries affected by copyright laws. NRCC submits that the WIPO treaty must be ratified in Canada and that Canada's copyright laws must be made compliant with its WIPO treaty obligations.

As the Government works towards introducing modernized copyright legislation in the fall, NRCC welcomes the opportunity to propose important amendments and policy considerations, many of which NRCC has sought to bring to the attention of parliament since 2003. Such changes would include changes in Canadian copyright law and policy including amendments to the Copyright Act to protect the integrity of musical works through the protection of Digital Rights Management, removing outdated subsidies to portions of the commercial radio industry at music creators' expense, providing a legislative framework for music licensing organizations such as NRCC to collect and distribute royalties to all music creators, and providing appropriate investment in the Copyright Board to enable it to effectively play its key role.

1. NRCC submits that subsection 68.1 (1)(a) of the Copyright Act be repealed

In 1997, the Copyright Act was amended to grant artists and record companies the right to receive "equitable remuneration" when recorded performances of music are performed in public or communicated to the public by telecommunication. However, this right was substantially restricted in the same 1997 legislative amendments with each commercial radio station being required to pay just $100.00 on its first $1.25 million in advertising revenue. Subsection 68.1(1)(a) entitled "Special and transitional rates", reads as follows:

• Wireless transmission systems, except community systems and public transmission systems, shall pay royalties as follows:
  1. in respect of each year, $100.00 on the first $1.25 Million of annual advertising revenues.

Section 68.1 (a) applies to wireless transmission systems, defined as any conventional, over-the-air, A.M or F.M. radio broadcasting service, but does not include community radio stations or public radio stations.

The original intent of the provision was to provide "special and transitional royalty rates". NRCC believes that these "special and transitional royalty rates" are simply no longer appropriate and have permitted large and highly profitable broadcasters a legislative means to avoid payment of fair compensation for their use of recorded music.

The Copyright Board has also repeatedly commented on the seemingly irrational consequence of this provision. In its 1999 decision regarding Commercial Radio, the Copyright Board concluded that "the evidence provided by NRCC… clearly established that the industry could have absorbed the full tariff, absent any special statutory provisions" and observed that "neither the CAB nor its witnesses took issue with the validity or quality of NRCC's evidence upon this point". ³

In its 2005 decision, the Copyright Board elaborated on its view, describing the $1.25 million exemption as a "thinly veiled subsidy" and suggesting that the issue of smaller stations' ability to pay could be dealt with by the Board's practice of rate tiering; it stated:

• The Board is conscious of two things. First, capping the rate for smaller stations deprives rights holders of royalties. Second, only independent smaller stations truly need a cap; small stations that are owned by large corporate groups probably do not. ⁴
• Allowing large, profitable broadcasters to escape payment of the full NRCC tariff on any part of their revenues constitutes at best a thinly veiled subsidy. Subsection 68.1(1) is seemingly based on no financial or economic rationale. ⁵
• The evidence presented during the hearing clearly demonstrates that the commercial radio industry has the ability to pay the full tariff, notwithstanding the increases approved by the Board. Even if the increases had been applied as far back as 1999, the industry's profit margins would have continued to increase significantly. CAB's own financial expert stated that in all likelihood, profit levels will continue to rise unabated even if the full requested tariffs were certified." ⁶

The impact of this provision on creators has been sizeable, leading to lost royalties of approximately $69.9 million between 1998 and 2008 alone.

The $1.25 million exemption is unfair. It subsidizes commercial radio at the expense of music creators. It also creates an unfair advantage for commercial radio over its competitors (such as satellite radio) who do not receive the benefit of a similar exemption. Furthermore, it is discriminatory insofar as it does not apply to songwriters or publishers of music, creating an unfair distinction between different creators of the same work.

Furthermore NRCC submits that it is the Copyright Board that is best placed to take into account users' ability to pay in setting royalties. The Copyright Board commonly certifies tariffs that are tiered to specifically address smaller stations' ability to pay. As such any reductions in the amounts paid by radio stations should be determined based on evidence of the stations' ability to pay for the given tariff period at issue, rather than providing a permanent legislative subsidy.

Given all of the foregoing, NRCC submits that, subsection 68.1 (1)(a), a provision that was intended to act as a transitional or "phase in" provision, has now become illogical, contrary in result to its intended effect, and damaging to music creators.

2. NRCC submits that Canada must ratify the WIPO treaties and that the necessary amendments to the Copyright Act must include a prohibition on tampering with rights management information used to identify works and other subject matter

NRCC collects revenue from users of sound recordings, such as commercial radio stations and background music users, pursuant to tariffs certified by the Copyright Board. In order to properly distribute such tariff revenue to eligible artists and record companies, NRCC and its member collectives have invested significant resources into the development of innovative technologies for reporting, tracking, payment and distribution.

NRCC makes large investments in systems to track hundreds of thousands of micro-transactions to ensure the revenues collected get back to the appropriate music creators at the lowest cost possible. The process of identifying the proper beneficiary of collected revenues requires NRCC to dedicate significant resources towards identifying and tracking the use of hundreds of thousands of sound recordings by users so that the royalties collected by NRCC pursuant to its tariffs can be distributed in a reasonable and equitable manner to those artists and record companies whose recordings are actually used. Some users also express difficulty in providing NRCC with music use information or provide NRCC with hardcopy or even handwritten information (which is often incomplete).

NRCC and its member collectives then devote further resources towards identifying which sound recordings, of those that are used, are eligible for neighbouring rights royalties according to the criteria set in the Act.

Through the entire process, NRCC continues to be innovative in finding new and efficient ways to improve its methods of distribution.

To the extent that rights management information includes the following information, it would undeniably be of great use to NRCC's royalty distribution systems in order for NRCC and its members to distribute royalties

1. with greater accuracy and/or
2. at less cost, thereby ensuring that a greater proportion of royalties collected by NRCC flow to eligible music creators.

This information includes, but is not limited to track title, CD/album title, name of performers/performing groups, record label, and the International Standard Recording Code (or "ISRC") or other similar identifying codes embedded in certain sound recordings.

By preserving the integrity and reliability of the information embedded in sound recordings, it allows for easier, better standardized and more cost effective means of determining the eligibility of sound recordings for section 19 remuneration by NRCC.

NRCC believes that rights management information could also allow users of sound recordings to more easily provide NRCC with required sound recording use information, possibly at less time and cost to them. By protecting the integrity of electronic rights management information, music users benefit from being able to use this information to create easier, quicker and more cost effective ways to report and track music use information.

NRCC therefore submits that maintaining the integrity of electronic rights management information is an important objective that benefits both music creators and music consumers alike. As such, only by preserving the integrity of electronic rights management information can NRCC and other collecting bodies continue to work with music users and the industry to develop new and valuable technologies that expedite and improve the music use reporting and distribution processes, which are objectives that are ultimately beneficial to music users and music creators alike. For these reasons NRCC supports measures prohibiting the removal or modification of rights management information and prohibiting the distribution or importation of a work from which the information has been removed.

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3. NRCC submits that the Act should be amended to allow the Copyright Board to designate a single collective society as the sole collecting body for royalties flowing from section 19 rights.

The designation of a single collecting body would provide a significant benefit to rights holders and users subject to paying section 19 royalties. The power of the Copyright Board to make such a designation would be comparable to the Board's power under subsection 83(8)(d) of the Act. Subsection 83(8)(d) of the Act requires the Copyright Board to designate a single collective body that, in its opinion, will fulfill the objects of the private copying regime. The Board has designated Canadian Private Copying Collective ("CPCC") under that paragraph. The designation of CPCC as the sole collective body ensures that manufacturers and importers of blank audio recording media are only required to deal with one representative of composers, performers and record companies.

Similarly, establishing a single collective body for section 19 remuneration would allow for the continuation of "one-stop licensing" which avoids the confusion that could occur with having multiple tariffs for multiple collecting bodies covering the rights granted under section 19. From a cost perspective, allowing for a "one-stop licensing" scheme also benefits all parties by allowing for the minimum number of transaction costs for all parties concerned. These considerations are important and beneficial to both creators and users of music recordings subject to section 19.

NRCC suggests the following addition to section 68 of the Act , using language paralleling paragraph 83(8)(d) of the Act in the private copying context, in order to allow the Copyright Board to designate a single collecting body for section 19 neighbouring rights royalties:

4. NRCC submits that logically flowing from this proposed legislative amendment are the following other consequential amendments:

First, NRCC proposes that rights holders not represented before the Board by NRCC or another collective would have a right of equivalent treatment, as already exists in subsection 83(11) of the Act with respect to private copying and subsections 76(1) and 76(2) with respect to retransmission royalties and educational institutions. A possible legislative amendment could read as follows:

Second, NRCC proposes that the entitlement as proposed in subsection 67.1(6) above would be the only remedy of unrepresented artists and record companies when an eligible sound recording was performed in public or communicated to the public by telecommunication within the meaning of section 19. This would parallel subsection 83(12) of the Act in the context of private copying and subsection 76(3) of the Act in the context of retransmission royalties and royalties payable by educational institutions:

Third, NRCC proposes that the Board have the power to require a collective society to file with the Board information relating to payments of moneys received by the society pursuant to the Act , paralleling paragraph 83(13)(a) in the private copying context:

Finally, it is logical and necessary to the effective distribution of royalties collected under NRCC's various tariffs that rights holders be required to claim neighbouring rights royalties within a certain period of time, to be set by regulation of the Copyright Board. This recommendation would parallel paragraph 83(13)(b) of the Act with respect to private copying and paragraph 76(4)(b) of the Act with respect to educational users and retransmission royalties. This amendment would potentially allow NRCC or its member collectives to eventually distribute all net royalties collected to eligible artists and record companies instead of indefinitely holding reserves for unrepresented record companies and artists on trust (for example where NRCC represents only the performer or the maker with respect to a sound recording and holds the other 50% of collected royalties with respect to a given sound recording on reserve). The proposed text to be added reads as follows:

NRCC submits that the foregoing additions, if exercised by the Copyright Board, would clarify matters with respect to NRCC's rights and obligations in relation to partially represented or completely unrepresented orphans and would bring harmony to the structure of the Act. It would further be consistent with Parliament's expressed view that, where feasible, "one-stop licensing" be made available by enabling the Copyright Board to designate the collective for "one-stop licensing". Such an amendment would thereby benefit both rights holders and users.

The amendments as discussed in paragraphs 3 and 4 would collectively establish a regime whereby "orphan" performers and record companies would be able to secure payment of their remuneration, similar to private copying, where under section 83 of the Act, the Canadian Private Copying Collective has been designated the sole collecting body for the private copying royalties, subject to an obligation to pay those royalties to performers or record company orphans who have not authorized the filing of a private copying tariff.

5. Subsection 68(2)(a)(i) of the Act should be amended to also reference subsection 22(1)

There appears to be an inadvertent omission in subsection 68(2)(a)(i) of the Act. Subsection 68(2) requires the Copyright Board to ensure that a proposed tariff for remuneration under subsection 19(1) only apply to situations referred to in subsections 20(1) and 20(2). These subsections establish eligibility for the remuneration based upon a country's adherence to the Rome Convention. Subsection 22(1) enables the Minister, by statement published in the Canada Gazette, to grant certain benefits of Part II of the Act, including the benefit of section 19, to performers and makers who are citizens or permanent residents of a country that has not adhered to the Rome Convention, or in the case of corporations, had their headquarters in such a country. The omission of reference to subsection 22(1) would appear to have the effect that the Copyright Board would be precluded from taking into account the Minister's statement extending the benefit of section 19 to nationals of countries the subject of the statement in setting the terms and conditions of a proposed tariff for remuneration under subsection 19(1). This consequence would appear to be unintended by Parliament, and for this reason, NRCC submits that an amendment should be made to remedy this seeming omission by including reference to subsection 22(1) in subsection 68(2)(i).

6. Increased investment in the Copyright Board is required so as to ensure certainty for creators and consumers and timely innovation

Collectives such as NRCC ensure that thousands of music creators are fairly and accurately compensated for the use of their music. In order to do so, the Collectives first appear before the Copyright Board of Canada, the body designated to consider and set the rates payable to rights holders for the use of their works and the manner in which the royalties will be paid. The mandate of the Copyright Board is as follows:

• The Board is an economic regulatory body empowered to establish, either mandatorily or at the request of an interested party, the royalties to be paid for the use of copyrighted works, when the administration of such copyright is entrusted to a collective-administration society. The Board also has the right to supervise agreements between users and licensing bodies and issues licences when the copyright owner cannot be located. ¹

As collective licensing by organizations such as NRCC plays an essential role in fairly compensating creators of music, one cannot understate the importance of the Copyright Board as the ultimate authority in the rate setting process. In 2007–2008 the Copyright Board:

• held six hearings;
• issued four decisions dealing with the public performance of music (NRCC and SOCAN);
• issued four decisions dealing with private copying (CPCC);
• issued a decision dealing with an application for an interim tariff (AVLA/SOPROQ);
• issued 21 licences under the provisions of the Act for the use of published works for which rights holders could not be found; and
• initiated the consolidated examination of the applications for tariffs by a six collectives (NRCC, SOCAN, CSI, AVLA/SOPROQ and ARTISTI) for commercial radio for a hearing held in December 2008.

The Copyright Board however faces its own significant difficulties. These were best summarized by the Honorable William J. Vancise, Chairman of the Copyright Board in the 2007–2008 Annual Report of the Copyright Board:

The NRCC applauds the efforts of the Copyright Board in striving to ensure that its decisions are made in the most principled and efficient manner possible. However, as collective licensing is the only efficient way to deal with many of the new and emerging business models which rely on the use and distribution of music, increased demands will continue to be made on the Copyright Board and its limited resources. From start to finish a tariff proceeding can take several years. This lengthy timeline creates significant uncertainty for hundreds of thousands of Canadian music consumers (such as bars, restaurants, night clubs, fairs, fitness facilities, webcasters, satellite radio, and commercial radio stations) and creators, strains relationships and stifles the development of legitimate commerce. Neither music creators nor music consumers benefit from out of date tariffs that do not reflect the increasingly rapid changes in the new digital economy. Given the significance of developments and innovation in the digital market, it is increasingly important that tariffs are certified in a timely manner. This is vital to ensuring that the evidence and information presented and considered in support of the tariffs more closely resembles the industry at the time the tariffs take effect. As such it will only be through providing the Copyright Board with sufficient resources that it will be able to meet its obligations in an efficient manner.

As only one of the Canadian music licensing companies which relies on the Copyright Board, at the present time NRCC has one tariff for which it is awaiting a Board decision (Commercial Radio), two for which it is awaiting a legal determination (Television and Motion Picture Theatres), three currently underway (CBC Radio, Dance & Fitness, and Live Events) and six awaiting the commencement of a Copyright Board proceeding. This sizeable schedule of hearings is only amplified by the needs of other collecting societies including SOCAN, CPCC, and CMRRA/SODRAC Inc., who also depend on the Copyright Board to complete their increasingly complex hearings and render well reasoned decisions as quickly as possible.

As the regulatory body designated to establish the royalties to be paid for the use of valuable copyrighted works and other subject matter, a strong financial commitment is required to ensure the Copyright Board is able to efficiently and properly fulfill its vital role in the establishment of royalty rates for creators and consumers of music.

Conclusion

NRCC would like to take this opportunity to once again thank the Government for moving forward and modifying the Copyright Act in 1997, to provide a legislative scheme that established the rights of artists and record companies to compensation for their use of recorded music under section 19 of the Act. NRCC submits that Canada should now amend the Act in order to conform with the requirements of the two WIPO Internet treaties that Canada signed in 1996 in order to provide protection of such rights in the digital environment.

We look forward to working with you to ensure that Canada's copyright laws not only reflect the current economic and technological realities, but are also forward-looking and can withstand the test of time as organizations like the NRCC continue to develop new and innovative methods of engaging with new business models and ensuring that whatever the business model, music creators continue to be compensated. These necessary amendments to the Act are vital, as only by providing fair and reasonable compensation to artists and creators of music for the use of their copyrighted works and recordings in Canada, can we protect and foster the continued creation of musical works and recordings in Canada.

Best regards,

Ian MacKay
President

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³Copyright Board of Canada, Statement of Royalties to be Collected by SOCAN and NRCC in Respect of Commercial Radio 2003 to 2007 — Reasons for Decision (online) http://www.cbcda.gc.ca/decisions/1999/19990813-m-b.pdf at p. 34. (Return to text.)

⁴2003 to 2007 Commercial Radio Decision, supra note 2 at p. 32 (Return to text.)

⁵Ibid. p. 37 (Return to text.)

⁶Ibid. p. 39 (Return to text.)

¹Mandate of the Copyright Board of Canada, (online) Copyright Board of Canada (Return to text.)