This year several high profile artists spoke out against, or withdrew from streaming services. In June, the members of Pink Floyd against Pandora’s attempts to decrease the royalties that streaming services pay to the artists in their libraries. In Early July, Thom 91��ɫ his music from Spotify. The Radiohead front man claims that the site’s business model does not properly compensate new artists. In late July, Aimee Mann filed a against MediaNet. The claims allege that MediaNet’s library includes a number of improperly licensed works and further claims that Mann has not received a royalty payment from the entity since 2006.

Before the industry can expand, streaming services must resolve their licensing problems. In 2011, ASCAP reached a U.S. with Spotify, granting the site access to over 8.5 million songs in the ASCAP catalogue. In that same year, however, over indie labels withdrew their catalogs from several streaming services, including Spotify, Napster, Simfy and Rdio over concerns of under-compensation and for the fear that streaming would hurt sales for smaller artists.

Streaming services rely on artist participation and licensing agreements. These relationships must be stable in order for streaming to truly take off as an alternative to traditional radio, or services like iTunes. If artists do not have faith in the current business model, then it will be difficult for streaming services to expand. When popular artists publicly decry the system, it can sour potential relationships both with new users and artists who have yet to licence their music.

Some streaming services argue that the barrier to expansion is the cost of royalty payouts. Pandora a Canadian expansion in 2007 due to the cost of royalty payments in Canada. , “the rates that have been proposed by the Canadian music rights societies are simply uneconomic.”  In addition, the current tariff rate may not be set until several years into the future. For example, one  on streaming services for the period from 2008-2010 did not receive certification until 2012. It may be difficult for a service to accurately gauge their viability in a new market if they may end up paying a substantially higher royalty rate than initially anticipated. Services may simply be unwilling to expand without certainty regarding these tariff rates.

While radio tariffs account for the fact that one play of a song can reach a large audience, on streaming services each play generally only reaches one user. Therefore the amount paid out for each play is much smaller. For example, one artist only received $1652.74 for  plays on Pandora. If these services increase in popularity, then perhaps the number of individual plays may eventually lead to payouts that resemble those for current radio rates. The t from Pandora is that lower royalties now will mean long-term higher payouts. Lower royalties would allow services to pour more money into development and advertising. If services expand in size, then although the rate is lower the actual amount will increase due to the increased volume of traffic on the services.

Organizations that collect royalties for Canadian rights holders feel that their proposed rates represent . In fact, in the U.S. over signed an open letter opposing Pandora’s lobbying attempts to lower royalty rates. Moreover, despite Westergren’s assertions, Songza successfully negotiated a private to licence music from Re: Sound and launched its “music concierge” playlist streaming service in Canada in 2012. Therefore there is potential for other services to come to an agreement in Canada, but the question remains whether royalties will present a problem for their bottom line.

Sadly, the string of artist complaints and withdrawals from several popular streaming services may temper online music streaming services expansion to Canadian markets, and the growth of the industry in general. Licensing agreements are a tremendous initial cost required to build a library expansive enough to attract users. If the relationship with artists remains unstable and services are unable to retain a diverse library, then attracting users to pay for these licences through subscriptions becomes a more difficult task. As a relatively small market, with the potential for retroactive tariffs, we may have to wait for the business model to further develop and grow before Canada enjoys the variety of services offered in other jurisdictions.

Allison McLean is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.

The post Royal(ty) Pains: The Expansion Woes of Online Music Streaming Services appeared first on IPOsgoode.

Adding fuel to the fire, another webcaster, , recently , and has subscribers. However, beyond the important business implications, the Board must revisit the legal question at the heart of the Re:Sound proposals - the extent to which copyright royalty standards of the United States (US) ought to influence Canadian royalty rates.

Tariff 8.A covers both simulcasting and non-interactive webcasting. Simulcasting is the communication of a traditional radio signal over the Internet, and is used by many Canadian broadcasters. Non-interactive webcasting is generally understood as the streaming of original Internet broadcasts, or web-radio. Canadian examples include and . Semi-interactive webcasting, covered by Tariff 8.B, involves the streaming of content which is influenced by user-inputted preferences such as genre and artist. This is the service provided by Pandora.

Re:Sound proposed that commercial semi-interactive webcasters pay a royalty rate calculated as the greater of:

��)���������� 25 to 30 per cent of the gross revenues; and

��)���������� 0.0023 to 0.004 per-play, with a minimum fee of $500 per channel up to maximum of $50,000 annually.

The issue of public consciousness is the argument of Pandora against per-play royalty rates, which it stating, “[t]here is such a disconnect, as has been demonstrated by the U.S. ... between the per-play rate and the fundamental economics of the business.” However, as recognized by , this sort of opposition is business-oriented rather than legal. The parties’ Statements of Case (available to the public by request) present a variety of important, even novel, questions, such as whether Re:Sound has the legal authority to compel webcasters to implement technological protection measures to prevent stream-ripping. However, the most significant legal issue relates to Re:Sound’s foundation for the proposed rates.

Re:Sound justified its proposal by arguing that the online music industry has outpaced the statutory licence regime in Canada, and thus the Board ought to take into account the global licensing market, and in particular that of the US “in order to encourage the entry of international services and foster the development of its online music market.” By the same token, Re:Sound advocated that the Board adopt the statutorily mandated royalty standard of of the US Copyright Act – “rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.” As found by the Copyright Royalty Arbitration Panel (CARP) in , this hypothetical marketplace is proved by furnishing evidence of actual voluntarily negotiated agreements. Hence, Re:Sound confidentially submitted several contracts between Canadian rights-holders and webcasters for communication rights, which presumably include royalty rates roughly similar to those in the US.

Pandora and the Canadian Association of Broadcasters (CAB) both argued against any consideration of US rates for a variety of reasons. Most importantly, that US legislation grants full copyright in sound recordings in certain circumstances, rather than the right to equitable remuneration in s. 19 of the Canadian . The US found this distinction to be sufficient grounds to reject comparisons in its royalty decision. Similarly, for a variety of reasons the Board in Canada has expressed scepticism in the usefulness of American standards, most resolutely in the 2005 decision.

The Board, however, has not categorically rejected the application of the willing buyer/seller standard. For example, in the 2002 the Board acknowledged its usefulness as a starting point, but “only when it offers some basis for comparison with the industry under examination.” Furthermore, the Board has that executed agreements are “prima facie relevant to the task of setting a performing rights tariff…” As such, even if the Board rejects the US royalty rates on the basis of the inapplicability of US standards to determinations of Canadian royalty rates per se, Re:Sound may successfully advocate for the adoption of US-styled royalty rates as contained within the voluntarily negotiated contracts submitted as evidence.

Pandora and CAB countered Re:Sound by pointing out that the certified , which includes webcasters, sets out a markedly different royalty scheme for communications of musical works. The Board that the equitable remuneration to be paid for the use of sound recordings to Re:Sound is to be determined by first identifying the applicable SOCAN tariff over the same use, and then setting a 1:1 ratio, is long-standing.

The core of Re:Sound’s proposal was that the Board ought to adopt the US-approach to royalty determination, by estimating hypothetical market prices. However, as recognized, the Board has historically asserted “not only that a market price is only one of several possible rational bases for a tariff, but that in certain circumstances, public policy would lead it to ignore market considerations altogether.” Whether Re:Sound argued with sufficient persuasion that webcasting ought to fall within the cases decided by the market, rather than public policy or other factors, will be the most important determination of the Board.

Ken Anderson is a JD Candidate at Osgoode Hall Law School and is currently enrolled in Osgoode’s Intellectual Property Law and Technology Intensive Program.  As part of the program requirements, students are asked to write a blog on a topic of their choice.

The post Webcasting IV? Update on Copyright Board of Canada Proceedings on Highly-Anticipated Webcaster Royalty Rates appeared first on IPOsgoode.