Monetizing Music File-Sharing: Reconciling Consumer Behaviour with a Willingness to Pay

Creative Commons license.  Photo by:  Brett Levin Photography
Creative Commons license. Photo by: Brett Levin Photography

By: Andreas Kalogiannides*

The issue of unauthorized music file-sharing in Canada is a “good news bad news” situation:(1) millions of Canadians (perhaps as high as 40%) regularly file-share music without a licence;
however, according to a recent study commissioned by the Songwriters Association of Canada (the “S.A.C.”), as much as 69% of Canadians who do file-share music are willing to pay a monthly fee to do so.(2) In an effort to reconcile this gap, the S.A.C. is advocating for a voluntary collective licence to monetize non-commercial music file-sharing over peer-to-peer (“P2P”) networks (the “S.A.C. Model”).

This article does not present an in-depth discussion of the legal merits of either the S.A.C. Model or of collective licensing generally; rather, it aims to merely introduce the nuts-and-bolts of the proposal and stimulate conversation on this issue.(3)

A Summary of the S.A.C. Model

The S.A.C. Model proposes that private individuals who engage in non-commercial music file- sharing would be licensed to do so through the payment of a monthly licence fee, appearing as a line-item on the individual’s Internet service provider (the “ISP”) bill.(4) The licence would permit individuals to music file-share over P2P networks (including BitTorrent clients) and other platforms such as Facebook and Twitter. Notably, however, the generation of commercial revenue from file-sharing activities is ultra vires the S.A.C. Model and would require the appropriate licence(s) from the rightsholder(s) or collective rights organization(s).(5)
Performers, songwriters and rightsholders would receive a pro-rata share of total licensing revenues based on the number of times their works are file-shared. Such distributions would be based on data collected by technology and media measurement companies.(6) Individuals who do not file-share music would be able to opt-out by signing a written declaration to that effect; similarly, rightsholders would also be able to opt-out, in which case they would receive no licensing revenue if their works are file-shared.(7)

Canada’s existing collective licensing framework would serve as the backbone of the S.A.C. Model as regards administration, revenue distribution and rate-setting, meaning that collective rights organizations, including the Society of Composers, Authors and Music Publishers of Canada (“SOCAN”), Re:Sound and the Canadian Mechanical Rights Reproduction Agency (“CMRRA”), would continue to distribute these royalties to their members just as they do now. The only difference being that a new company, Song-Share.ca, would be formed to help the collectives organize this process.(8)

The Right Solution at the Right Time

The S.A.C. Model does several things right. First, the S.A.C. Model prioritizes legal content over illegal content. For example, under the current ISP subscriber model, consumers acquire Internet access only and not content. By separating network access and content, and given the inherent nature of the Internet as a communication technology (e.g., a broadband connection is all you need to consume all manner of content, legal or illegal), this model inadvertently facilitates music piracy. I have termed this situation the “access-content” disconnect. The unfortunate result is that, solely by virtue of having a broadband connection, consumers have access to both legal and illegal music on an equal scale; legal, digital music must now compete with “free”.

But, the S.A.C. Model helps narrow this “access-content” disconnect because it offers an easy- to-swallow value proposition directly to consumers at their Internet access point: pay a negligible monthly fee and share, swap and consume unlimited music content through your broadband connection. This arrangement is similar to how cable television providers bundle network access with content (e.g., access to the Rogers cable network is only offered through the purchase of channel packages); like the cable provider, the ISP becomes the intermediary through which content is delivered.(9)

Second, the S.A.C. Model is a “business-to-business” approach, meaning that music fans and file-sharers would not have to change their behaviour, install any software or buy new hardware; they just make a small monthly payment. And the evidence suggests that Canadians are willing to pay: a recent study conducted by the S.A.C. and CROP, a Montreal-based research firm, found that 69% of Canadians are willing to pay a reasonably monthly fee in exchange for a (10) 
licence to file-share music. More uplifting still is the fact that the study also found that 93% of
Canadians believe that songwriters and performers should stand to benefit from this licence fee.(11)

Third, there is precedence for the S.A.C. Model. From 2008 to 2010 in Denmark, TDC, a Danish ISP, operated TDC Play, a tethered download and streaming service whereby mobile and broadband customers we re given unlimited access to licensed music along with their subscriptions.(12) To date, more than 340 million tracks have been streamed and downloaded through TDC Play, and it has been argued that the service has helped reduce unauthorized music file-sharing and even increased TDC’s customer retention rates.(13) TDC has since entered into negotiations with KODA, the Danish collective rights organization, to set a new royalty rate for the period of 2010 to present; and, it is particularly telling that the International Federation of the Phonographic Industry (“IFPI”), which rarely involves itself in private negotiations, has
(14) come out in support of TDC Play.

Where Do We Go From Here?

From the perspective of songwriters and performers, the S.A.C. Model would create a new revenue stream from a popular use of music that, while illegal under the Copyright Act,(15) continues unabated and does not bear any royalties. Moreover, this revenue stream could potentially dwarf current music industry licensing revenues – a conservative estimate is that $405 million could be generated annually from licensing just 25% of total Canadian ISP accounts at $5 per month.(16) Consider that in 2010 SOCAN collected $275 million for the use and performance of music in Canada.(17)

The S.A.C. Model is a sustainable, real-world solution which monetizes a consumer behaviour that is difficult, if not impossible, to change. And, importantly, the model can be implemented using our existing music licensing infrastructure. The S.A.C. Model presents an excellent opportunity for the Canadian music industry and the ISPs to sit down at the negotiating table and start talking because, frankly, not only has the demand for music never been higher, but also because Canadians fundamentally believe in the importance of compensating songwriters and performers for their hard work.

This article originally appeared in the Ontario Bar Association Entertainment, Media and Communications Section Newsletter, Volume 22 No. 2.

*Andreas Kalogiannides is a Toronto intellectual property lawyer specializing in copyright, licensing and music law.  He is interested in issues at the intersection of the music business and the law, particularly on novel licensing models and copyright infringement in digital environments.  Most recently, Andreas was in-house counsel at a collective rights organization representing the publishing industry; he has also held positions at a major record label, a music industry collective, the Copyright Board of Canada, and the Future of Music Coalition.  Andreas can be reached at andreaskalogiannides@gmail.com.

For more information regarding the Songwriters Association of Canada’s music file-sharing proposal, please visit http://www.songwriters.ca or click for brief and detailed versions of the proposal.

FOOTNOTES

1 See “Monetizing Music File-Sharing: A New B2N Model”. Songwriters Association of Canada. Available online at http://www.omdc.on.ca/AssetFactory.aspx?did=7321. Page 6. [S.A.C. Music File-Sharing]. See also “Songwriters Association of Canada Music Consumption Behaviours Research Preliminary Report, March 2011”, Appendix D: CROP/S.A.C. Survey on Music Consumption Behaviour, at pages 40, 41, and 65. Available online at http://www.omdc.on.ca/AssetFactory.aspx?did=7321. [CROP Survey].

2 Ibid S.A.C. Music File-Sharing at page 6. See also CROP Survey at pages 65, 68, and 70.

3 The author makes the assumption that neither will Canadians stop downloading, distributing or sharing music without payment nor will any legal measures – on their own – stop this behaviour.

4 The licensee fee is not a “levy” or a “tax” on music, as surmised by some; unlike levies or taxes, a consumer may opt-out of the model if they self-declare that they do not file-share.

5 See S.A.C. Music File-Sharing supra note 1 at page 5.

6 Since the early 2000s, technology and media measurement companies, such as Big Champagne Inc., have collected data on ticketing, social media, and P2P internet traffic on behalf of record labels, music publishers and other industry stakeholders. Notably, Big Champagne was recently acquired by Live Nation, Inc.. See Halperin, Shirley. “Big Champagne CEO on Live Nation Deal: ‘We’re Going From Playing a Little Club to the Biggest Stage in the World’”. The Hollywood Reporter. December 15, 2011.   Available online at http://www.hollywoodreporter.com/news/big-champagne-live-nation-eric-garland-274204

7 See S.A.C. Music File-Sharing supra note 1 at page 5.

8 Similar to the ownership make-up of SOCAN and Re:Sound, Song-Share.ca would be owned by equal parts songwriters, music publishers, artists and record label executives. See S.A.C. Music File-Sharing supra note 1 at page 8.

9 Opponents may argue that this still does not solve the access-content disconnect because consumers can simply opt-out of the model, not pay the license fee, and then file-share anyway. In response, I argue that these people would still be liable for copyright infringement, and, that when offered the ability to pay a reasonably monthly fee, the majority of consumers would do so to avoid legal consequences.

10 See S.A.C Music-File Sharing supra note 1 at page 6. See also CROP Survey supra note 1 at pages 65, 68 and 70.

11 Ibid S.A.C. Music-File Sharing at page 8. See also CROP Survey supra note 1 at pages 65 and 71.

12 For clarity, TDC Play is a tethered, walled-garden service whereby subscribers have access to free, legal music downloads and streaming for as long as users have a TDC account. This is somewhat different to the S.A.C. Model that is not limited to a particular ISP, and that would licence music file-sharing that originates on any server and on any platform. See “IFPI supports TDC music service in Denmark”. International Federation of the Phonographic Industry. April 7, 2010: Copenhagen, Denmark. Available online at http://www.ifpi.org/content/section_news/20100426.html [IFPI].

13 See “TDC Play reaches 340 million streamed, downloaded tracks”. Telecompaper. June 30, 2011. Available online at http://www.telecompaper.com/news/tdc-play-reaches-340-million-streamed-downloaded-tracks– 812744.

14 SeeIFPIsupranote12.

15 R.S.C., 1985, c. C-42.

16 This figure is based on Canada’s estimated 27 million total internet subscriber accounts and calculated according to the following formula: ((27,000,000 * 0.25)*$5) * 12 months. See S.A.C. Music-File Sharing supra note 1 at page 8.

17 See “SOCAN Announces 2010 Financial Results: Music Use Higher Year Over Year.”. Society of Composers, Authors and Music Publishers of Canada. May 4, 2011. Available online at http://www.socan.ca/press- release/socan-announces-2010-financial-results-music-use-higher-year-over-year.

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Highlights from the ASCAP EXPO 2013

S.A.C. members Heather Hill and Kat Leonard

by Heather Hill

“…Through our music we bring order to chaos; we bring solace to suffering; we bring joy to heartbreak; we bring freedom to captivity; we bring hope to despair; we bring soul to the machines and meaning to the lives of millions.” Paul Williams, President ASCAP

A few weeks ago, I went down to LA with my friend Kat Leonard to check out ASCAP Expo (April 18-20). This was both of our first times to this conference. I normally hang out in Canada and partake in Canadian Music Week and Songwriters Association of Canada functions. I went because I just wanted to see what several of my American friends had recommended! The conference was big, a ton of fun, and while the music industry is in a state of flux, the music creators proved to be a passionate, positive and innovative bunch!

Paul Williams, president and director of ASCAP kicked off the conference. He is an amazing hit songwriter and incredibly inspiring. He is passionate about getting musicians (songwriters, recording artists) fair pay for their work. ASCAP is busy doing deals with the big players in order to get settlements from online streamers, congress, etc. “We do the work, pay us for our music. We are not machines…we need to be properly compensated.” He pointed out it all starts with the composer and the songwriter – copyright protection is critical!Katy Perry was a keynote presentation. She is an incredibly hard-working and resourceful woman. Even though she had been dropped twice by her label, she managed to be resigned — the rest is history. It was great to hear her journey from a Christian artist into the secular market. She was 100% committed to her career and to her music. She loves to cowrite and looks hard for artists that inspire her. The panel was full of interesting information and it was entertaining watching her change in persona from a shy, coy girl at the outset to the strong-willed, confident tigress at the end!

Holly Knight. I was fortunate enough to have a one-on-one session with killer hit songwriter Holly Knight (Heart, Pat Benatar, Tina Turner, Meatloaf, etc.). I learned that cowriting with writers is an essential part of your growth. She was a recording artist and then became a prolific songwriter. Being a performing songwriter is critical these days. You need to be able to showcase your songs to other artists you may want to write with. We also talked about rock…Holly mentioned the demise of rock, but that other categories has revealed themselves. I received some great advice for my own musical journey.

Steve Lindsey. In the pop/rock feedback panel, Steve was an incredible source of information for creators. He helped develop Bruno Mars (amongst other incredible things). He told us the importance of knowing at least three hours of cover material. His point was, it is difficult to be a great songwriter without extensively studying great music on a daily basis. He told us that he held Bruno Mars back for five years while they learned an extensive catalog of hit music.

Key Takeaways!

1. Take YouTube Very Seriously. First we heard from several product folks at YouTube. The amount of content on YouTube is enormous and growing exponentially! We need to contentID and tag our music or we won’t get paid. We need a channel and we need to be part of larger Multi Channel Networks. The YouTube 100 may one day replace the Billboard 100. A&R and music seekers are following the success of musicians on YouTube as a primary source for selection.

2. Wait to record until you have fans and great songs. Several artists felt the recording process was too much money – maybe we are wasting our money. Time and time again we heard about waiting to spend until you have written a ton of songs, perform them, build fans and get fans to pay for songs. Novel concept right? It was great to hear this, because we all know that great songs are rarely our first ones.

3. COLLABORATE! Find people to learn from and write with others a lot. You may find an  incredible synergy!

4. Focus on Writing and Learning Music – Naturally you hear a lot about working super hard on music and business. Every day you need time to write, practise, and work your business. It is a full time job!

About the Sponsors: the sponsors were also paid panelists promoting their software and services. Their products/services are not necessarily what songwriters and composers want/need to hear about. It was not worth sticking around for these panels. I understand that the expo needs money, but the people paying to be there want unbiased information about what will help them. I like the sessions where music was being reviewed (date with a tape). You really learn a lot from the comments of industry experts.

About the people. The best part of conferences is meeting the people. I met countless artists (thousands of singer/songwriters) and a few industry folks (note that I hardly saw any industry folks). Comparing notes and getting ideas from other musicians is invaluable. You hear the realities of artist development, recording, positioning, etc.

Tools. One great thing ASCAP Expo provides is the ability to:

– pay a low fee to have a one-on-one interview with an expert

– watch videos on all the sessions since you can not possibly go to all of them since they all take place at the same time

– you have the chance to be showcased on the last night. You don’t find out until that day if you are selected.

One suggestion I can offer to ASCAP EXPO is to open the city to the music!! I like that Canada Music Week is full of music. Bars are full of performances giving artists a chance to showcase their music. At ASCAP Expo there was hardly any music going on for a music conference (until the last night).