Monetizing Music File-Sharing: Reconciling Consumer Behaviour with a Willingness to Pay By: Andreas Kalogiannides*

This article first appeared in the Ontario Bar Association’s Entertainment, Media and Communications Section Newsletter, Vol. 2, No, 2.

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.1 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).2 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.3 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.4 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.5

1 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. 2 See S.A.C. Music File-Sharing supra note 1 at page 5. 3 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. 4 See S.A.C. Music File-Sharing supra note 1 at page 5. 5 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.

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.6 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 licence to file-share music.7 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.8 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 were given unlimited access to licensed music along with their subscriptions.9 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

6 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. 7 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. 8 Ibid S.A.C. Music-File Sharing at page 8. See also CROP Survey supra note 1 at pages 65 and 71. 9 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].

file-sharing and even increased TDC’s customer retention rates.10 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 come out in support of TDC Play.11 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,12 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.13 Consider that in 2010 SOCAN collected $275 million for the use and performance of music in Canada.14 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. 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. *Andreas Kalogiannides is a Toronto lawyer specializing in copyright, intellectual property licensing and music law. He can be reached at andreas@kalogiannideslaw.com.

10 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.” 11 See IFPI supra note 12. 12 R.S.C., 1985, c. C-42. 13 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. 14 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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