Introduction

In the era of globalization and homogenization, Canadian culture is more important than ever. Technology and globally intertwined economies are having a shrinking effect on the world and our culture is what allows us to keep our identity as a country. Few would challenge that our most prolific and tangible cultural offerings transpire through the arts. Canadian painters, writers, filmmakers and musicians supply our cultural voice both within and beyond our borders. In particular, the Canadian music industry plays a vital role in disseminating diverse cultural offerings from across the country. Such a feat however, is not accomplished without a great deal of commitment and investment by those who write, produce, record and distribute this music. In a time when the music business has been hit harder by technological and marketplace changes than arguably any other cultural industry, the county must commit to fostering the future success of Canadian music.

Looking at the state of music financing in Canada, we will examine the importance of effective tax law and policy in bolstering this cultural industry. Specifically, we will address the need for a unique federal tax credit to provide the support necessary for Canadian music creators to compete both at home and in the international market. Through an assessment of the music credit system in Ontario as well as alternative finance options such as grants and individual deductions, it will become clear that a federal tax credit presents the best prospects for the future of music in Canada.

The Current State of the Music Industry in Canada

Without delving too deeply, it is important to look at the developments and challenges faced by the music industry as a whole in recent years in order to appreciate the financial reality in which it exists today. Such a retrospective is also necessary to gain a full understanding of how and why a federal tax credit is very much needed in Canada. As recently as 1990 the Recording Industry Association of America (RIAA) reported that the cassette tape dominated the configuration of music purchases, holding 55% of the market, followed closely by CDs (which became the most popular two years later).[1] Around the same time, the Internet was beginning to develop a public persona and the number of Internet hosts (which function to allow users to serve content to the Internet) increased from 56,000 in 1988 to over 29 million by 1998.[2] Throughout the decade, Internet usership was also increasing at a rate of approximately 100% per year.[3] As has been discussed at length in recent years, this new technology provided a medium for music piracy via peer-to-peer sharing sites which were experiencing totals of more than 600 million free downloads each week by 2006.[4] Piracy aside, the Internet also changed the way that people consume music legally. As of 2010 the iTunes Store lead all music retailers in the United States with a 28% share of the purchased music market while digital sales on the whole accounted for 40%.[5] Beyond the United States, the digital share of global purchases of recorded music increased from 6% in 2005 to 31% by 2009 and is expected to eclipse physical distribution in 2012.[6] The purpose of including these numbers is to demonstrate the severity of the market shifts experienced by the music industry in recent years.

Turning our gaze to Canada, it is apparent that we have not been immune to these changes. Despite growing digital revenues, sales of sound recordings in Canada dropped from $765 million in 2005 to $619 million in 2008.[7] As a result, music companies have had to adapt and depend more heavily on other revenue sources such as music publishing, merchandising, concert tours, and alternative media forms. At a time when Canadian music is competing for attention with an ever-greater pool of accessible international content, music companies have had to reduce rather than boost their spending. Less available capital means that less financial resources can be placed on disseminating and marketing content, fewer bands can be signed and thus fewer artists can afford to record. According to a 2010 study commissioned by the Canadian Independent Music Association (CIMA), the largest obstacle facing independent record labels (“indies”) in Canada is cash flow. As little as $20,000 can mean the difference between signing a new Canadian artist to produce an album and turning those content creators away.[8] Though some may look to the Canadian divisions of major record labels such as Universal Music or Warner Music to pick up these artists, the fact is that a large portion of what these companies do is service the content created in the United States. On the other hand, the indies operating in Canada tend to be Canadian-owned and the majority, if not all, of the artists they sign are homegrown. It is these smaller labels that are integral to the production and promotion of Canadian musical culture and it is these labels that most desperately need a financial boost. This is where a federal music tax credit plays a role.

Does the Government Not Do Enough Already?

Before examining a proposed federal credit it is only prudent to look at what other initiatives and alternatives currently exist in Canada. The Canadian government currently plays an important role in fostering domestic musical works. Most of us are familiar to some degree with the regulatory concept of Canadian content (or CanCon) enforced by the Canadian Radio-television and Telecommunication Commission (CRTC). Under Canada’s Radio Regulations, commercial radio stations are required to air a minimum amount of Canadian content. Specifically, 35% of the category 2 content (popular music) and 10% of the category 3 content (special interest music) that they broadcast each week must be Canadian selections.[9] To ensure that stations do not relegate this music to the low listener periods, 35% of the category 2 content aired between 6:00 a.m. and 6:00 p.m. on Monday through Friday must also be Canadian.[10] Additionally, the Broadcasting Act identifies the CBC (Canadian Broadcasting Corporation) as the country’s “national broadcaster” with a mandate of providing radio and television programming that is “predominantly and distinctively Canadian”.[11] Though these are significant measures in the promotion of Canadian music, their effectiveness is somewhat limited. Firstly, their efforts are inherently constrained by national borders and success in today’s music market requires a greater ability to reach consumers beyond such corporeal boundaries. As the CIMA-commissioned study revealed, “while domestic sales are important, the Canadian market is limited. The industry’s long-term development will depend on its ability to generate international sales.”[12] In addition, the effectiveness of these government efforts continues to decrease as the way we receive music continues to change. As noted earlier, the Internet is playing an increasingly large role in the way that we consume content, music or otherwise. Over the years there has been a fragmentation of the audience base that previously relied on radio to discover music. More and more online platforms such as Facebook, YouTube, Myspace, last.fm and iTunes Ping are becoming the source to which many turn. As a result, there is a proliferation of foreign content being served to Canadians without regard for CanCon parameters. Listeners are in fact becoming their own program directors by actively seeking out content rather than passively receiving it. This is not to say that access is bad or should be limited but rather that we must be aware of the competitive effects on the market. The positive side to this is that there exists the opportunity to promote Canadian music to a broader audience than ever before. Marketing beyond national borders (both online and traditionally) is a necessary step in ensuring that Canadian artists succeed in the current music landscape. This process however, requires significant expenditure and, as will be explained later, this is where a federal tax credit can again be important. There are however, other existing alternatives still to be examined first.

Private Investment

In a free-market economy many might ask why the Canadian music industry is not relying more heavily on private investments for support. The simple explanation is that the private sector has not been very forthcoming with investments in this area. Music companies do not have the type of assets that most banks or other investors believe to be secure enough to act as collateral.[13] In large part there is a view of the music industry in recent years as being risky and subject to financial unpredictability. Consequently, this has left much of the private sector less than inclined to accept receivables as security. As it stands, the average success rate in music is generally thought to be approximately 10%.[14] What this means is that record labels need to produce 1 recording successful enough to cover the losses of the other 9. This is a higher risk ratio than that of the film industry, however the front-end investments required are also significantly less.[15] Therefore, the best approach is for labels to spread the risk over a large body of works and that requires cash flow. Thus, an unfortunate predicament develops whereby the Canadian music market suffers from a lack of scale. Investors are fearful of the industry’s uncertainty and the same uncertainty requires that labels produce large and diversified portfolios of projects.

At the same time, due to the comparably low project revenues and a lack of tax credits, banks do not provide interim financing the same the way they do for film and television productions that have tax credit receivables.[16] Unlike music, the film and television industries in this country benefit from a national credit called the Canadian Film or Video Production Tax Credit (CPTC).[17] The CPTC is a refundable tax credit equal to 25% of the qualified labour expenditure of a production. This qualified labour expenditure is the lesser of the amount of labour expenditures and 60% of the net production cost. In relation to private investors, this is significant for two reasons. Firstly, there is no limit on the monetary amount of CPTC one can receive for a production and secondly, under section 220(6) of the Income Tax Act this refundable credit can be assigned to lenders as security for bridge financing[18]. The absence of a comparable music credit leaves the indies (and to a lesser degree the major labels) with fewer resources to leverage into up front investments. This demonstrates another reason why a national tax credit is needed.

Government Programs & Grants

Turning now to perhaps the most obvious and effective alternative to tax reform, it is necessary to consider the role of grants and government programs in music financing. Without a doubt, the existing grants and programs in Canada are an integral part of the nation’s music industry. Canada’s department of heritage, known simply as Canadian Heritage, is responsible for the administration of national policies and programs pertaining to culture and the arts. Under their guidance, the Canada Music Fund (CMF) seeks to strengthen the Canadian sound recording industry from creator to audience. This initiative, which absorbed the earlier Sound Recording Development Program, uses a series of complimentary projects to achieve the following three goals. Firstly, to enhance Canadians’ access to a diverse range of Canadian music choices through existing and emerging media; secondly, to increase the opportunities available to Canadian music artists and entrepreneurs to make significant and lasting contributions to Canadian cultural expression; and lastly, to ensure that Canadian music artists and entrepreneurs have the skills, know-how and tools to succeed in a global and digital environment.[19] While each of these objectives is laudable, the programs in place do not altogether address the financing issues faced by this cultural industry.

The Creator’s Assistance Program is an example of one of these CMF initiatives and is administered by the Society of Composers, Authors and Music Publishers of Canada Foundation (SOCAN Foundation).  The focus of this program is to aid songwriters, composers and lyricists develop their craft by providing funding to Canadian non-profit music sector organizations.[20] While the grants offered by this program are significant, peaking at a maximum amount of $300,000 per project, the eligibility requirements greatly narrow its application.[21] Specifically, the grants are to be used for such things as workshops, seminars, roundtable sessions and the promotion of works by Canadians.[22] These are important undertakings in developing discourse and awareness, however, they do little to alleviate any of the financial obstacles faced by the industry. Even the inclusion of funding for promotions is limited in its effectiveness by the fact that only non-profit organizations may apply for such a grant. Unfortunately, as it stands there does not exist an extensive non-profit community devoted to marketing Canadian artists the way that private music companies do. The reality is that it is private labels that carry out the development and marketing of the majority of Canadian artists. Thus, while a program such as this is valuable, it will not eliminate the need for a tax credit in this area. As we will discuss in the next section, while the CMF does provide support to private companies through other initiatives such as the New Musical Works Component an the Collective Initiative Component, these programs are plagued by administrative issues.

While there are various other public initiatives offered throughout the provinces it is neither possible nor necessary for the purposes of our discussion to examine them in detail. Instead, what has been presented is a look at one of the country’s most significant national programs. While a number of these specialized projects serve a worthy cause, none of them provide the breadth and flexibility needed to adequately addresses the greater financing dilemmas faced by the industry. One might argue that the sum of these efforts amount to a comprehensive grant scheme, however, its effectiveness is limited by the administrative inefficiencies. Operating dozens of separate grant administrators out of various different organizations, each armed with unique eligibility requirements and deadlines creates an unnecessarily complex system. A service must be accessible and efficient if it is to properly and cost-effectively carry out its mandate. This is another reason why incorporating a tax credit into the existing, centralized federal tax system is the best option.

Private Non-Profit Grant Organizations

Turning now to the other side of grant-financing in Canada, we come to the private non-profit grant system. The most well known of these organizations are the Foundation Assisting Canadian Talent on Recordings (FACTOR) and MuchFACT (previously VideoFACT). FACTOR was founded in 1982 in part by CHUM Limited, Moffat Communications and Rogers Broadcasting Limited and is currently funded by two separate sources.[23] Firstly, they receive arm’s length funding from the federal government under the CMF’s New Musical Works and Collectives Initiative.[24] The second source of financing comes directly from Canada’s private broadcasters, whose once voluntary contributions are now required by means of the Broadcasting Act.[25] Under Part III of the Radio Regulations, these companies must donate a specified portion of their revenues in support of “Canadian Content Development”. Specifically, 60% of these contributions must be directed to either FACTOR or its French language equivalent, MUSICACTION.[26] As a result, since 2006 FACTOR has received approximately $45 million in contributions from Canada’s private broadcasters, making those companies the organization’s largest financial providers.[27] Similarly, MuchFACT was established in 1984 as a condition attached to the license granted by the CRTC approving the specialty music television channel MuchMusic.[28] However, unlike FACTOR, 100% of the MuchFACT funding is private. MuchMusic and MuchMore (previously MuchMoreMusic) are required to commit a percentage of their gross annual revenues to the fund.[29] Together, FACTOR and MuchFACT provide valuable subsidies in a variety of areas ranging from recorded production, marketing, promotions and touring[30] to music video production and website development.[31] However, the source of funding behind these organizations has caused some in the industry to criticize the grants as being too heavily guided by the interests of their private financiers. In a condemnation of the allocation of these grants, Greg Ipp, founder of Toronto-based indie label Unfamiliar Records, recently wrote:

“Today, as I looked over the latest round of VideoFACT grants, I was struck by a thought that has cycled through my head on so many occasions: Why the hell are these bands getting the money? Metric? They have now received two successive video grants in the last three months – one from FACTOR, the other from VideoFACT, for a total of about $60,000. On top of this, they have received various grants, and have already sold over 50,000 units of their new album… the list was made up primarily of bands under the wing of well-funded labels with cash to spare… Over the years, I have had one too many industry insiders tell me I had to “get to know the judges in order to win”… Sure, that’s how the industry often works in terms of your reviews, your covers, your shows and even getting signed, but the Canadian grant system?”[32]

Ipp’s sentiments are ones that have been raised before and they are not completely without foundation. Even FACTOR acknowledged in their most recent annual report that, “FACTOR has worked hard to develop relationships with broadcasters to support their year-round activities and provide measureable benefit for the contributions made.”[33] It is understandable that the private radio broadcasters and television channels funding these grants want to support those artists and content that have a demonstrated record of success. As businesses, whether their participation is forced or not, they seek to invest in commercially successful content which they can broadcast and earn upon. In a response to Ipp’s article, Metric’s manager, Mathieu Droulin, noted that it would have the effect of “diluting the impact of the funding to the point of being completely ineffective” if instead smaller grants were given to all who applied. He further contended that by supplying a meaningful amount to rising artists, it lends credibility to these funding programs as well as the Canadian cultural sector.[34] It is true that when a Canadian band like Arcade Fire (a FACTOR grant recipient) wins the Grammy Award for Album of the Year (2011), it inevitably shines a light on Canada and has the potential to benefit even those artists who didn’t receive funding. After all, as we spoke to earlier, garnering international attention for Canadian content is vital to the competitiveness and success of our cultural industry. Nevertheless, as the concerns raised by Ipp and others demonstrate, the governance and allocation of funds by these privately operated programs leave a large portion of the industry without the necessary financing. In her recent dissenting opinion on the issue of commercial radio policy, CRTC Commissioner Barbra Cram pointed out that the allocation of FACTOR funding is also greatly unbalanced on a regional basis. Consequently, while the monies dispensed by FACTOR come from taxpayers and broadcasters across the country, the vast majority of the benefits go to a few specific markets.[35] In particular Cram drew attention to the fact that Ontario, British Columbia and Quebec make up 75% of the nation’s population yet routinely receive approximately 90% of the funds granted each year.[36] Criticizing the CRTC’s use of FACTOR as the “national” vehicle for fund distribution, Cram wrote:

“My colleagues in the majority are giving the broadcasting system’s money to an organization over which the Commission has no control and which has “governance challenges” which, to date, empirical data shows have not been resolved but exacerbated.”[37]

In his decent on the same issue, Commissioner Stuart Langford added that:

“their national mandate too often turns out to be a Montréal, Toronto, Vancouver focus. “The regions,” as the Maritimes, the prairies and the north so pointedly refer to themselves, do not appear to be major FACTOR and MUSICACTION concerns.”[38]

Additionally, the fact that this portion of Canada’s grant system is so heavily tied to private business motives, raises questions about the future of such funding. In fact, in 2010, CTV (the owner of MuchMusic) approached the CRTC with a request to cut the number of music videos it broadcasts, as well as the money it gives to MuchFACT, by half. This planned reduction in Canadian content was part of the network’s strategy to move increasingly towards a focus on teen-oriented “lifestyle” programming.[39] Though the request was rejected, this application demonstrates the level of commitment (or lack thereof) by the financier to its own grant program. Condemning the attempt made by the network, former chair and co-founder of MuchFACT, Bernie Finklestein, noted that while music videos may not suit MuchMusic’s business model anymore, they are more important to the market than ever due to consumption mediums like YouTube.[40] This examination of the private grant organizations is by no means intended to trivialize their importance as they inject millions of dollars of much needed funding into the industry. However, what is clear is that they do not do away with the need for a more equally distributed federal tax credit.

Why is Tax Policy the Appropriate Avenue for Success?

Having acknowledged and examined the existing financial initiatives and alternatives we can now elucidate the reasons that a federal tax credit is necessary. To properly understand the assertion that tax reform is the appropriate approach it is helpful to begin by considering tax policy more broadly. The tax system is Canada has a number of fundamental purposes. On a macro scale, the most obvious of these is the raising of revenue to fund government spending on public goods and services. It is also, however, a tool used to stabilize the economy, increase the rate of economic growth and even to achieve a morally acceptable distribution of income. Additionally, in recent years another evaluative criterion has been the ability to create a system reflecting international harmonization and competitiveness.[41] Given the goals of the Canadian tax system and the nature of the assistance needed by the music industry, namely financial rehabilitation, tax reform is the obvious way forward. As Justice Estey of the Supreme Court of Canada explained:

Income tax legislation, such as the federal Act in our country, is no longer a simple device to raise revenue to meet the cost of governing the community. Income taxation is also employed by the government to attain selected economic policy objectives. Thus, the statute is a mix of fiscal and economic policy. The economic policy element of the Act sometimes takes the form of an inducement to the taxpayer to undertake or redirect in a specific way.[42]

If properly implemented, a federal tax credit can provide this cultural industry with the aid it needs while simultaneously raising revenue for the government, creating jobs and stimulating the economy. This is not a radical concept. Tax policy often makes use of “tax expenditures” in the form of exemptions, deductions and credits to provide implicit subsidies to those industries producing results that the government wishes to encourage.[43] As such, the federal Income Tax Act currently includes such credits as the Scientific Research and Development Tax Credit[44], the Canadian Film or Video Production Tax Credit[45] and others. Nevertheless, the federal government has yet to extend the same support to Canada’s music industry. Such neglect is somewhat arcane given the government’s various other efforts to protect domestic content and the potential for this industry to service the goals of our national tax system.

Can Musicians and Companies Not Just Make Use of Existing Tax Deductions?

It is true that the Income Tax Act presently contains deduction provisions that both musicians and music companies can make use of without the need for tax reform. Specifically, section 18(1) of the Income Tax Act allows taxpayers, whether individuals or companies, to deduct expenses and losses incurred in the operation of a business.[46] The way these deductions work is by lowering a taxpayer’s income for a given tax year and thus the amount upon which tax is levied. When it comes to the effect of this operation however, it is important not to be misled by the use of the word “deduction”. To begin with, these subtractions must be properly viewed as simply the way in which taxable income is calculated rather than as a subsidy. It is common sense that the profit from a business venture amounts to the income minus the cost of operation. When that is understood, it is immediately apparent that this does not address the need for additional financing. An industry cannot revitalize itself on the basis that they are only taxed on income. In addition, musicians and music businesses are often in the unenviable position of having to fight to even have these expenses deducted. This stems from the fact that participation in the creation and performance of music is often viewed as a hobby or leisure activity rather than as a “business”. In addition, a musician’s claim to the contrary is often viewed with a degree of skepticism given the fact that music is seen as enjoyable and that the success rate in the industry is so low. It is also not uncommon for artists, managers and the like to work “day jobs” in order to be able to fund the continued pursuit of their musical efforts. As such, the question of what constitutes operating a “business” for the purposes of these deductions has been a somewhat litigious topic in recent years. In 2002, the Supreme Court of Canada ruled on the matter, stating that where there is a personal or hobby element to the concern it becomes a question of whether it is undertaken in pursuit of profit in a businesslike manner. The court also noted that while not always determinative, the reasonable expectation of profit (or REOP) may be a relevant factor.[47] Since that time, various cases have come before the Tax Court of Canada in which the activities of musicians either have[48] or have not[49] made the grade as “businesses”. As tax lawyer Thomas McDonnell of Thorsteinssons LLP in Toronto notes:

There is often an unconscious bias on the CCRA’s part: artists like being artists, after all, and they would pursue an artistic career whether or not it made money. The presumption is reinforced when the artist reports losses rather than income. In fact, in Interpretation Bulletin IT-504R2 the CCRA acknowledges that a taxpayer may not realize a profit during his or her lifetime but may still have a REOP. In practice, however, not all assessors are this sensitive to the realities of an artistic calling.[50] 

Thus, while the Income Tax Act does allow for certain deductions and while these are theoretically available to musicians, they may be difficult to claim and are, even then, not a suitable replacement for a tax credit.

How Would a Tax Credit Work?

Unlike deductions, which reduce your income base, a tax credit functions by providing a dollar-for-dollar reduction in the amount of actual tax payable by a taxpayer. The amount of the reduction is determined by multiplying the relevant amount in the circumstances by a designated percentage.[51] These credits are either fixed-value or expenditure-based and either refundable or non-refundable. As an example of a fixed-value credit, the base amount of the current “personal tax credit” in Canada is $10,320 and this is multiplied by 15%.[52] Thus, every individual currently receives an annual credit of $1,548. This is also an example of a credit that is non-refundable, meaning that if you owe less than $1,548 in taxes, you do not receive a cheque from the government for the difference. Alternatively, there are expenditure-based tax credits such as the Ontario Sound Recording Tax Credit (OSRTC) and the federal film credit discussed earlier (the CPTC). These credits allow taxpayers to apply mandated percentages to eligible expenditures rather than to a fixed amount. In addition, both the OSRTC and CPTC are also examples of refundable credits and thus may result in the taxpayer receiving money back from the government. It is this form, namely that of an expense-based and refundable credit, that the proposed federal arrangement should follow. The rationale behind it being expense-based is that music projects come in a range of sizes and require various degrees of labour involvement and financial investment. Recording a three-song demo is a very different undertaking from sending an artist out on tour. To offer a standard credit to all eligible ventures would squander funds in some cases while resulting in ineffectual support in others. Rather, customized support can be achieved with a system that applies a standard percentage to the eligible expenses incurred by a project. At the same time, by making the credit refundable, it encourages private investment by the recipients of the credit as well as their partners and investors. As was discussed earlier, this can be instrumental in allowing a project to move forward as it provides a means of attracting financiers. In fact, under the current OSRTC, it has been found that approximately 33% of those projects that receive support would not be able to proceed without it.[53]

Is a Tax Credit Just a Music Industry Bailout?

It is important to note that while a tax credit would involve an initial expenditure by the government it is a misrepresentation to depict it as simply a handout to the music industry. More accurately, these credits should be viewed as investments by the government in achieving the goals of the tax system discussed earlier. The best representation of this can be seen by using the OSRTC as a case study. Introduced in 1998 and positioned under section 94 of Ontario’s Taxation Act, the OSRTC is a refundable expenditure-based credit like the one being proposed. Specifically, the credit is available to companies for up to 20% of the total eligible production and marketing expenditures incurred in the development and promotion of emerging artists.[54] In particular, the credit applies to record production costs (including artists’ royalties), music video production expenses, album marketing and a variety of other areas (notably excluding performance and manufacturing).[55] In 2009, the Ontario government provided $1.5 million in support through this credit to over 100 sound recording projects produced by 17 different music companies. These projects resulted in a total expenditure of $8.1 million dollars, or $6.6 million of private investments in addition to the credits.[56] The effects do not end there however, as the works created by such local investments trigger a chain reaction globally. Thus, these same recordings resulted in an additional $4.6 million in revenues to manufacturers and distributors, $4.2 million to retailers and $13 million in performance revenues to artists, promoters and concert venues worldwide.[57] Of course, while these numbers are impressive, the government’s concern is not economic growth abroad but rather the benefits that are felt at home. It is significant then, that of the $29.7 million in global revenues, $20.7 million (or 70%) were captured by Ontario residents and businesses.[58] In addition to stimulating the economy, these expenditures also service tax policy’s primary goal of raising government funds. Viewed from a plain cost-benefit perspective, the $1.5 million outlay by the provincial government resulted in $1.9 million dollars in revenues from income taxes, corporate taxes and sales taxes. In other words, for every dollar they spent, the Ontario government collected $1.32 in revenues.[59] Though these figures are not proof that a federal credit will bear the same results, they illustrate the strong prospect of success. In particular, they demonstrate that a federal investment in this area has the potential to service not only the goals of this cultural industry, but the economic policy incentives of the tax system as well. 

In addition to financial growth, support for this industry also serves the tax system’s goal of stabilizing the economy by creating and preserving jobs. Music represents arguably the most interconnected of all of the cultural industries in Canada. It forms an integral element in each of the digital media, film, television, radio and communications industries. Thus, as Stuart Johnston, President of CIMA, notes, “with these industries in mind, the music industry should be viewed through a wider lens than merely, for example, assessing the income of the individual artists and independent labels”.[60] In fact, entire departments in the companies of many of these other cultural trades are devoted to the integration of music into their works or services. Consider for example the television, film, and advertising jobs that are directly tied to the sound recording industry through the administration of music licensing. In an even more direct correlation, vast numbers of jobs depend on the success of the live music industry in Canada. Specifically, a large number of Canadians are employed by promotional and event management firms, concert venues and an array of offshoot activities ranging from event security to concessions and audiovisual operations. When we consider the fact that, as mentioned earlier, about one third of the projects that receive OSRTC funding would not proceed without it, it becomes apparent that more than just the artists and labels would suffer the consequences of its absence. It is perhaps this realization that triggered Ontario to commit to the sound recording industry as part of their “Open Ontario Plan” to help create more jobs in the province.[61] As the Ontario Ministry of Finance noted in their 2010 budget report, provincial credits and investments attributed to a rise of 3% in their creative-industry job market in 2009. In fact, despite the pressures of a global recession, this job market has increased by 12% since 2003.[62] Again, while these numbers may not predict the exact results that a federal tax credit will achieve, it is another illustration of the way in which tax reform in this area can accomplish the goals of Canadian tax policy.

To What Would The Credit Apply?

Having established what type of credit is needed, the next question becomes what expenses will be eligible and at what rate the credit will be applied. Again, it is useful to look at existing cultural tax credits in Canada to get a sense of the various approaches taken. Specifically the OSRTC, the CPTC and Quebec’s music credit, Crédit d’impôt pour la production d’enregistrements sonores (CIPES), provide valuable insight into these matters. In establishing the proposed federal credit however, it is important to recognize both the successes and the shortcomings of these existing systems so as to properly tailor this new credit to the realities of the industry

The appropriate place to begin is by looking at what projects will be eligible for the tax credit. Having just discussed the great results that have been achieved by the OSRTC in its support of recorded music production, it is unnecessary to reinvent the credit model in that regard. Rather, what is needed is modification of the existing eligibility requirements to properly reflect the needs of today. Given the recent technological and market changes in the music industry discussed earlier, the needs and the costs incurred by Canadian artists and music companies have been altered. Between 2007 and 2010, the average cost of recorded production for an album in Canada dropped by 17%. During the same period however, marketing costs for an album climbed by 34%.[63] The change in recording costs can be directly attributed to technological advancements such as Avid’s Pro Tools and other digital software, which have greatly streamlined and simplified the studio process. On the other hand, the steep rise in marketing expenditures is a byproduct of the digital proliferation of content from an international pool of competitors. As noted previously, this means that more innovative and costly international marketing initiatives have become necessary to connect with consumers. Given the dominance of U.S. conduits such as MTV, Pitchfork and the like, greater exploitation of foreign marketing channels have become necessary to reach even domestic markets. However, under the OSRTC model, only 50% of marketing costs that extend beyond the provincial border are eligible for the tax credit (compared to 100% of those within the province).[64] Given that international marketing is taking an ever-larger role in the Canadian music industry it seems that the federal credit will need to be more robust. In other words, a significant increase in the eligibility of cross-border marketing will be required if an earnest effort is to be made at aiding the success and longevity of Canadian music at home and abroad.

Moving away from the creation and sale of albums, the next proposal is perhaps the area in which the largest digression from the existing credit structures is necessary. As the names of both the OSRTC and CIPES imply, they are structured around the production of sound recordings. Unfortunately, this means that expenses incurred as part of concert tour production are not eligible under either model. As has been discussed however, the expenses and the income generated by recordings themselves are in fact falling due to digital piracy and changing consumption patterns. On the other hand, during the height of the Napster and KaZaA piracy boom, concert revenues in the United States rose from $1.3 billion in 1998 to $2.1 billion in 2003. This increase occurred despite the drop in CD sales by 26% between 2000 and 2003.[65] In fact, as of 2008 Canada and the U.S. had recorded their ninth consecutive year of setting new concert revenue heights.[66] Thus, as the music industry has continued to struggle with technology-driven shifts in the market, tour production has consistently proven immune to such hardships. Consequently, by supporting this area it will help to future-proof the industry to some extent against continued erosion. Along with marketing, the travel and performance of Canadian artists throughout domestic and foreign regions is the best way to infiltrate and introduce Canadian music to new markets and consumers. In addition to this cultural significance, the Canadian tax system’s goals of stabilizing the economy and promoting economic growth can be served by supporting tours. The basis for this assertion is that tour production represents a heavily labour-based element of the music industry. Depending on the size and nature of a tour it can provide work for set designers, sound technicians, tour management, roadies, and various other related positions. This is significant when we consider that great success has been had with other fundamentally labour-based credits like the CPTC and CIPES. Under both of those models, the credits are tied directly to the labour expenses of a given project. Thus, by incorporating the eligibility of tour production and labour expenditures into the proposed federal music credit it would encourage investment and job growth in this area. Such an achievement would again directly service the principles behind our national tax system. Given the inherent nature of international touring however, some concern may arise over subsidizing expenditures incurred on labour outside of Canada. Such a concern should not pose an insurmountable barrier however, as a compromise can be met by applying suitable percentages and requirements to those tours extending beyond our national borders. As with any tax policy it will be the task of legislative drafters to find the appropriate balance so as to meet the goals of the government while establishing a meaningful subsidy.

To Whom Would the Credit Apply?

Just as important as the sorts of projects to which the credit would apply, is the issue of to whom they will apply. This is the feature of the credit that allows it to effectively focus on promoting Canadian culture and supporting those efforts most in need. After all, the purpose of the proposed federal credit is not merely to bolster an arbitrary business sector, but rather to preserve a specific cultural amenity. Thus, the most effective way to do this is by establishing meaningful eligibility requirements for the content making up these projects. Looking again to the existing cultural credits it seems that a combination of the OSRTC and CPTC models present the best approach.

Firstly, under section 36(3) of Ontario’s Taxation Act regulations, the OSRTC limits eligibility to only those projects by “Emerging Canadian Artists”. Specifically, the artist (or 75% of the artists for a group) must be Canadian citizens or permanent residents who are ordinarily resident in Canada.[67] Immediately, this has the effect of ensuring that the tax credit is devoted to supporting only Canadian talent and thus furthering the goal of cultural protection. Additionally, “emerging” artists are those who have not previously had a gold recording (sold 40,000 units) as an individual or as a member of a group in the United States and either Canada, the United Kingdom, France, Germany, Asia or Latin America.[68] As a result of this limitation, the credit can ensure that it supports only those artists that have not yet managed to “break” and thereby provide funding to the artists most in need. Such an addition is also an efficient way of avoiding the issues that many claim jeopardize the effectiveness of the private grant system in Canada. Rather than providing support to only those artists or regions showing the most likelihood for economic return, the federal credit can provide a broad range of support to offerings from a variety of artists across the country. This directly accords with the fact that the credit’s primary role is to foster the development of Canadian musical offerings that may not otherwise be shared. Understandably, artists who have reached gold record status are significantly more likely to be able to support their own musical progress than those who have not. From an economic policy perspective, this will also allow to the government to keep their expenditures in support of this program to a reasonable level. In essence, the credit will seek to nurture the creation and dissemination of artist’s offerings until the point when they are ready to be pushed from the nest.

Clearly however, the music industry is about more than just the artists and thus the eligibility of the music companies involved in these projects is relevant as well. After all, the funding and effective control over these projects is often in the hands of the label or other sound recording company working with these musicians. Again the proposed federal credit can take guidance from the CPTC and OSRTC in this regard. To begin with, under the federal film credit an eligible corporation must be a taxable, Canadian-controlled business.[69] Similarly, Ontario’s Taxation Act regulations require that the company producing the sound recording not only be Canadian-controlled, but also that they be operating in the province for a minimum of 12 months prior. Additionally, the regulations oblige the company to have earned more than 50% of its taxable income for the preceding year within the province and to dedicate more than 50% of its business to sound recording activities.[70] Each of these requirements can be adopted on a national scale for incorporation into the federal credit. As one can imagine, these eligibility limitations prevent control over Canadian content creation being handed off to foreign companies or investors. As such, it will encourage domestic entrepreneurship and reinvestment within Canada’s borders. Again, not only does this serve to benefit the Canadian music industry, but it also advances the economic growth function of Canadian tax policy. Moreover, while it has been proposed that the federal credit be extended to include tour production, there is no reason that the same eligibility requirements cannot be extended to companies involved in that regard as well.

What Percentage of Eligible Expenditures Will Be Credited?

The final issue to address in regards to the operation of the proposed federal credit is the rate at which it will be applied. However, a full and proper examination of this matter is beyond the bounds and capabilities of our discussion here. In order to determine an effective rate for a meaningful and sustainable national tax credit, Parliament must conduct the necessary research and deliberation. With this in mind, we can only look to the other cultural credits currently available in Canada and venture an estimate as to the appropriate figure. Beginning again with the model that has provided the most guidance thus far, the OSRTC provides for a credit of 20% to be applied to eligible expenditures.[71] In relation to many of the other cultural credits, however, this rate is comparably low. In that province alone the Ontario Book Publishing Tax Credit (30%), the Ontario Film and Television Tax Credit (35%) and the Ontario Digital Media Tax Credit (40%) each exceed the rate offered to the music industry.[72] Similarly, as we have discussed, the CPTC uses a rate of 25% and in British Columbia the film production credit was recently increased from 25% to 33%.[73] Canadian music is as important a cultural commodity as any of these other industries and deserves a comparable credit rate. Additionally, as has been explored, there is great potential for economic return and job market growth in this industry. If for no other reason than to meet these tax policy goals, it seems that a greater credit rate should be introduced federally than currently exists under the OSRTC.

Why is a Federal Tax Credit Preferable?

As we have discussed in great detail, there currently exists a fairly effective music industry tax credit in the province of Ontario. Thus, this raises the question as to why a federal tax credit rather than provincial credits are preferable. The first answer to this is efficiency. As it stands, the only provinces in Canada with such credits are Ontario and Quebec and thus tax reform would be required in all of the additional provinces and territories in order for musicians and music companies nationwide to reap the benefits. This is not to suggest that the various provinces should not institute credits of their own but rather only to highlight the fact that a centralized system offers simplicity. In the recent report commissioned by CIMA, it was found that of the labels in Ontario not making use of the OSRTC, one of the main deterrents was administrative burden.[74] While the complexities of an effective tax system can only be simplified so much, it seems that a unified and consistent credit that is administered nationally under the Income Tax Act would garner more use. Another reason to support a federal credit is that Ontario has quickly become the centre of the music industry in Canada. Thus, as it stands, Ontario’s sound recording and music publishing revenues account for 78% of the national industry total. At the same time, 78 of the 103 nominations at the 2011 Juno Awards went to artists operating out of Ontario.[75] Thus, the concern is that a view may have developed in the other provinces that it is not worth instituting credits of their own. However, as recent interview research conducted by Nordicity Group Ltd. revealed, Ontario’s success has been due in part to the OSRTC attracting music entrepreneurs and artists away from the other provinces.[76] Consequently, a federal tax credit would serve to equalize the national playing field to some degree. That way, even if a smaller province like Prince Edward Island decides that there is not a sufficient local industry demand to create a provincial credit, the federal arrangement can cover the gap. This will ensure that local artists and entrepreneurs can still reap the benefits of a tax credit without moving their entire lives to Ontario. This is important given that most emerging artists are not in a position early in their career to give up their day jobs and depend exclusively on their music. Thus, by allowing them to access national credits from their home province, those who might have otherwise had to resign their efforts can continue to create content. A hopeful result of this will be the increase of distinctive cultural offerings coming out of these regions. Lastly, the establishment of a music industry credit at the federal level signifies an act of commitment by the nation as a whole to its musical culture. While this culture is diverse and often regional, Canadians could nonetheless take pride in such a unifying accomplishment.

Conclusion

Despite pressures brought on by technological changes in recent years, the Canadian music industry remains an important source of cultural development. At a time when the world is becoming ever smaller, it is this culture that not only unites Canadians but also distinguishes us as a nation. As such, it is time that the government resolved the glaring deficiencies in federal support to this industry. We began our examination by considering the financial predicament faced by today’s artists and music companies as well as the inadequacies of existing assistance programs. What became clear is that what this industry needs is a financial commitment from the nation’s government in the form of a new federal tax credit. Specifically, what is proposed is a credit that will function to serve not only the needs of this cultural market but the very principles of Canadian tax policy as well. Through investment in arguably the most interconnected of Canada’s cultural industries we can hope to promote economic growth, create jobs and achieve economic returns through income taxes, corporate taxes and sales taxes. Rather than a bailout, the proposed credit would function as a partnership between the government and the Canadian music industry to reach both of their goals. It is important to our nation’s identity that we continue to create content and not become passive consumers of foreign culture. As a country with a small population spread over a vast landscape, we depend upon the government to encourage and sustain this development. While other cultural industries such as film and television receive generous federal and provincial credits, the music industry remains largely neglected. It is time for Canada to realize and capitalize on the potential of this important cultural market. It is time to give credit where credit is due.

This is the most recent development in what has been a trend of amalgamation and acquisition in the music industry over the past number of years. By the end of the 1980s, the top major labels were Sony, Warner, PolyGram, BMG, EMI and MCA. By 1999 Universal Music Group became the largest label in the world having formed out of the Seagram purchase of MCA and PolyGram. Under this umbrella, Island Records merged with Def Jam and Mercury, while Geffen, MCA, and A&M merged and Interscope was acquired. In recent years the industry had been controlled for the most part by “the big four” major labels consisting Universal, EMI, Warner and after 2004’s merger, Sony/BMG. After today’s news, it seems that number has fallen to three.

IMPALA, the Brussels-based Independent Music Companies Association is calling on the European Commission to intervene and block the deal on anti-trust grounds. As Helen Smith, Executive Chair of IMPALA, stated: “Given that Brussels has taken a previous decision that Universal should not be any bigger, we would expect the sale to Universal to be blocked outright, even if it offers to increase the divestments it is prepared to make. The same would apply to Sony if it buys EMI publishing. IMPALA will be discussing this in detail at its next board meeting in ten days time.”

This proposed acquisition comes less than two months after the announcement of Universal Music and Live Nation Entertainment’s announcement that they’re forming a joint artist management venture. Live Nation happens to be the world’s largest ticketing, concert promotions and artist management company in the world. That deal brings together Universal’s group of four management companies under Live Nation’s Front Line Management Group which already manages 250 artists including the Eagles and Christina Aguilera. Universal on the other hand only entered the management game in 2007 when they acquired Sanctuary Group based out of the UK. As part of that deal, Universal had also inherited the management company Trinifold, who represented such artists as The Who, Robert Plant and Judas Priest as well as Twenty-First Artist, representing Elton John and Lilly Allen.

Universal Music Group has certainly been busy and it seems that only time will tell whether or not there are legitimate grounds on which this most recent acquisition can be prohibited. According to Billboard.biz, a major-label source pointed out that UMG/EMI’s combined market share will be approximately 36% worldwide, which is below the 40% global market share that causes concern for regulators.

Sources:

Alex Cosper, The History of Record Labels And The Music Industry, online: Playlist Research < http://www.playlistresearch.com/recordindustry.htm>.

http://www.billboard.biz/bbbiz/industry/record-labels/emi-publishing-goes-to-sony-label-to-universal-1005508552.story

http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/09/universal-music-live-nation.html

As Canada’s Juno Awards return to Ottawa next April, for the first time since 2003, fans may notice something new. The Canadian Academy for Recording Arts and Sciences (CARAS) announced on Wednesday that they have added a new category to the award show. For the first time ever, an award will be handed out to the Metal/Hard Music Album of the year.

In their press release, CARAS explained that,

“This new category is an award to honour artistic achievement, technical proficiency and overall excellence in the Canadian recording industry, without regard to album sales or chart position. Eligible albums include metal, metalcore, hardcore, heavy rock, thrash metal, death metal and their respective sub- genres including (but not limited to) nu-metal, power metal, grindcore, extreme metal, industrial metal, viking metal, folk metal, doom metal, gothic metal, speed metal, and sludge metal.”

While many of these genres may be foreign to the masses, there is no doubt that metal fans will rejoice at having this new award included as part of the show. Following the inclusion of a an Electronic Album award last year, this latest addition brings the number of categories for next year’s ceremonies up to 41.

Check out the CARAS press release here:  CARAS Press Release

Originally written on April 6, 2011

Introduction

Perhaps the most prevalent issue surrounding music today is how we consume it. The manner in which we have enjoyed music has changed constantly throughout history and it is currently in the midst of one of its most drastic transformations. The digital age has altered everything from the way we record music to the way we promote it, discover it, and listen to it. In a time when everything is at one’s fingertips in a manner of seconds via the Internet, music is no different and in recent years this has turned the industry on its head. At the heart of this technology-driven transformation there exists a contentious, and at times volatile, debate surrounding the matter of intellectual property. More specifically, copyright has been the focus of recent discussion as the Canadian Government and courts seek to strike an appropriate balance between the interests of rights owners and the interests of consumers of music.

Looking at the history of the music industry and the effects of technological advances, we will examine the transformation with a view to understanding the recent judicial and policy responses. Specifically, we will gauge how copyright law and policy has been able, or failed, to strike this balance to date and consider what the future might hold.

The History of the Music Industry

Without delving too deeply, it is important to look at how the music industry has developed over the years in order to understand the way that technology has continuously played a key role. Such a retrospective is also necessary to gain a full understanding of how and why copyright has become a relative battlefield in recent years. Prior to the early twentieth century the way that music was consumed was very different. Unlike today, where we feel the need to take it with us everywhere, music was enjoyed as live entertainment. Through events like cabarets, vaudeville, and intimate shows, people heard and experienced music. It was not until the creation of technologies developed in the late 1870s by General Electric founder Thomas Edison, his competitor Emile Berliner and Columbia Phonograph’s Edward Easton, that recorded music could now be taken home.[1] With the ability to capture artists’ sounds onto vinyl cylinders and discs, there suddenly existed a product rather than an experience, which could be written, recorded, sold, and collected. The notion was attractive and by 1899 when The Columbia Gramophone Company went international (based in the United States, with offices in London and Paris), their sales of phonographs climbed to a million dollars for the first time.[2] This development marked one of the first fundamental and technology-driven changes in the music industry and authors of sheet music decried such advancements for stealing their content and destroying their market.[3] Striking a balance between copyright owners and users, the United States Congress responded with the creation of a “mechanical reproduction right”. This gave owners control over the terms under which their music could be recorded, while affording others the right to make subsequent recordings of the same music upon paying a royalty.[4]

Jumping ahead almost a hundred years, the Recording Industry Association of America (RIAA) reported in 1990 that the cassette now dominated the configuration of music purchases, holding 55% of the market compared to 31% for CDs (which became the most popular two years later) and 5% for vinyl LPs.[5] During this lengthy span of time, the medium had changed but the industry’s model and control over their product had remained essentially the same. Blissfully drawing in approximately $15 billion in sales in the United States alone in 1999, it seems no one in the music industry could have foretold the immense changes that awaited.[6]

Having begun in 1969 as a military computer network (ARPAnet), the Internet was only just acquiring a public persona in the early 1990s.[7] That being said, the number of Internet hosts (which function to allow users to serve content to the Internet) increased from 56,000 in 1988 to almost 4 million in 1994 and to over 29 million by 1998.[8] Throughout the decade, Internet usership was also increasing at a rate of approximately 100% per year.[9]

Specifically relevant to the music industry, it was in 1992 that the Moving Picture Experts Group, a working group of researchers established by the International Organization for Standardization and the International Electrotechnical Commission, approved the MPEG-1 (including the MP3) as the new medium for computer based audio files.[10] It was this compact, digital embodiment of music that was to become the “file” of the now infamous peer-to-peer (P2P) “file-sharing”. Created in 1999 by Shawn Fanning and distributed for free online, the introduction of the Napster software allowed those who installed it to share their MP3s with each other over the Internet.[11] The public reaction to the technology was immediate and by August 2000, Napster had 20 million users.[12] As with any successful technology, this P2P network had followers including Grokster, Limewire and KaZaA to name a few. Introduced the same year as Napster was shut down, KaZaA showed the continued popularity of file sharing, boasting the accumulation of 160 million users between 2001 and 2002.[13] To put this into perspective, “pirate” sites were seeing totals of more than 600 million free downloads each week in 2006.[14]

At the close of the decade, there was no denying that digital was the wave of the future and that the music industry was going through perhaps its first elementary change since the beginning of recorded music. The era of the physical product was beginning to fade. Piracy aside, by 2010 the iTunes Store lead all music retailers in the United States with a 28% share of the purchased music market while digital sales on the whole accounted for 40%.[15] As with any area of the law, such elemental changes in the realities of the market led to a slew of new legal questions and litigation as those with vested interests began to feel out the new territory and declare their concerns.

The Purpose of Copyright

Equipped with a view as to how the industry has changed, we must now turn our attention the primary object of this exercise. Namely, we will look specifically at the crucial role that copyright has played and continues to play in balancing the interests of those involved. Fundamental to this examination is determining what role it is that copyright is meant to play in our society. Unfortunately, recent litigation and news headlines have caused many of us to associate copyright with a source of conflict that is personified by large companies suing the public. In reality however, copyright is meant to strike a balanced harmony between content owners and the public. The objective is to afford owners a set of narrow and exclusive rights that are granted in exchange for the publication and eventual dedication of their work to the public domain.[16] Professor Litman, of the University of Michigan Law School, describes this compensation model as one that has

permitted authors to earn enough money from the works they authored to make it worthwhile for them to create the works and make them available to the public, while not allowing them to impose unwarranted conditions on the public’s use of their works.[17]

Essentially then, what copyright law seeks to do is administrate this exchange and this balance between the copyright owners and users. It is important to keep this fundamental purpose in mind as we move forward in our examination of copyright.

Under Part I of Canada’s Copyright Act we see much of what constitutes the owners’ share of the balance. Exclusive reproduction and performance rights (s.3), author’s moral rights (s.14.1) and a copyright subsistence term of “life of author” plus 50 years (s.6) provide owners with the protection and compensation of which Professor Litman speaks. Additionally, Part II, and specifically ss.15 to 18, flesh out some of the intricacies pertaining to sound recordings and s.82 provides for levies on blank audio recording mediums.[18]

Counterbalancing the scale, the “fair dealing” provisions in s.29 (discussed more fully later) and Part VIII of the Act, regarding “private copying”, represent the rights of users in interaction with these protected works. Given the recent issues surrounding P2Ps, s.80 is of particular importance in that it precludes users from being found liable for reproducing sound recordings for personal use onto audio recording mediums. As noted by s.80(2), this right is tempered by not being extended to copying done for the purposes of selling, renting or communicating the music (whether publically or by telecommunication).[19] As lawyer Robert Piasentin notes, “as a result, on a strict reading of the Canadian Act, the sharing of MP3s through P2P networks is arguably prohibited while the actual copying is permissible”.[20] With this groundwork in mind, we can now begin to look at the way that jurisprudence has dealt with these competing concerns, as well as understand what some recent developments might mean for the future of copyright in Canada.

A Judicial History

As with our examination of the music industry’s past, we cannot limit our investigation of the judicial history to a purely Canadian perspective. Like many areas of the law, Canadian copyright is affected and influenced by developments in the United States and so they are an important element in our discussion. A good place to begin then is by looking at what has been tagged the “Betamax” case. This ruling came out of the Supreme Court of the United States and centered on Sony’s manufacture of the Betamax VCR which used cassettes to record potentially copyrighted content from television. The importance of this case is the fact that it marked a “technology neutral” approach to the law.[21] As Justice Stevens stated, it was imperative that they

strike a balance between a copyright holder’s legitimate demand for effective – not merely symbolic – protection of the statutory monopoly, and the rights of others freely to engage in substantially unrelated areas of commerce. Accordingly, the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses… the business of supplying the equipment that makes such copying feasible should not be stifled simply because the equipment is used by some individuals to make unauthorized reproductions of respondents’ works.[22]

Thus, despite the attempt by the major Hollywood studios to put an end to this “threatening” device, the courts had taken a definitive stance against suppressing technology. Similarly, when the RIAA brought their suit against the manufacturers of the portable Rio MP3 player, the US courts would not come to the music industry’s aid. Rather, they ruled that the copying of songs from purchased CDs to one’s computer and then to the device amounted to mere “space shifting” and accorded with the purpose of the Audio Home Recording Act of 1992.[23] The purpose, of which they spoke, was to “ensure the right of consumers to make analog or digital audio recordings of copyrighted music for their private, noncommercial use.”[24]

In an important Canadian example, the Supreme Court of Canada addressed the intersection of copyright and technology in the case of CCH Canadian v. Law Society of Upper Canada. This time in the context of a photocopier service, the court affirmed what Betamax had said 20 years earlier:

A person does not authorize infringement by authorizing the mere use of equipment that could be used to infringe copyright. Courts should presume that a person who authorizes an activity does so only so far as it is in accordance with the law… This presumption may be rebutted if it is shown that a certain relationship or degree of control existed between the alleged authorizer and the persons who committed the copyright infringement.[25]

In response to an Australian case that had taken the opposite view[26], Chief Justice McLachlin stated that such a finding “shifts the balance in copyright too far in favour of the owner’s rights and unnecessarily interferes with the proper use of copyrighted works for the good of society as a whole.”[27]

Finally, the case of BMG Canada Inc. v. John Doe struck another apparent victory for users, but this time tempered with a warning from the Federal Court of Appeal. The record labels alleged that some 29 users had downloaded 1000 copyrighted songs and so they brought a motion for disclosure of the users’ identities by five Internet service providers (ISPs). The court rejected the motion on the basis of insufficient evidence but more importantly, the Federal Court of Appeal admonished the trial court for prematurely concluding that the ruling in CCH was applicable to downloading.[28] Justice Sexton was quick to add that the court was not ruling on the issue of infringement in the case but provided the following thoughts,

Modern technology such as the Internet has provided extraordinary benefits for society, which include faster and more efficient means of communication to wider audiences. This technology must not be allowed to obliterate those personal property rights which society has deemed important. Although privacy concerns must also be considered, it seems to me that they must yield to public concerns for the protection of intellectual property rights in situations where infringement threatens to erode those rights.[29]

These cases are mentioned to provide more than a simple record of jurisprudential history. They are important in demonstrating the approach that courts have taken to creating balance in the realm of copyright. Unfortunately however, they also provide a comparison for just how far in the opposite direction the courts, especially in the United States, have gone in recent years in relation to P2Ps.

Judicial Rulings: P2Ps

An important concept to understand is that under the old music business model there was an intersection between copyright law and traditional property law. When one purchased a CD they became the owner of that physical manifestation and could do with it as pleased (within reason). As Justice Binnie of the Supreme Court of Canada affirmed, “generally, the copyright owner does not by virtue of his or her economic rights retain any control of the subsequent uses of authorized copies of his work by third party purchasers.”[30] With the introduction of MP3s and P2P services the mathematical formula changed so to speak. In the previous model there was a single physical, purchased copy being transferred from one person to another, while under the digital regime the person sharing the music does not relinquish their copy. In essence, each time someone shares a track by allowing another to download it, an additional copy of the song springs into existence. This demonstrates how the industry was thus losing control over their product and provides the backdrop against which the major record labels and the RIAA waged their war on P2Ps.

When the Napster case came before the courts many were surprised, given the results in Betamax, that the ruling was in favour of the record labels. Despite Napster’s assertions that the file sharing occurring through their service was not for any commercial purpose, the court said that users were getting for free what they’d otherwise have to buy.[31] The court went on to find the site responsible for vicarious and contributory liability in violation of copyright law. The ruling apparently resulted from Napster’s inability to monitor illegal downloading while being aware of the possibility of such activities.[32]

Following Napster however, a similar ruling was handed down to another P2P site called Aimster. The importance of this ruling was that the site was found liable despite avoiding the apparent missteps of its predecessor. Neither the posting of a disclaimer concerning illegal use, nor the fact that encrypted files prevented the site from being aware of infringement were enough to protect them.[33] Finally, KaZaA and Grokster faced the same fate. In contrast to the Napster approach, which used a centralized index of the MP3s held by its users, these networks operated by turning each users’ own hard drive into an accessible directory from which the files could be downloaded.[34] Despite the fact that no files ever passed through the sites, the court maintained that the P2Ps had created and distributed their software with the intent of gaining financially (via advertising) from the illegal activities of their users.[35]

When one compares the results in Betamax with those of the P2P cases it becomes quite apparent that there was a shift away from the “technology neutral” approach. Much like the VCR, there are undoubtedly substantial and lawful uses for file sharing technology and yet the courts seemed to ignore it. These technologies create numerous advantages and opportunities in an era of globalization where we interact and shares information socially and in business over great distances. At the very least it meets the obliged standard from Betamax of merely being “capable of substantial non-infringing uses”.[36]  It is also unquestionable that Sony developed the Betamax technology for financial gain and yet it seems that in regards to this motive, file-sharing sites have been held to a different standard. Given that so many facets of our daily lives have gone digital, one would not be overstating the matter to say that a file sharing technology has more substantial legitimate public worth than that of a VCR. Perhaps a more pertinent comparison is to look at how the Internet itself, as a more analogous technology, has been addressed.

In the case of SOCAN v. CAIE (Tariff 22) the Supreme Court of Canada held that given the massive amounts of con-copyrighted material accessible online, it is not possible to hold ISPs responsible for those who use it for infringing purposes. ISPs are instead entitled to presume that their services will be used in accordance with the law and, despite knowing that infringing use is possible, an ISP would have to cease to be content neutral in order to be found liable.[37] As the court noted, s.2.4(1)(b) of the Copyright Act shields such providers from liability, including “all software connection equipment, connectivity services, hosting and other facilities and services without which communications would not occur”.[38]

It is curious why this same approach has not been taken to P2P services. While, on its face, it appears that the “content neutral” concept differentiates sharing networks from ISPs, such a distinction is more apparent than real. Napster merely provided a forum for exchange and this cannot be said to be drastically different from what ISPs provide. In the case of Napster they were able to guarantee 98% assurance that their service would be used for only legitimate purposes and still the court ruled against them.[39] Certainly ISPs (and likely Betamax as well) would not be able to assure 98% legitimate use and yet they have been protected. Once online, there is no telling what materials and content users will choose to share with one another or the public. As Justice Binnie noted however,

there is a public interest in encouraging intermediaries who make telecommunications possible to expand and improve their operations without the threat of copyright infringement. To impose copyright liability on intermediaries would obviously chill that expansion and development”.[40]

One is left scratching their head then when they look at the recent trend in relation to file sharing technologies such as the ruling in Napster. In an attempt to elucidate the difference in these cases one might be led to believe that Sony and ISPs have received more protection because of their standing. That is to say they are multinational companies with deep pockets and influential pull while the P2Ps have traditionally been start-up companies founded by digital natives and labeled quickly as “pirates”. This factor is one that must not go unnoticed and so we now turn to an examination of the parties with interests at stake in this struggle.

Labels and Lobbyists vs. Users

As one sorts through the copyright jurisprudence they must be alert to a certain qualification. Without fail, in the cases mentioned the plaintiffs have been large companies, whole industries and their lobbyists. It is no surprise then that most of us have the reaction discussed earlier when we hear the word copyright. We also cannot lose sight of the fact that is often those who can afford to litigate, lobby and contribute financially that have the loudest voices and the most influence. As Professor Litman again aptly articulates,

Commercial content owners (and their copyright lawyers) believe they are in a war for their own survival, and are committing extraordinary resources to ensure they emerge victorious. They are fighting the copyright wars using all of the public relations tools at their disposal. They are fielding armies of copyright lobbyists and making campaign contributions so substantial that members of Congress have started to wage turf battles of their own to get jurisdiction over copyright legislation.[41]

In contrast, the users remain a relatively unrepresented group, albeit the largest, and their voices go unheard. To date, the clearest way users have demonstrated their stance is simply through user action and the statistics are quite compelling. As we’ve already discussed, Internet and P2P usership skyrocketed in a very short amount of time. For the most part however, these P2P sites either cannot afford the litigation and will shut down when faced with costly and risky lawsuits, or have put themselves up for sale to the very ones seeking to dismantle them.[42] While it would be naïve to believe that these P2P sites were not self-interested or that they were altruistically fighting for users’ individual rights, they were still one of the few sources of advocacy that users had in this field.

Having successfully defeated Napster, the music tycoons sought to capitalize on the digital market with BMG and AOL Time Warner launching MuiscNet, Sony and Universal establishing Pressplay and EMI purchasing 40% of MusicMaker.com.[43] In an attempt to control the subsequent use of their content however, the labels’ services were filled with complex licence schemes, expiring downloads that required renewal and other user-unfriendly features.[44] In the end, users were not prepared to succumb to this one sided system and all three services failed. These foiled attempts by the labels were even included in PC World Magazine’s list of the 25 worst tech products of all time.[45] Seemingly unaware of how to cope, the RIAA responded by spearheading the industry’s efforts to regain control by launching 15,000 lawsuits against individual copyright infringers (file-sharers) between 2003 and 2006 alone.[46]

These failures and the ongoing rash of litigation in the United States only seem to demonstrate how far the copyright owners and users still are from existing in harmony. Given that Canada has taken what Piasentin refers to as a “wait and see” approach to developing the law in this field, it would be absurd to claim that a workable copyright balance has already been established in this country.[47] Indeed, one problem contributing to the continuous struggle in Canada is that copyright legislation has not undergone a fundamental overhaul in years and yet technology and user patterns have continued to develop. As such, there remains a great amount of uncertainty as we continue to struggle with applying old copyright law to the realities of the new digital realm. Thus we now turn our attention to a discussion of what the future of copyright in Canada might hold.

The Future: Bill C-32 and Beyond

The Copyright Act underwent its last reformation in a two-phase initiative that spanned from 1988 until 1997[48]. Since that time, Bills C-60 and C-61 marked failed attempts to pass amendments and so the Act has gone without significant revision while the realities surrounding it have transformed.[49] As discussed earlier, one need only look to the immense changes that took place in the music industry at the end of the 1990s to understand how quickly things are shifting.

Thus, it has been with great anticipation and cautious scrutiny that copyright owners and users alike have followed the ongoing development of Bill C-32, introduced in June 2010 as the Copyright Modernization Act.[50] This bill marks the most recently proposed amendments to Canada’s Copyright Act and an attempt to bring the Canadian standards in line with the World Intellectual Property Organization’s (WIPO) Copyright Treaty of 1996. Like every development in this field, Bill C-32 has garnered opposing reactions from interested parties. As of just recently however, it appears that copyright reform will once again have to wait. On March 26, 2011 Parliament was dissolved following a vote of no confidence and so Bill C-32 was scrapped, having only passed a second reading in the House of Commons.[51] Nevertheless, the bill provides an important lens through which to gauge the future of copyright in this country. As Founder and Director of IP Osgoode, Giuseppina D’Agostino noted, it will likely be months before another bill is introduced but the new government will have the Bill C-32 discourse to consider.[52]

In looking at the bill, it seems that the government was indeed trying to again strike a balance in the field of copyright. There were some user-friendly additions as well as some that catered to copyright owners. Unfortunately, when these amendments are considered together it becomes quite clear that had the bill passed it would’ve represented another step towards imbalance in favour of copyright owners. In order to understand why this is the case, some of the various proposed amendments must be explored.

Bill C-32: Expanded Fair Dealing & User Rights

Under s.29 of the current Copyright Act there exists what is known as the “fair dealing” provisions. This section lists a finite group of purposes for which copyrighted materials can be used without infringing copyright. Thus, fair dealing has the effect of carving out a collection of users’ rights in the areas of research, private study, criticism, review and news reporting.[53] Speaking for the court in the case of CCH v. Law Society of Upper Canada, Chief Justice McLachlin explained the importance of fair dealing, noting that it plays an integral part in the Copyright Act by maintaining the proper balance between the rights of copyright owners and users’ interests.[54] Thus, when Bill C-32 sought to expand the enumerated categories to include education, parody and satire it marked an apparent step forward in the battle for user’s rights. In addition, the proposal of a “non-commercial user-generated content” provision, nicknamed the “YouTube” or “mash-up” provision, indicated an important step forward in brining copyright up to date with the realities of usership.[55]

As throughout history, the record labels, artist associations and industry lobbyists were quick to denounce such “threatening” developments. The Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) proclaimed that the mash-up provision would “trample on creators’ economic and moral rights” and on the issue of fair dealing, questioned why if schools paid for desks and teacher’s salaries they should not pay for content as well.[56] In addition, ACTRA decried the bill as not being “technologically neutral” as it failed to extend private copying levies to digital audio recorders (DARs) despite legalizing “format shifting”.[57] Likewise, the Society of Composers, Authors and Music Publishers of Canada (SOCAN) claimed that the levies attached to blank audio recording media in the 1997 amendments had become obsolete in this digital age and that “devices” like the iPod now call for tariffs.[58] Such a suggestion has not gone entirely unexamined however, and even under the current system some have noted that levies on blank recording mediums unfairly tax those using them for unrelated purposes.[59] It is questionable then whether this should now be extended to DARs, especially when one considers that the MP3 player is giving way to all-in-one smart phones and tablets. Such devices have become commonplace in society and purchasers may never use them for music. It therefore hardly seems reasonable to impose such a tax upon all such device users to the benefit of content owners. Most recently, the Federal Court of Appeal settled the matter when they overturned a decision by the Copyright Board to certify a tariff on digital audio recorders proposed by the Canadian Private Copying Collective.[60]

Despite all of their condemnation however, as noted to before, the copyright owners came out ahead in the proposed amendments of Bill C-32. The cause of this unfortunate imbalance can be pinpointed to the bill’s newly designed s.41 bearing the heading “Technological Protection Measures and Rights Management Information”.[61]

Bill C-32: Technological Protection Measures (TPMs)

In 1996, WIPO (a specialized agency of the United Nations dedicated to intellectual property) adopted the WIPO Copyright Treaty, now consisting of 88 contracting party states.[62] As stated in its preamble, the purpose of the treaty is to ensure the protection of author’s rights in an effective and uniform manner while providing solutions to the issues raised by new economic, social and technological developments.[63] Under articles 11 and 12 of the treaty, a requirement for ratification is that member states implement legal protections and remedies against the circumvention of TPMs.[64] In short, TPMs are measures implemented by copyright owners to protect their content by restricting use of or access to the work. Copy-protected CDs, password protection, and encryption algorithms are just some of the “digital locks” commonly used. As it stands, Canada has yet to ratify the treaty, however Bill C-32 sought to implement TPM provisions in accordance with these requirements. The Bill’s proposed amendments to s.41 of the Copyright Act would have operated much to same effect as the United States’ Digital Millennium Copyright Act (DMCA). Specifically, this new section would have prohibited anyone from circumventing TPMs, providing services with the primary purpose of circumvention, and manufacturing, importing or distributing devices with such a purpose.[65]

It is the implications of these proposals that tip the scales in favour of copyright owners. As Dr. Geist, the Canada Research Chair in Internet and E-Commerce Law at the University of Ottawa, explains

All the attempts at balance come with a giant caveat that has huge implications for millions of Canadians. The foundational principle of the new bill remains that anytime a digital lock is used – whether on books, movies, music or electronic devices – the lock trumps virtually all other rights. In other words, in the battle between two sets of property rights – those of the intellectual property rights holder and those of the consumer who has purchased the tangible or intangible property – the IP rights holder always wins.[66]

It becomes quickly apparent then, that any headway made for users’ rights by the expanded fair use or “mash-up” provisions are, in actuality, of little substantial value. So long as copyright owners implement their digital locks, the previously “threatening” allowances made for users’ rights are reduced to paper tigers. Dr. Geist believes however, that is still possible for Canada to comply with the WIPO standards and preserve balance in copyright. In fact, he says it may be as simple as adding a provision that circumvention will not be prohibited when undertaken for lawful purposes.[67] With respect, I believe that even such an inclusion, while important, would fail to address a fundamental issue. The purpose of copyright is not only to protect owners, but also to foster creation, learning and innovation by providing the public with access to content. A legal system that supports digitally locking this content will make it more difficult for the public to access such materials, even legitimately. Whether it requires purchasing legitimate circumvention software or a greater technological aptitude on the part of the user, the effect is still one of a reduction to access. On a more philosophical level, it should be noted that there is a negative connotation that accompanies a law which requires users to “break” a lock before using content. Whether it is intended or not, the message is that fair use is not wholly encouraged or something that should be fostered.

Where Do We Go From Here?

Having seen what the future of copyright in Canada could have very well looked like, we are left with the issue of where we go from here. An important question that must be addressed is one which has lingered in the background of the copyright debate since the time of sheet music. To put it bluntly, should the government and the courts be intervening to keep the business models of days past alive? In the past, it seems the approach of the courts was to support innovation and allow industries to catch up. We saw this in the case of the sheet music business as well as decades later with the VCR, amidst cries from the Motion Pictures Association of America (MPAA) that it was the Boston Strangler of their industry.[68] At some point however, things changed.

It seems that the focus of copyright, or at least the discussion surrounding it, has altered over time. Originally premised on a system of balancing rights, it then became focused on economic incentives, and most recently on the issue of access and control.[69] As Professor Litman explains, owners believe the only way to protect themselves is to have power over not only initial access, but over all subsequent acts of access to their work and thus

copyright is now a tool for copyright owners to use to extract all the potential commercial value from works of authorship, even if that means that uses that have long been deemed legal are now brought within the copyright owner’s control.[70]

Certainly that does not reflect the purpose of copyright and as we mentioned at the beginning of our examination, it is important to keep the purpose in mind at all times. Copyright law is meant to administrate a balance between the rights of the public content owners. Nowhere inherent in this is there the obligation to protect the business models of the day.

Returning to the music industry as the touchstone of our analysis, the introduction of piano rolls, radio, television and the Internet have all marked the supposed end of the business. Nevertheless, the industry is very much alive today. During the height of the Napster and KaZaA piracy boom in the United States, concert revenues (which traditionally go directly to the artists) rose from $1.3 billion in 1998 to $2.1 billion in 2003. This increase occurred despite the drop in CD sales (the bulk of which goes to the labels) by 26% between 2000 and 2003.[71] Similarly, BMI, who collect royalties for songwriters and artists, reported revenues of $637 million in 2004 (an increase of 6.8% from the year before).[72] During this same period however, the major labels were having us believe that the industry was floundering and that without stricter copyright regimes the music trade would up and vanish. It is true that technological advances are causing a market breakdown in the recording industry because the marketplace has been so drastically shocked with extremes. Due to “free music vs. overpriced CDs”, a fair market price has not yet been established.[73] This is the reason that labels are in trouble. As technology has developed, the record labels have made it their prerogative to litigate and suppress rather than adapting. As futurist Alan Kay once famously said, “the best way to predict the future is to invent it” and unfortunately the music industry has been preoccupied with fighting the future instead.

There have been numerous suggestions made for revitalizing and re-monetizing the industry ranging from “online tipping” or “pay what you want” models, to ISP levies, subscription models and compulsory statutory licence regimes. Some have been implemented already and others have become subjects of debate unto themselves. However, these matters are a subject for discussion and analysis beyond the scope of this essay. Rather, the message to be taken from the music industry’s example is that it is not an effective business model to fight technology. Nor should this be the path taken by copyright reform in Canada.

It is not a revolutionary step to acknowledge that nothing created is wholly “new”. It is this realization however, that demonstrates why it is in the interests of society to establish a copyright regime that encourages rather than stifles user interaction with content. Unfortunately, as Professor Litman identified, “recently, copyright legislation has seemed to be a one way ratchet, increasing the subject matter, scope and duration of copyright with every amendment”.[74]

Bill C-32 is the clearest indication we have of where copyright reform in Canada is headed and as we’ve seen, it’s unbalanced and disheartening. The labels, lobbyists and copyright owners are doing their part to fight those technologies they find threatening and to suppress any expansion of user rights. This only represents one half of the interest base however and thus users need to speak up as well. The purpose of copyright is balance and it is clear that it has not yet been achieved. It is also apparent that technology is changing the marketplace evermore quickly and copyright reform cannot afford to be put off any longer. Copyright in Canada must adapt to the realities of the day rather than trying to force an old paradigm to fit and this must always be done with the fundamental purpose of copyright in mind.

In 1947 Wynonie Harris recorded “Good Rockin Tonight”. In 1950 Leo Fender released the first mass-produced, solid-body electric guitar enabling guitarists to play louder hornlike solos. In 1951 Todd Storz and Bill Stewart turned around Nebraska-based radio station KOWH by establishing the Top 40 format. In 1952 Alan Freed hosted the “Coronation Ball” and in 1953 Elvis Presley walked into the Memphis Recording Service. Many argue over when exactly rock n’ roll was born but there are definitive people and events that were irrefutably crucial to its development.

To truly appreciate and understand the music of today it is helpful to have some recognition of where it originated. For every genre, style, and instrument there were those who pioneered or excelled at them and who have shaped the contemporary version that now exists. John Milton Cage Jr. is one of these pioneers.

His influence can be felt in almost every type of music from country to hip-hop to heavy metal. It was not just a style that he helped to create but rather a method, technique, and revolutionary approach to music that is his legacy. To understand what exactly his contributions are we must first look at the life of this multifaceted artist.

John Milton Cage Jr. was born in Los Angeles in 1912. It was in California where he apprenticed under his idols Henry Cowell and Arnold Schoenberg at The New School for Social Research and began his study of music. He experimented with percussion and non-traditional instruments where upon realizing that he lacked an ear for harmony, began using rhythm as the basis for his music. He then began creating his own new instruments such as the prepared piano whereby screws, strips of rubber, and other objects are placed between the strings in order to alter character of the sound. As well, in 1939 while at the Cornish School for the Arts he composed Imaginary Landscape No. 1 which used record players as instruments similar to the turntables of today.

As Cage continued to develop his musical knowledge he became fascinated by the Taoist focus on chance. He soon employed this idea in his compositions, flipping coins to determine movements rather than his own personality, intention or expression. He further developed this concept and in 1969 created the mixed-media piece HPSCHD. This employed a computer to create random sequencing for seven keyboards, fifty-two tape recorders playing random computer-generated ‘tunes’, fifty-two film projectors and sixty-four slide projectors showing scenes of space travel from old science-fiction movies. Perhaps his most famous work however is 4’33” written in 1948. Consisting of 3 movements of silence, the piece showed that there can never be real silence and when listening to this work, anywhere at any time, it is the random sounds that occur all around which become the music.

Today, Cage is considered the pioneer of chance music and the use of non-traditional instruments. Perhaps most significantly, he is also considered a pioneer of electronic music. Years before the invention of the synthesizer, he was exploring electronic sound sources as well as turntables, amplification and oscillation. Not only in music have his effects been felt, but also in the literature and performance art which he dabbled in as well. It is interesting to consider John Cage’s achievements in light of today’s music environment and pay credit to his influence.

Perhaps the best way to examine the scope of Cage’s contributions is to look at the way different genres have developed and put into use the very techniques and concepts that he helped to create. Having been credited as a key artist in the inaugural use of electronics in music, a picture of Cage’s importance today already begins to form. One cannot listen to a song within the fields of electronica, trance, house, and the like without hearing was in essence a direct correlation to his concepts. The use of rhythm rather than harmony as a defining basis for the music and the evident ubiquity of sampled sounds are perfect exemplars. These styles of music and their subgenres became noticeable beginning in the mid 1980’s and early 1990’s with such now famous artists as Paul van Dyk, ATB, and Daft Punk. Typically, the instruments used include synthesizers, keyboards, drum machines, sequencers, and samples. As well, turntables are one of the genre’s defining features and as noted, were being used by John Cage as early as the 1930’s. Granted the form and technique he used was perhaps more basic, but that is what was necessary to build today’s adaptation.

In keeping with Cage’s contributions electronically and rhythmically, the mid 1970’s arrival of industrial music owes much of its current form to his patronage. Similar to the electronic styles discussed there is focus on rhythm and percussion as well as the use of electronically generated ambient sounds and effects to create dark and heavy moods of the music. Whilst Cage focused on removing the human planning from his music, industrial uses the presence of sound effects and distortion to create a mechanical and dehumanized sound. While perchance unknowingly, bands such as Nine Inch Nails, KMFDM, and Canada’s own Skinny Puppy, who dominate the genre, are indebted to the progressive ideas of John Cage that began the evolutionary growth.

In a time when the sampling of sounds, other songs and the like has become such a prevalent part of music, it is difficult not to see the importance of an artist such as Cage. Looking at the genres of hip-hop, pop, and R&B, we see how using electronically generated sounds and beats are now commonplace. The success of the current MC and DJ relationship demonstrates how important the development of turntables as an instrument has been. It is as well perhaps the best example of Cage’s preference for creating music based on rhythm rather than harmony. Such is seen in the music created by artists ranging from Run DMC and Public Enemy to The Game and 50 Cent.

As we continue into the domain of rock, spanning from glam to experimental to alternative and heavy, the influence is still felt. Well known producer and musician Brian Eno is considered to be the father of modern ambient music. Strongly rooted in electronics and synthesized sounds, his work can be seen in collaborations with and production of such artists as David Bowie, The Talking Heads, U2, and his own Roxy Music. He even created the six second start up sound for Windows 95. One need only consider the instruments used and the vast importance of electronics in these examples to again return to and appreciate the progressive work of Cage decades before.

It has been sufficiently noted how John Cage’s experimental and, at the time, controversial methods and techniques have influenced the music of today. As one looks at the varied styles and forms of music that are popular in our current environment we see more so than ever the prevalence of technology as an instrument. Cage cannot be attributed with the creation of such advancements, but his work at the forefront of electronic music surely demonstrates his contribution to the evolution of music as a whole. As music and other entertainment forms such as film and performance have grown increasingly close as a business and an art, the importance of John Milton Cage Jr.’s mixed media works in the 1950’s and 1960’s must too be noted for their avant-garde quality. Though he died in August 1992, just weeks short of his 80^th birthday, his work is still recognized and performed today. With a Guggenheim Fellowship, awards from the National Academy of Arts and Letters, and Commandeur de l’Ordre des Arts et des Lettres in France, the Notable Achievement award from Brandeis University and as a laureate of the 1989 Kyoto Prize given by the Inamori Foundation, Cage’s work has not gone unnoticed. Therefore, despite the fact that many artists and fans may not fully appreciate the roots of the art they love, it remains still that Cage’s influences and contributions live on in the music of today.

Works Cited

John Cage: Composed In America. Edited by Marjorie Perloff & Charles Junkerman. Chicago: University of Chicago Press, 1994

http://moderecords.com/catalog.html#C

http://www.allmusic.com/cg/amg.dll?p=amg&sql=41:1037

http://www.bbc.co.uk/music/artistsalbums/

http://www.johncage.info/

http://www.newalbion.com/artists/cagej/

http://www.pbs.org/wnet/americanmasters/database/cage_j.html

In 2009 this is a practice that most find arcane, overpriced and inconvenient. The Internet has changed the way we consume music (and everything else) and people have less patience for the models of days passed. Rather than waiting for the latest magazine spread featuring an interview and photos of your favourite artist you can do a Google image search while perusing their Twitter entries. Instead of heading out to the store on release day you can surf to the iTunes store or whatever free sharing site has managed to get a hold of leaked tracks early. At the very least you can visit the band’s Myspace page and hear the tracks they’ve chosen to exhibit.

Admittedly, I was one of the reluctant music fans who actually enjoyed the traditional method. I found a certain charm in the anticipation between albums, knowing that the artists were touring and developing their next release. I enjoy looking through my music collection and considering the way the albums fit into the artist’s progression. I’ve never really been one for singles, always gravitating towards bands whose albums I actually wanted to hear from beginning to end. To this day, I still find digital downloads lack a certain sense of experience. They are certainly cheaper, more convenient and an iPod beats the hell out of a Discman but I feel like I’m missing something. It’s probably the same way people felt about the move away from vinyl (although, yes I know they’re back and actually growing in sales).

The fact is that the entire music environment has changed and is continuing to change. It took me a bit of coaxing, but over time I grew accustomed and began to see the overall benefits of such alterations. The charm in the new model is not the anticipation but rather the constant and immediate access. Instead of postulating about how the new record is coming along you can watch video diaries or chat directly with the artists. Instead of kids plastering their walls with photos out of magazines they create fan pages and online profiles to demonstrate their fandom. There is a constant release of ideas on both the part of the artists and the fans rather than hype.

For these reasons, the artist has changed with the times too. I remember when those who spent all their time on the computer were considered “geeks” and now it is not only cool to have an online presence, it is necessary. Facebook, Myspace, Twitter,… if your band can’t be found somehow it is now longer about stimulating anticipation but fading into obscurity. Some have taken to their new surroundings more reluctantly than others and some have done so more innovatively than others but it is a reality of the industry today, which if ignored may result in the end of an artist’s career. Music is still the key but people are no longer satisfied with the mere sounds. Fans expect a noticeable presence. It is the metamorphosis of the much more primitive experience I use to feel when I picked up a long anticipated record. The excitement comes from interaction rather than passive consumption and it will be the artists who take note that will drive the future of music.

It was big news when Nine Inch Nails mastermind Trent Reznor broke ties with long time label Interscope Records (owned by Universal Music Group) after the release of “Year Zero Remixed” in 2007. In an interview with the Australian newspaper The Herald Sun in May 2007, Reznor described his distaste for the major labels and their actions. He recounted how he had entered an HMV in Sydney only to find that his band’s new album was priced $10 to $15 more than most other releases. He told the paper that in a conversation with a label rep about the situation he was told, “basically it’s because we know you’ve got a core audience that’s gonna buy whatever we put out, so we can charge more for that. It’s the pop stuff we have to discount to get people buy it. True fans will pay whatever”.

Since his departure Reznor has become the subject of a different topic. Recent actions by the artist have made him famous in the industry for not only his music but also his innovative marketing, promotional and releasing practices. Even when NIN still had ties to a major label, Reznor involved himself in such projects. Surrounding the release of 2007’s “Year Zero” he created a web-based alternate reality game (ARG) without the label’s involvement in an attempt to create a backdrop for the album. His goal, he said, was to create something he would be excited to find as a fan. There was no direct marketing monetization to be made from the project, but rather another platform by which to interact with the fans.

Nine Inch Nails is no stranger to effective marketing however. During their 2007 tour of Europe in support of 2005’s “With Teeth”, a viral marketing campaign for their next release began. USB key chains were found in the venue washrooms at their show that contained new songs as well as a noisy audio file. This file, when run through a spectrum analyzer, drew an audio wave in the shape of a phone number. The number led to answering machines that played back conspiracy theories. This complex trail was accompanied by various “fake” websites all over the Internet, which only served to increase the hype and speculation before “Year Zero” was released in April of that year.

More recently, Reznor broke the traditional mould again in 2008 with the release of his two-disc instrumental opus “Ghosts I-IV”. Free from label ties, NIN did things their own way and released the album in a number of different formats at various prices. “Ghosts I” (9 tracks) was free for download on the band’s site and the entire album could be downloaded for $5. A physical two-disc set could be purchased for $10, 4 vinyl LPs for $39, a Deluxe Edition with the CDs, an audio editing DVD, a Blu-ray slide show accompaniment, and a 48-page hardcover book for $75, and a Ultra-Deluxe Limited Edition set containing everything from the Deluxe set as well as 4 vinyl LPs and two Giclée prints signed by Reznor for $300. In addition, fans were encouraged to upload their own visual interpretations/accompaniments for the music to a special video channel.

It is no surprise then that NIN has once again taken innovative steps leading into their tour with Jane’s Addiction, appropriately titled the NIN/JA Tour. The first step was to provide fans with a free 6-song NINJA 2009 Tour Sampler download. In an attempt to maximize the free flow of tour experiences, the band also released a statement on April 28, 2009 permitting fans to bring personal audio and video recording devices to the North American stretch of tour dates. To discourage those that would take commercial advantage of the relaxed policy there are limits that prevent fans from bringing along a TV crew or a Pro-Tools rig to the show. However, the new policy is a drastic flip on the years of high security and prevention that has gone into keeping content under strict artist/label control (please click here to read the band’s statement).

In a final demonstration of the band’s commitment to fan interaction and innovation, NIN has created their own iPhone App that provides access to an interactive experience unlike any seen before. Uploaded to YouTube on April 6, 2009, a tutorial video led by band members walks fans through the use of its impressive features (please click here to see the video). Free to all, the application takes users to a site streaming with fan remixes, images from assorted shows and tours that can be downloaded as backgrounds, etc., band videos and a section whereby you can send and receive messages to other members. In addition, the iPhone’s GPS capabilities allows you to customize searches so you find and chat with other fans within a specified distance of yourself while perusing their profiles. The same feature lets the phone know if you are at a NIN show and allows to take and upload photos to the site immediately. Going above and beyond, the application provides links that take you via Google Earth to the location where NIN is plying their current show. In real-time, chats and photos being uploaded from this show will pop up for you to see and participate in.

In a time when everyone is still struggling with the traditional model of the industry to come up with the next big thing (an act, an image, an angle) there are a few individuals willing to test the boundaries and break conventional practices. A few years ago it would have been crazy to suggest giving away tracks online because albums equal money. You would be seen as shooting yourself in the foot to allow fans to record your shows since control meant limited supply and therefore money. People would question why you might devote the time and capital into creating free online games or applications that have no tangible monetization abilities because that would be a waste of money. Perhaps what the label reps failed to consider when they chose to take advantage of NIN’s fan base, was the fact that dedicated fans are (and always have been) the real money. Without those core fans an artist is nowhere. Trent Reznor understands this and has taken the time to develop this group. While giving away tracks, show privileges and access may seem frivolous it is one way in which NIN continue to provide their fans with the most comprehensive and innovative experience they can. The only question is what will they think of next.

Sources:

http://www.allmusic.com/cg/amg.dll?p=amg&sql=11:gifexqr5ld6e~T1

http://www.news.com.au/heraldsun/story/0,21985,21741980-5006024,00.html

http://en.wikipedia.org/wiki/Ghosts_I-IV

http://forum.nin.com/bb/read.php?18,641167

http://www.youtube.com/watch?v=kQf76VDWss4

In a recent post (February 24, 2009) the unorthodox marketing initiative of artist Josh Freese was discussed in detail. The following is an e-mail sent directly from Josh Freese to Bob Lefsetz (famous for his career spent as an American entertainment lawyer/author of “The Lefsetz Letter”/majordomo of Sanctuary Music’s American division) that Lefsetz published in one of  his many “mailbag” posts on April 11, 2009. Here Freese discusses the results of his unique approach thus far:

From: Josh Freese
Subject: Checking in with an update.

Hi there Bob. How are ya?

So, I wanted to check in and give you an update on what’s been going on just after the first week or so of my records release. My label, “Outerscope Records” (that’s me, my girlfriend and our nanny when the kids are asleep) is proud to report that  I’ve sold about 150 of the $50 of the packages and all 25 of the $250 packages (those went in the first 24 hours.) In less than a week I have sold 4 of the $500, 2 of the $2,500, 2 of the $5,000, and the big old $20,000 package! No one has bought the $75,000 package yet but I’ve had someone fairly serious inquiries about it (still only “talk” at this point though.)

Any-hoo, I just started my “lunches” with people and I’ve been on the phone nonstop for the past few weeks with people who have bought the record (and a phone call option). It’s actually been completely hectic and I’ve just finally got my head above water for a minute. My friends were joking the other day that I may be the only person in the music business that considers himself to be selling TOO MANY RECORDS right now! These phone calls and lunches are a lot to keep up with and I’ve hardly just begun. I still stay “BRING IT!” though. I made my bed and now I gotta’ sleep in it.

I’m still waiting for some numbers regarding how many downloads or just regular CD’s I’ve sold but my expectations aren’t very high. But if it all stopped right now I can walk away feeling successful about  the whole thing and I am pleasently surprised at how many of the “packages” have sold. I truly did not expect them to sell so well. And sure it’s been great to make some money doing it, but the most rewarding part has been getting feedback from people about how much they liked what I’d come up with. Or how much they laughed while reading the stuff at their desk or in the studio with their friends huddled around the computer. Getting the nod from smart, creative people always feels good. I’ve received emails and phone calls ranging from guys in Pearl Jam, to Tony Hawk to Trent Reznor to Billy Gibbons to Devo to top producers and label people all loving it and giving me big props on the whole thing. I had the head of marketing at a very prestigious and famous company (who shall remain nameless) tell me that she “hung her head in shame for a week after seeing my marketing plan.” It was like, here she was doing this for a living and some dumb-ass rock drummer came along and smoked her at her own game… or something along those lines (sorry, I think I just pulled a muscle from patting myself on the back.) We had a laugh about it and I thanked her for the compliment. Point being, it’s been nice receiving so many accolades from people I admire and from professionals who deal in this world every day. I also love the fact that this has nothing to do with drumming and writing music but EVERYTHING to do with being creative and unique.

I’ve got 6 of my 25 lunches under my belt now and it feels pretty good (and weird.)  I’ve got one tomorrow and I’m doing 2 back to back on Saturday. I schedule all lunches from 11 AM to Noon so I can continue on with my “normal life” of showing up and doing sessions. So far people seem surprised and appreciative when I call them at home in Texas or Iowa or Greece or Australia (called all those places and another 100 cities so far.) The guy from Florida that bought the $20,000 package and I have been joined at the hip since Sunday and I won’t even go into all the stuff that we’ve done in the past 4 days but I’ve already gone above and beyond for him and we’re continuing to have a blast. I’ll start posting stuff soon on my website and on youtube but just to give you a quick idea…mini-golf with Maynard James Keenan, pizza at Mark Mothersbaugh’s house, sensory deprivation tank sessions, a signed snare drum I used on a Nine Inch Nails tour, slumber party at the Queen Mary, going to gigs of mine with me, pulling items out of my closet, etc, etc……He’s a great kid and a friend for life. We’re having him check out of his hotel and stay at our house tomorrow night. It’s a LONG, LONG story that I’ll write about later. You can laugh when I say this but it’s true when I tell you that he came into my life for a reason other than just the $$. I actually feel bad about taking the $$ because at this point I’m not hanging out with him or pretending to be his friend for the cash. He got all of his stuff (and a bunch more that wasn’t on the original menu) a while ago. He’s a sweet 19 year old kid who’s had a really rough last couple years (like REALLY fucking rough.) Like….this money he spent to come out here is part of a inheritance he received (you can fill in the blanks there.) I feel like his big brother and I’m trying to make this one of the best weeks of his life. OK, we’re getting a little too heavy here SO…for now here’s a shot of me and my first lunch date last week at the ol’ Cheesecake Factory. His name’s Andrew, he’s a photographer for the OC Weekly and a super guy! Bob….if you want I’l throw ya a free $500 package and we can go floating in Venice and then whip over to Sizzler sometime. I’m telling ya man….you’d dig it! Trust me…I’m a drummer.

Josh F-

Sources:

http://lefsetz.com/wordpress/