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CPCC Goes For Broke, Part One

Monday February 12, 2007

A remarkable week in music that started with the Steve Jobs call to drop DRM, followed by speculation that EMI will drop DRM, concluded with another critically important development - the Canadian Private Copying Collective, which administers the private copying levy, has asked the Copyright Board to increase the levy on blank CDs and add levies to electronic media cards (storage media) such as SD cards as well as digital audio players such as the Apple iPod.  There is much to consider here, which I will divide between the specific issues raised by the tariff application and the bigger story that is at work.

On the specific tariff application, I think the CPCC is going to have a tough time convincing the Copyright Board (and almost certainly the federal court) that the levy increases and extensions to other media are warranted.  The blank CD increase represents an astonishing request as the CPCC is now openly asking that more than half of the retail price of blank CDs to be comprised of levy costs.  A backgrounder on the CPCC notes that blank CDs cost about 50 cents and that the levy currently comprises 21 cents of that cost.  That is an enormous cost - 42 percent - and the collective wants to increase that by an additional 28 percent.  This is a staggering market distortion that will obviously face very stiff opposition.

The proposal to extend the levy to storage media and Apple iPods also face an uphill climb. The storage media usage data simply does not come close to supporting a levy.  The CPCC's FAQ says that its surveys suggest that 25 percent of content copied onto these cards is music and that 20 percent of people say that the last time they copied onto an electronic memory card, the content was music.   Put another way, 75 percent of content copied onto these cards is not music and 80 percent of people say that the content they last copied onto these cards was not music. These results are obvious to anyone who owns a digital camera, but apparently not to the CPCC.  While the Copyright Board's definition of ordinary use opens the door to considering storage media, this represents bad, market-distorting policy that (if approved) would force the 80 percent of non-music copiers to subsidize the 20 percent of music copiers.

The attempt to extend the levy to Apple iPods is similarly flawed.

Leaving aside the fact that a court already struck down that levy, the CPCC argues that its revised definition of a digital audio recorder "is intended to excluded cellular phones, PDAs (such as Palm Pilots), or personal computers that also have embedded memory and can record and play music. However, the definition is intented to include Digital Audio Recorders that may also have secondary uses, such as calendar or address book functions, radio reception, data storage, etc."  The CPCC then argues that iPods would be subject to the tariff because they are music focused even though they store photos and play videos.  These distinctions appear to be me to be fatally flawed - is the Apple iPhone captured by the levy?  the Blackberry Pearl?  All of these offer music functionality but are not the primary use (I would argue that in my own experience music is no longer the primary use of the Video iPod either).

Much has changed since Palm last called their PDA's "Palm Pilots" (that would be 1998) and with the rapid convergence of devices, just about everything can be used to play music, record music, and do dozens of other things.  Establishing a levy on these devices is likely to regularly miss the target as the tariff definition - "a medium that is designed, manufactured, advertised and primarily used for copying sound recordings of musical works and is capable of being used to play sound recordings of musical works" - will catch devices it shouldn't and miss those that it should.

The CPCC claims that there is broad public support for the levy increases, but this is based on dubious survey data from Environics.  As I pointed out when the survey was first reported, the majority of survey respondents had never even copied music and were therefore ill-suited to render informed opinions about the levy.  Further, the survey left so many questions unanswered that it does nothing to improve our understanding of these issues.  Indeed, there is no doubt that the opposition to this levy will be fierce as every major device, cellphone, and camera manufacturer will join forces with retailers and storage manufacturers to oppose the levy.

There will understandably be considerable hand wringing over this latest proposal, yet it is only the opening salvo in what is likely to be years of hearings before the Copyright Board and the courts.  In my view, far more important is the bigger story at work here, as faced with the possible pressure of eliminating the levy altogether and the mounting desire for an alternative compensation system for P2P file sharing, the CPCC has chosen to go for broke and ask for millions more in levies over the likely objection of some its own board members.  More on this part of the story tomorrow.

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