Mobile music service rejects Canada, blames fees

Spotify, Pandora, Rhapsody, MOG, Thumbplay.

Millions of people in the United States and Europe are using these and other services to stream music to their mobile devices.

For monthly fees ranging from free to $15 (usually depending on whether you're willing to pay to avoid embedded advertisements), users can choose from millions of songs simply type in the name of a tune and enjoy it anywhere there's a decent cell signal.

But in Canada, the idea is barely getting off the ground, and one of the biggest players in the industry is blaming royalties sought by major record labels.

"These rates are astronomical," Tim Westergren, founder of California-based Pandora wrote in an email to The Canadian Press.

"As long as rights societies take this approach, they will prevent Pandora from launching to Canadian users."

Royalties agency seeks higher fee

Re:Sound, the agency that collects music royalties in Canada on behalf of record companies and performing artists, has filed a request with federal regulators.

'Canadian music labels are demanding that radio delivered over a mobile phone via the Internet pay over 20 times what radio delivered over AM/FM pays.' Tim Westergren, Pandora

Starting next year, it wants to charge web-based music sites that stream to mobile devices the greater of two figures: 45 per cent of the site's gross revenues in Canada or 7.5-tenths of a cent for every song streamed. That's on top of other royalties music services must pay to SOCAN, a separate agency that represents songwriters and music publishing companies.

The proposal, which needs approval from the Copyright Board of Canada, has prompted Pandora to abandon any short-term plans to come to Canada. Canadians who visit the company's website are told that, due to licensing restrictions, they cannot sign up for the service.

"Radio delivered over AM/FM in Canada pays a rate of 2.1 per cent of revenue," Westergren writes.

"In other words, the Canadian music labels are demanding that radio delivered over a mobile phone via the internet pay over 20 times what radio delivered over AM/FM pays."

Pandora officials also say rates are much lower in the U.S. and United Kingdom. Each country uses a different formula and classifies music services differently, so an apples-to-apples comparison can be difficult.

In the U.S., commercial webcasters pay just under two-tenths of a cent per song streamed and a minimum of $25,000 US per year. Forsome categories, U.S. regulators also stipulate that the total cannotbe less than 25 per cent of gross revenues.

In the United Kingdom, the rate for streaming music is just under 0.0796 pence roughly 1.2-tenths of a cent Canadian per song with an additional 15 per cent added for dubbing rights on some licences.

Other services consider Canada

Even though Pandora is turning its back on Canada, other services are willing to pay the fees.

"I don't think that would hold us back. It would just end up making the price to the consumer more expensive," David Hyman, CEO of California-based MOG, said in an interview.

"The consumer would suffer. Adoption would be lower because the price would be higher. But that's not surprising, you know. That's the music industry. They charge too much for everything."

MOG plans to come to Canada in the not-too-distant future, but has balked so far because of the country's relatively small population.

"There's a lot of additional engineering work that's required so we're going to another large country over in Europe [first]," Hyman said.

One service is already in Canada. Rdio started up in the summer with a relatively small but growing library, and CEO Drew Larner said the numbers look good. Rdio worked out licensing deals with SOCAN and Re:Sound last year.

'Why would you spend a lot of money trying to build a service in Canada when Canadians take so much without paying for it?' Graham Henderson, Canadian Recording Industry Association

"I believe there's money to be made in Canada. There's a desire to consume this kind of service, presumably, in Canada," Larner said from Los Angeles.

Re:Sound says its proposed 2011 fee structure is based on what exists in other countries, and says anyone who feels it is too high can make their case to the copyright board.

"I would encourage them and any other services to come forward to the hearing before the copyright board," said Re:Sound president Ian MacKay.

"Ultimately, it's up to the copyright board to determine what is effectively the fair market value of these rights."

Agency willing to negotiate

MacKay also says Re:Sound is willing to negotiate. He says the agency recently lowered its proposed rates for gyms and other fitness clubs that play music. That issue is also still being considered by the copyright board.

"We looked at it and said, 'OK, actually, we agree. We need to restructure the way this rate is,"' MacKay said.

The music industry, meanwhile, says its fees are not the problem. It says music-related businesses are reluctant to enter Canada because of the country's reputation as a file-sharing haven where music fans can download songs illicitly without fear of penalty.

"Why would you spend a lot of money trying to build a service in Canada when Canadians take so much without paying for it?" said Graham Henderson, president of the Canadian Recording Industry Association, which represents major record labels.

"[Canadians] just seem to have no appetite for a legal marketplace."

Henderson feels streaming-to-mobile services can have a future in Canada, however, and he would like to see deals worked out.

"Any service that involves remuneration for artists is something we're interested in," he said.