I've spent much of this month writing my formal objection to the Blank Media Levy proposal by CPCC to the Copyright Board of Canada.

Here I present my (as yet unfinished) document. Note that there are sections that will not be in the ultimate document since I've refined my argument somewhat - but I leave them here to show where I've come from and some of where I'm going to. A separate web page section of this web will be devoted to the actual document so other formal objectors and CPCC themselves can have access to it as required by the process. The final version is now available as a PDF

(Please ignore the formatting - this is a poor translation of the MS Word doc format they seem to want :)

Formal Objection

To the Statement of Proposed Levies to Be Collected for the Sale, in Canada, of Blank Audio Recording Media (File: Private Copying 2003-2004)

Revision 1.0

May 1, 2002

By: Richard C. Pitt
19344 119B Ave.
Pitt Meadows, BC
Canada V3Y 1J9

Phone: 604-644-9265
Fax: 604-465-2666
E-mail: richard@belcarra.com 

Declaration

I intend to participate actively to the process leading to the certification of the private copying tariff. Consequently, this constitutes my formal objection to the proposed statement filed by CPCC.

I have read the information set out in the Board's notice published in the Canada Gazette on March 9, 2002 with CPCC's proposed statement. I understand the duties that I undertake as an objector and intend to abide by them.

I will not be participating in the pre-hearing of May 23, 2002 at 10:00AM.

Background

I have expertise in the area of these proceedings and interest in these proceedings for several different reasons:

1. I am a consumer of the goods on which this proposal intends to levy
2. I am a businessman in the business of using the goods on which this levy is intended, for uses different from the reason for the levy.
3. I have been a participant and in fact a driver of the recent technical revolution in general and the Internet revolution in particular, both in Canada and in the rest of the world.
4. I have in the past been a technician working in the music recording industry.
5. I am working in the technology industry in the design and creation of products which use some or all of the items this proposal intends to levy upon.
6. I have in the past been an owner and manager of a retail stereo store, including the sale of recordings and playback hardware.
7. I have in the past been the manager of a retail computer store, and have sold all manner of computer equipment, supplies, and systems.
8. I have two teenage sons, both very computer literate, both into music, both with ability to purchase music or download and copy it (neither financially nor technically limited).

My opinions should be given weight in relation to the amount of time I have spent in and around the technology (computer and Internet) industry and my knowledge and acknowledged expertise in these areas. I have been actively in the computer industry for in excess of 25 years, and actively in the Internet industry since 1983, being co-owner of the first Canadian ISP (Wimsey Information Services) from 1991 until it was sold in 1995, and involved continuously at an ownership and managerial level since then in one or more Internet businesses. I am currently an owner and director of a business which designs and implements computer systems for the portable computer and embedded computer industry.

Overview of Objections

My objections to the proposed levy amounts and to their application to various recordable media fall into two different categories:

1 - Objection to the application of the levy on specific media

2 - Objection to the amount of the levy on specific media

It is my intention to show that the media which this proposal discusses are used more in the "playing" of music than in the "copying" of music, and that as such they should either not be subject to a levy, or should be subject to a levy amount which is significantly less than proposed.

It is my intention to show that re-recordable media should not be included in the levy.

It is my intention to show that levy amounts proposed are excessive in any case.

It is my intention to show that proposed levy amounts will adversely affect both the proposed recipients of the levy and the Canadian economy.

It is my intention to show that the application of the proposed levy, if upheld in regards to recordable media built into MP3 players, should be done either with a ceiling on a per Gigabyte basis, or with a flat levy per MP3 player regardless of the category or size of medium, and that accessory items which might be used in such players should not be levied.

 

Blank recording media of all types (with the possible exception of CD-R-audio) are used in the playing of music, and the copying of music is incidental to this process and should not be counted as "copying" under the act

CD-R audio disks are specifically designed to allow the copy of commercially available music CDs in whole, with no format conversion.

All other media that are the subject of this proposal are designed to copy digital data primarily, and in their use, the music consumer is facilitating and performing the act of "playing" music, not "copying" it.

Reasoning

1. The Act {80(1)} makes the act of copying insignificant, and recognizes that in the light of today’s technology there can be no distinction between the copying that takes place within computer systems and networks in the passing of music over the Internet and the copying of music for the facilitation of playing that music when and where the customer wants. It is technically feasible (and in fact available) for a music consumer to request the playing of a series of songs via the Internet, pick the network signals up via wireless connection, and listen to it while jogging or driving.

2. Besides the act of copying to CD or Flash or whatever "blank medium", there is no difference in the result (playing of the consumer’s list of music, when they want it, where they want it) if the consumer takes the time to download (or rip) the music to MP3 format and copies it to a disk for their MP3 player.

Re-recordable media should not be levied:

Re-recordable media as detailed in the proposal include: CD-RW, CD-RW Audio, removable electronic memory (RAM) card, removable Flash RAM card, removable mini-hard disk.

Reasoning

There are several reasons why re-recordable media should not be included in the levy media:

Re-recordable media are part of the process of playing music, not storing it long-term.

Re-recordable media are primarily used in the process of "private study" in the determination of what music an individual likes and is willing to purchase.

Re-recordable media are easily manufactured in a way which subverts their inclusion under the act as "blank recording media"

The premises on which CPCC bases their calculations on the use of the various media are flawed, out of date, and speculative. In addition, if the amounts proposed are confirmed, the result will be less than expected total levy amounts for the recipients due to purchase resistance and alternative purchasing ability of the Canadian public, and this will impact the Canadian technology business sector adversely. In fact, the levy on storage media in portable MP3 players can only be characterized as punitive, not compensatory.

Reasoning

CPCC contends that every single act of copying should be compensated for by the proceeds of the levy.
This fails for many reasons:

The act of copying with today’s technology is part of the act of playing in every digital medium.

In a CD player, bits are read from the original (purchased) medium, copied to the internal storage of the processor, checked for accuracy, copied to the output device, and converted to analog signals where they drive an amplifier and eventually a speaker. The amount "in transit" may only be a few bits at a time, but they add up to a whole copy over the period of the play.

In the process of listening to a piece of music via a radio, the music might have been copied from the original CD to a hard disk where it is queued for play by a computer. The bits are copied from the hard disk, to the computer where they are mixed with signals from advertising and announcers, and copied via digital means through computer network hardware on their way to the transmitter (and the cable head-end and satellite head-end) where they are finally turned into analog, amplified and sent via radio wave to the traditional receiver. In this case there is a whole copy of the work stored, as well as bits in transit – this time a few more as the "latency" involved may be a few milliseconds from hard disk to transmitter.

The latest "DAB" Digital Audio Broadcast moves the transition from digital to analog out to the final stage of the customer’s receiver, and adds another computer in the receiver where the bits are again copied at least once. Here the amount of bits "in transit" or copied can amount to several tens of milliseconds as the latency increases from original to the point of conversion to audio.

The Internet "webcaster" takes the stream of bits from the original (or copy as in the case of the radio above) and sends them out through the routers and switches of the Internet. In this case, the latency can be on the order of seconds from original to the time when the web browser’s audio hardware creates sound.

In each of the above cases, there is copying involved, and the amount of time in the process from "original" to sound heard by the customer increases to seconds.

The Act specifies 80(1) that "the act of reproducing all or any substantial part of (music) onto an audio recording medium for the private use of the person who makes the copy does not constitute an infringement of the copyright in the musical work…"

This means to me that the act of copying does not incur a requirement to pay a fee or royalty

This recognizes that the act of (private) copying is such a part of today’s technological environment that it cannot be considered criminal, and in fact is insignificant in the realm of compensation for copyright.

CPCC contends that the availability of music via Internet download, and the availability of technology to easily copy commercial CDs is the main or only reason that revenue from sale of commercial music CDs, tapes, etc. has fallen in recent years. A music industry executive has been quoted as saying the reason has been that "...the music sucks."

CPCC makes the assumption that all of large digital storage media can be used for the storage of music without limit. This assumption fails on several counts:

1 - there is a finite limit to the amount of music available to record (large, but finite)

2 - there is a finite limit to the amount of music any individual can listen to in a lifetime.

3 - there is a finite limit to the amount of music an average individual will listen to more than enough to decide they don't like it (private study)

4 - there is a finite limit to the amount of music an average individual can or will organize, regardless of the size of the medium.

5 - individual music preferences over the long term are relatively static (they like to hear the same songs relatively frequently).

CPCC makes the assumption that individuals copying all of a music CD want all of it. The music industry has engaged in what can only be called "tied selling" in that they have effectively stopped selling "singles" and now primarily produce albums with more than 2 songs on them. In my experience with my children, their peers, and my own purchasing history and habits, this causes purchase resistance due to lowered recognition of benefit. "I pay $20 for a CD and only like one song on it, forget it!" Reality is that many copies of CDs are only made so that the individual can later create a compilation of the music they want without the multitude of tracks they don't want.

CPCC makes the assumption that use of MP3 is primarily for copying music not already owned by individuals as opposed to conversion to make otherwise legitimately owned music work with their equipment (i.e. MP3 player instead of CD player) or creation of a preferred compilation (minus the unwanted tracks) as part of the process of playing already owned music.

CPCC proposes to collect a levy on some items which is far in excess of the amounts stipulated in other areas of the Copyright Act for uses which are wider ranging (e.g. $100/year for community broadcast system vs. multi-hundreds of dollars on hardware which may have a useful life of only a small number of years and is only for the use of one person)

CPCC makes the assumption that downloading of music gives identical quality to copying from commercial CD. In personal study of this, I have noted that a large percentage of files downloaded are either short-recorded (a phenomenon of some "ripping" software) or stuttered, or double banded (two recordings of the same song in one file) or badly encoded. In addition, the availability of "what I want, when I want it" is nowhere near what a typical consumer might expect, leading to my observation of frustration and disenchantment with the whole process of downloading. This coupled with the invasive marketing techniques of some of the current crop of music/file sharing systems must be taken into consideration when estimating such copying. Note that this does not address the fact of netcasting (use of the Internet as a broadcast/narrowcast medium) for which the music industry is already compensated by royalty charged on the netcaster. Netcasting however does not normally consist of whole albums.

CPCC contends that all media used to record music by individuals is used for the act of copying music under part VIII, section 80 of the act and that this is significant. This skews their statistics on which they base the percentage of all such media sold in the calculation of the levy per unit.

This fails on several bases:

The act specifically makes personal copying insignificant. The act of copying is no longer a concern of the copyright holder. (This means that the levy must consider reasons other than the quantity of blank copy media sold in their calculations of "lost revenue" and in fact should completely ignore the number of copies made in any calculation)

Regardless of the above, re-recordable media is used solely in the act of playing music, not in the long-term copying of it. This includes the creation of selected compilations, and the conversion of available media to forms not commercially available in the process of playing music.

large quantities of recording is done for private study, in order to determine if a work is worth purchasing or otherwise recording for the long term.

some recording is done in the context of creation of compilations of preferred music separate from the unwanted music the industry forces the consumer to purchase. In a full-size stereo, with a CD changer of sufficient capacity, this is done via programming. It is unreasonable to expect the consumer to carry such a device with them in lieu of a portable device.

some recording is done to preserve quality of original recordings so that the purchased music may be enjoyed longer (i.e. legitimate backup)

some recording is done in the context of preserving already purchased music from a medium no longer widely supported (phonograph for instance) necessitated by the fact that the music industry has not (yet) re-released older recordings on new formats.

CPCC contends that people who have access to the ability to copy from friends or the Internet tend not to purchase, or tend to purchase less commercial CDs.

My observation of my sons and their peers contradicts this and supports the contention that much of the copying is done due to perception of low value for dollar spent on much of the music of today, "... the music sucks" - a product of the mass marketing tactics of the music industry as it has become in recent years.

I note that my sons appreciate the music of the 50s, 60s, and 70s more than they do the music of today. In situations where an album is largely enjoyed, I see these youth purchasing and coveting the commercial product.

I also have observed the behavior of purchasing a second copy of a commercial product when the first was damaged, despite the offer of a copy by a friend.

CPCC implies by the flat, per unit levy amounts in their proposal that the purchaser of a large quantity of CD-R disks will have the same percentage likelihood of using this large quantity for copying music as the purchaser of a small quantity. This is at direct odds with my observation in three cases.

my children - I purchased a bulk-pack of 50 CD-Rs for each of them at Christmas 3 years ago. Neither have used more than about 15-20, and many of those were used to backup their computer files, not to copy music.

my own use of CD-Rs. I purchased myself a 50 CD-R pack at the same time as my children. Since then I have purchased over 200 more in 100 lots, all to backup computer files which have nothing to do with music.

the local photo lab. Their use of CD-R disks has bloomed from a few dozen a month 2 years ago to thousands a week now. None of them have music put on them.

I also understand that another objector to this levy is in the business of producing quantities of information CDs from blank CD-Rs including custom printing of labels on them, etc. and that their use is in the tens of thousands - again, none with music on them.

The percentage of CD-R disks used for data backup, photo-cd creation, and industrial software and information delivery is far higher than CPCC allows. These uses are rising rapidly.

The expected use of DVD-R and DVD-RW for data, photo, and information distribution and backup (as well as their original video use) will rise rapidly as the drive costs fall.

Their wide use as music storage media is not expected to happen within the term of this levy proposal due to the high penetration of normal CD writers and the complete lack of portable audio ("Walkman" style) players for DVD-type disks in the foreseeable future.

Predicted sizes of micro-hard disk drives (and other re-recordable storage media) are smaller than expected over the lifetime of the proposal.

Current micro-hard drives are available in 5 and 10 Gigabyte sizes

Prototype micro-hard drives are now showing in 100 Gigabyte sizes

Technology in the hard drive sector has followed a pattern of dropping small drives in favour of larger ones in order to keep ahead of the price/performance curve far enough for the manufacturer to make money

Systems using 3 ½" hard drive technology are no longer available with drives smaller than 15 to 30 Gigabytes and this level is climbing monthly. Micro-hard drives will follow the same pattern closely as the same manufacturers, technology changes and economics drive both sizes.

The same pattern is being followed by Flash and RAM in add-on card format as included in this levy proposal

This, coupled with the high per-Gigabyte levy proposed, will lead to unrealistic retail prices for both add-on memory modules and MP3 players with them built in.

CPCC speculates that any/all individuals with access to multi-gigabytes of storage can/will fill that storage to the limit with copied music.

There is a practical limit to how much music the average individual can or will store and organize other than when "studying" to determine suitability to "purchase" (i.e. permanently record or not record over)

The proposed per Gigabyte levy on storage media (whether built-in or add-on) will in my opinion result in very low sales of these items through Canadian retail outlets.

The rise of Internet commerce and the effective fall of the barrier to purchase of such items from outside of Canada with fast, reliable delivery will mean that individuals will purchase these items (and many of the other items noted in this proposal) from the U.S.A. (and other countries) and import them for their own use as opposed to resale - thus denying CPCC the ability to levy on them.

In light of the above, the manufacturers of the target products may be forced (by their authorized resellers) to create special "Canadian" versions of the various target products which subvert the levy in some fashion.

Such special versions will increase the cost to the consumer and will not benefit CPCC or the music industry.

Failing creation of such special "levy-proof" or "levy-reducing" versions, Canadian resellers will lose business to their out-of-country competitors and CPCC and the music industry will not benefit.

All of these factors will affect the market for the levied products to the point where the total dollars raised by the levy will be less than initial estimates might indicate.

While this may be seen as of no concern to the Board, it should be noted that creating anti-competitive situations between Canada and other countries is not in the interests of anyone.

The proposed per Gigabyte levy on storage media built into MP3 players at manufacture will make the sale of these items in Canada impossible without use of some levy-subversion tactics by their manufacturer.

While current units may have only 5 to 10 Gigabytes (levy of $105.00 to $210.00), units are expected in the near future with far larger built-in storage. In fact, there may, within the time period of this levy proposal (to 2004) be a time when manufacturers cannot purchase micro-hard disks of less than 20 or more Gigabytes due to their being the only thing made by the drive manufacturers.

This trend follows the current one in 3.5" disk drives where it is almost impossible to find drives smaller than 20+ Gigabytes, and is upheld by the fact that drives in the 10s of Gigabytes in the micro-hard disk form factor are already in prototype.

The proposed per Gigabyte levy on storage media purchased as accessory will make the sale of these items in Canada all but impossible without the use of some levy-subversion tactics by their manufacturer in similar fashion to that of such devices in manufactured MP3 players.

I contend that the only effect of such a large (in relation to the otherwise normal retail cost of these items) levy is to punish the retailers and importers of these items, since the purchasers will in all likelihood simply order them from outside of Canada, thereby skipping the levy completely. None are currently manufactured in Canada to my knowledge.

I note that the prospective levy on some of the initial models with micro-hard disk drives is on the order of $100-$200 per unit today, and that with the expected technology advances over the life of this proposal, the levy might rise to multi-hundreds or thousands per unit due to the increase in base storage available from the drive manufacturers to the MP3 player manufacturers. Contrasted with the Copyright Act's stipulated royalties of $100 per year for broadcast rights for a community system as shown in Part VII 68.1(1)(C)(b). In this light, the potential levy amount on such devices, with an expected useful lifetime on the order of 3 years, is excessive and punitive.

The fact that these levy amounts also adversely affect these items’ use in other devices compounds the offence.

The rise in use of digital cameras with large-format CCD units of 3 to 10 Megapixels requires enormous storage if more than a small number of photos is to be taken before having to connect to some other storage unit.

The cost of digital cameras is falling to the point where a levy of the amount proposed will increase the cost of add-on storage beyond the cost of the camera. Again, if this happens, the consumer will simply purchase from outside the levy area – outside the country, again affecting the Canadian retail sector adversely, and not benefiting either CPCC or the music industry.

{80(1)} makes the act of private copying insignificant and recognizes that it is part of the playing of music today

CPCC, in the face of the act, proposes to base the amount of the levy directly on their idea of the percentage of media used for all music copying without regard to whether it is private, done in the process of playing, or illegal.
This fails for several reasons, and is baldly self-serving – of CPCC, not the music copyright holders they purport to do it for.

Without the levy, the act of copying becomes (has become even with the current levy) insignificant to the consumer. They use it as a tool of organization, not of malice or greed. It is in fact a part of the organization and conversion process involved in playing music.

Since the act of copying is no longer significant to the consumer, they do such things as creating several different "mixes" of the same music, throw away unwanted copies, do not care for the disks and destroy them in various ways, and in the case of re-writable media, record over them multiple times to get "the perfect mix"

None of this copying bares any relation to the number of music selections an individual might purchase in other circumstances. What it does is lower the amount the consumer is willing to pay per copy, regardless of whether it is "legitimate" or not. The resistance of the market is such that the consumer, now offered the choice of not "purchasing" the unwanted songs on a particular commercial CD will happily do so.

Number of blank media used for other than music is significant

Levy must be based solely and only on the average number of music works "acquired" and the average number of blank media purchased in a time period

Levy must be comparable to royalties which might be incurred in other listening circumstances.

Levy should not be punitive in any way

Levy should not adversely impact the use of levied media for other purposes

Levy should not cause large numbers of the purchasing public to bypass the levied items (through purchase from non-Canadian sources)

Levy should be taken in conjunction with other new technology’s royalty methods and amounts and should reflect the move to revenue from other areas besides CD sales.

Levy should be comparable to that imposed in other, similar jurisdictions (US)

General Comments

I am not in favour of subsidizing an industry, especially one which has shown complete lack of ability or incentive to change with the times.

I believe that artists will continue to make music, regardless of whether publishers and record companies sell CDs. I also believe that artists will find a way to earn a living through their music.

I don't believe that just because a publishing industry has been around for the past 100 years that it has a right to exist forever. I don't see many buggy-whip manufacturers around, nor do I see any group of them lobbying the government for a levy on every automobile made or piece of road laid. On the other hand, the Teamsters are still with us - they have simply embraced the new technology and now drive Kenworths instead of drays.

Artists are already using the Internet to market and sell their product. Others are returning to the stage and making their money that way, using the Internet as a marketing tool.

The whole CPCC premise is that copying an artist's music is worth a particular amount, based upon the retail price of a CD, calculated against the average number of songs on the CD and such. In fact, the artist's work is only worth what the purchasing public will pay for it - and the purchasing public has voted with its dollars that a large part of the works on sale at the local record store are not worth what the retailers/publishers want for them. They (CPCC) would have us believe that the public in general don't want to buy music at all - that instead, they only want it free. This is far from the truth. The truth is that the general public don't want their music bundled (at higher cost) with music they don't want and in a format they can't use when and where they like given the technologies of today.

There may have been a case for the creation of the levy when it was originally enshrined in law. There may at that time have been a case for the amounts of the levy to date.

The fact is that technology has not stood still in the short time of the levy’s life, nor will it stand still even in the life of this levy proposal.

The same can be said of the market for the products of the artists this levy purports to compensate for "lost revenues".

The same also can be said of the consumer market in general – that it has evolved within the lifetime of this levy, and that it continues to evolve. The marketplace is no longer the store on the corner, the store in the local mall, or even the store in the nearest large city. It is the store on the Internet, and that store can be a world away – the consumer doesn’t care and in many cases doesn’t know.

The musician of the mid 20th century with a recording contract to a major music publisher could expect to receive a few cents per album sold – maybe as much as a dollar.

Conclusions

There is empiric evidence that suggests the claimed tie between the rise of the Internet and digital copying capability, and the fall in revenue from sales of commercial music are not as closely tied as the music industry claims. This goes directly to the calculation of levy total contribution.

There is no legislative basis for calculating the levy based upon capacity.

There is no legislative basis for not providing for a schedule of levy based upon the number of units purchased at one time.

There is a continuum of technologically required "copying" from a few bits at a time, all the way to full copies of works for non-archival periods of time measured in hours, days, weeks. This continuum suggests strongly that the act of "copying" noted in the act {801(1)} be equated with the act of "acquisition" or "purchase" (as in the first time a work is received into the permanent collection of the individual) once the individual has exercised her right to "private study" in order to determine if a work is worth "purchasing". Only such "acquisition" copying should be taken into consideration when determining the percentage of blank media and the "lost revenue" in CPCC’s calculations.

The imposition of a media levy on any medium with no ceiling imposes a far greater cost than is reasonable based on amounts stipulated for similar use in other sections of the act.

The imposition of a media levy on re-recordable media is not justified in any case.

If a levy is confirmed on re-recordable media, the amount of proposed levy is far in excess of that justified in general, and on large media in particular.

If a levy is confirmed on re-recordable media manufactured into MP3 players, the amount of this levy should be based on a per-player basis, not on a per unit-storage (Megabyte/Gigabyte) basis.

If a levy is confirmed on re-recordable media (memory cards/micro-hard disks) sold as accessory, it should be based on a per card unit, not on a per unit-storage basis.

If a levy is confirmed on blank CD-R, DVD-R, and tape, it should be in the form of a schedule taking into consideration quantity purchased in one transaction and whether the units are packaged for retail sale as blank media (as opposed to bulk/case-lot purchase for re-manufacture and eventual sale to final customer in non-blank form.) Similarly if a levy is confirmed on re-recordable CD-RW and DVD-RW media.

If the proposed amounts of levy are confirmed, the Canadian music industry will not have any incentive to change their obviously flawed product and marketing procedures. Evidence has been given that if the industry embraces some form of single-song sales facility, and stops tied selling of inferior quality music, the purchasing public will buy their music. In fact, the levy amounts currently in effect are high enough that there may already be little or no incentive for the industry to change its ways.

Suggestions:

That the levy on blank music recording media in general be subject to a schedule such that large quantities purchased at one time be subject to a ceiling on the order of $100, and that the per unit levy for small quantities be adjusted if necessary to compensate for this. (Example: levy on single unit packages be $0.21, levy on bundles of 10, 25, 50, 100 at $2.00, $4.00, $5.00, $6.00 respectively, quantities sold without retail packaging in case-lot quantities or higher at $0.05 per unit) This addresses the concerns of industries which purchase blank media in quantity for re-manufacture (i.e. recording) for such purposes as creation of retail photo-cd, software duplication, information dissemination, etc.

That the levy on re-recordable media be $0.00 per unit.

That, if a levy on re-recordable media is confirmed, it be levied as a per-unit levy on each MP3 player regardless of storage method or size, and that the levy be a maximum of on the order of $100.00 per unit.

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