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Politics Trumps Policy as Copyright Bill Approaches

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The annual Canadian Music Week celebration in Toronto is still several months away, but last week Ottawa staged its own version of the event.  Two federal departments - Statistics Canada and Industry Canada - released bombshell studies that could influence forthcoming copyright reforms since they contradict the conventional wisdom about the economic state of the recording industry and the impact of Internet file sharing.

The Statistics Canada report on the state of the Canadian music industry was a long time in coming - it had been two years since the last release of its economic analysis that found an industry barely treading water. Notwithstanding the ongoing doom and gloom from industry associations, Statistics Canada now paints a much different picture.

According to Statscan, "Canada's sound recording and music publishing industries turned a relatively healthy profit in 2005, despite the worldwide decline in record sales and increased competition from other forms of entertainment." The recording industry experienced seven percent profitability - up from 0.1 percent in 2003 - with global restructuring, lowered costs, and digital distribution cited as the primary reasons for the profit increase.

The news was also very good for Canadian artists.  Their sales increased by 3.3 percent and now account for 21 percent of total Canadian music sales.  Even more noteworthy, Canadian artists continued to release more music - an increase of 8.8 percent, while foreign artists dropped by 5.6 percent.  In other words, while the Canadian Recording Industry Association was giving dire speeches in 2005 claiming that Canadian artists could not find labels to invest in them, the data shows that the market for Canadian artists was growing with more releases and more revenues.

If the Statscan data comes as a surprise, the Industry Canada study will positively shock.  Working with Decima Research as well as Birgitte Andersen and Marion Frenz, two economists at the University of London, the department surveyed more than 2,000 Canadians on their music purchasing habits in an effort to identify the impact of Internet file sharing on music sales.

The industry has long claimed that file sharing is the primary culprit behind declining sales, yet the survey, the first ever to employ representative microeconomic data, found that the opposite is true.  According to the data there is “a strong positive relationship between peer-to-peer file sharing and CD purchasing.  That is, among Canadians actually engaged in it, P2P file sharing increases CD purchases."

Moreover, when viewed in the aggregate (ie. the entire Canadian population), there is no direct relationship between P2P file sharing and CD purchases in Canada.  According to the study's authors, "we find no direct evidence to suggest that the net effect of P2P file sharing on CD purchasing is either positive or negative for Canada as a whole."

While critics scoffed that the results did not "seem remotely plausible," the study is consistent with a 2004 Harvard study that examined the issue.  Moreover, the authors may have underestimated the positive economic impact, since Internet file sharing is compensated in Canada by a private copying levy that has generated more than $200 million in revenues for the industry and its artists.

With independent data now confirming that the Canadian music industry is thriving and that Internet file sharing is not responsible for the declining sales at some record companies, these studies highlight the government's mounting challenge as it works to fulfill its Speech from the Throne commitment to introduce copyright reform in the current Parliamentary session.  

Simply stated, prioritizing reforms that target the music industry in a bill that is expected within weeks will run counter to the government's own research analysis and open the door to a lengthy list of angry stakeholders. Indeed, sandwiched between the two reports, the Canadian Association of Broadcasters openly declared war last week against CRIA, characterizing its latest demands as "egregious and abusive."  

They join many other groups frustrated with a copyright reform process that seemingly places politics before policy and fiction above fact.  With opposition likely to come from broadcasters, education groups, consumers, privacy commissioners, and the technology community, copyright could emerge as an issue where the Liberals and Conservatives sing a different tune.

 
Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at or online at www.michaelgeist.ca.