Copyright Board Canada

Commission du droit d’auteur Canada

 

Date	2023-11-03
Citation	SOCAN Tariff 13.B (2023-2025), 2023 CB 8
Member	René Côté
Proposed Tariff Considered	SOCAN Tariff 13.B – Public Conveyances - Passenger Ships (2023-2025)

Approval of Proposed Tariff

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SOCAN Tariff 13.B – Public Conveyances - Passenger Ships (2023-2025)

REASONS FOR DECISION

I. overview

[1] The Society of Composers, Authors and Musical Publishers of Canada (SOCAN) is a collective society that manages public performing rights of musical works on behalf of Canadian and foreign songwriters, composers and music publishers. SOCAN filed a proposed tariff with the Copyright Board for the use of recorded musical or dramatico-musical works in its repertoire, in a passenger ship, for the years 2023 to 2025.

[2] For the following reasons, the Board finds that SOCAN’s proposed tariff 13.B (2023-2025) is fair and equitable, subject to various modifications, particularly with regard to adjusting royalties for inflation. The Board makes these changes to the proposed tariff and approves it.

II. background

A. The most recently approved tariff

[3] The Board approved the most recent Tariff 13.B on August 8, 2020[1] (“Tariff 13.B 2018-2022”).

[4] Tariff 13.B 2018-2022 provides that the royalties payable are $1.13 per person per year, based on the maximum number of passengers allowed per ship, subject to a minimum annual fee of $67.32. For ships operating less than 12 months per year, the royalty payable is reduced by one twelfth for each full month of non-operation.

[5] Regarding the payment of royalties, Tariff 13.B 2018-2022 states that the tariff user shall provide a report indicating the maximum number of passengers authorized and pay SOCAN the resulting payable fee no later than January 31 of the year covered by the licence.

B. The Proposed Tariff

[6] SOCAN filed proposed Tariff 13.B on October 15, 2021, and it was published on the Copyright Board’s website.[2] On November 10, 2021, the Board issued an order[3] asking SOCAN to submit a notice of grounds for the proposed tariff. SOCAN responded with its Notice of Grounds for Proposed Tariff of December 15, 2021, which was published on the Board’s website.[4] The Board received no objections to this proposed tariff. On July 11, 2023, the Board indicated that it was ready to render its decision based on the reasons provided by SOCAN.

Description of the Proposed Tariff

[7] The royalty structure is identical to that of Tariff 13.B 2018-2022, i.e., the royalties paid for the current year are based on the maximum number of passengers allowed per ship, subject to a minimum annual fee. For ships operating less than 12 months per year, the royalties payable are reduced by one twelfth for each full month of non-operation. No later than January 31 of the year covered by the licence, the licensee provides a report on the maximum number of passengers authorized and pays SOCAN the royalties due.[5]

[8] Royalties have been adjusted for inflation. They would rise from $1.13 to $1.34 per person, while the minimum annual fee would increase from $67.32 to $79.83. In both cases, this represents an increase of 18.58%.

[9] In another proposed change, the proposed tariff now covers communication to the public by telecommunication in addition to public performance, but this addition does not entail any increase in the royalties to be paid by tariff users.

III. issues

[10] We have identified four issues relating to the proposed tariff that the Board must consider in this proceeding. These issues are as follows:

1. Does the last tariff approved by the Board constitute a sufficient proxy for approving the proposed tariff submitted by SOCAN?
2. Is the addition of communication to the public by telecommunication justified?
3. What should the inflation adjustment be?
4. Are changes to the wording of the proposed tariff necessary?

IV. analysis

Issue 1: Is the previously approved tariff an appropriate proxy?

[11] When a proposed tariff does not differ substantially from the previously approved tariff, the Board may rely on the last approved tariff as an indication that the proposed tariff is fair and equitable, particularly if there has been no change in the relevant market. We are not aware of any changes in the market, partly because no objections have been filed.

[12] The proposed tariff does not differ substantially from Tariff 13.B 2018-2022. The terms and conditions of the latter are similar to those of proposed tariff for 2023-2025. The same applies to the tariff structure and the structure of royalty payments. Royalties have only been increased to reflect inflation, but the calculations of inflation adjustments will be corrected.

[13] As such, we conclude that the proposed tariff can be used as a proxy.

Issue 2: Is the addition of communication to the public by telecommunication justified?

[14] In view of changes to the way music is used on board passenger ships, we believe it is justified to explicitly add communication to the public by telecommunication.

[15] Since SOCAN did not explain this change in its Notice of Grounds for Proposed Tariff, the Board asked it to do so in its Order of November 7, 2022.[6] SOCAN explained that this addition reflects changes in the way music is used on board ships, including the way on-demand content is delivered to customers’ personal devices via on board entertainment systems. SOCAN asserts that no increase in royalties is associated with this addition.

[16] In our opinion, the way in which musical content is delivered has evolved in recent years, and this use may involve communication to the public by telecommunication. This change to the text of the tariff therefore seems fair and equitable to us, and we keep it.

Issue 3: What should the adjustment for inflation be?

Summary

[17] The proposed tariff seeks an increase in royalties to account for inflation of 18.58%.

[18] In order not to exceed the amounts requested in the proposed tariff, while maintaining its usual method of calculating inflation, the Board sets the inflation adjustment at 16.98%. This amount corresponds to actual inflation for the period beginning January 1, 2014, and ending December 31, 2021.

The Board’s Approach to Inflation

[19] The Board has long held the view that fixed royalties should be adjusted for inflation. Indeed, we believe that inflationary adjustments are justified because they preserve the purchasing power of rights holders, and that the absence of such adjustments would erode the value of royalties collected by collective societies through tariffs.

[20] The Board’s recent approach to determining the inflation adjustment has been to calculate the percentage change in the CPI between January of the first year requiring adjustment and December of the last full year of data available. In general, the start of the calculation period begins the day after the end of the period used by the Board for its last inflation calculation.

[21] In our opinion, this approach continues to be the simplest and most direct way of calculating the inflation rate. Moreover, it is an approach known to the parties. It is also consistent with the principle of using known values rather than future values.

[22] Moreover, this is what SOCAN asks the Board to do in its concluding submissions: the inflation adjustment should be based on the most recent data.

[23] Using the usual calculation method, the calculation period would begin on January 1, 2014 and would end on December 31, 2022. The Board adjusted SOCAN Tariff 13.B for 2015 by increasing the royalties to reflect the level of inflation for the period between 2005 and 2013. No inflationary adjustment has been applied since. December 31, 2022, is the end of the last full year for which data is available.

[24] This approach would lead to an adjustment of 24.37%, which is more than the adjustment requested by SOCAN.

Procedural fairness

[25] In the present case, this approach must be tempered by the fact that the Board generally refrains from approving tariffs higher than those proposed, on the grounds that this could constitute a breach of procedural fairness for those affected by a proposed tariff[7].

[26] For ease of administration and calculation, the increase we are setting to account for inflation uses data for the most recent full year that does not exceed the amounts in the proposed tariff.

Conclusion on inflationary adjustment

[27] Consequently, the calculation period used by the Board begins on January 1, 2014 and ends on December 31, 2021. This results in an inflationary adjustment of 16.98%. The Board therefore sets the rate per person based on the maximum number of passengers authorized per ship at $1.32, with a minimum annual fee of $78.75.

Issue 4: Are changes to the wording of the Proposed Tariff necessary?

[28] Two minor changes also need to be made to the proposed tariff: one eliminating references to the notion of licence and the other relating to general provisions. These two changes have no practical impact on the functioning of the tariff.

[29] First, under the Act, the Board’s mandate is to set royalty rates and related terms and conditions. The Board’s tariff-setting mandate does not include licensing. Licensing of collectively administered rights is the responsibility of collective societies, as the Supreme Court of Canada pointed out in Access Copyright v York University.[8] As a result, we are removing references to the words “licence” and “licensee” from the proposed tariff, including the paragraph found in the general provisions stating that SOCAN may terminate any licence at any time upon a 30-day notice. This change in no way alters the scope of the tariff.

[30] Since proposed tariffs must be filed in a separate, stand-alone document containing all applicable terms and conditions, the section entitled “General Provisions”, which covered tariff proposals filed in bulk, is no longer relevant.[9] Paragraphs of this section that are still relevant have been moved to the end of the tariff, while those referring to the licensing concept have been deleted for the reasons mentioned in the previous paragraph.

V. DECISION

[31] For the aforementioned reasons, we approve the proposed tariff under the title SOCAN Tariff 13.B – Public Conveyances - Passenger Ships (2023-2025). The royalty rate is adjusted for inflation, rising from $1.13 to $1.32 per person per maximum number of passengers allowed per ship, with the minimum annual fee rising from $67.32 to $78.75. In the terms and conditions section of the tariff, we agree to add communication to the public by telecommunication. We integrate what were previously the “General Provisions” common to several tariff proposals, while eliminating references to licences and their holders.