Canadian Independent Music Association (CIMA)

Submission to the consultation on a modern framework for online intermediaries from the Canadian Independent Music Association

Prepared by Gord Dimitrieff

Submitted May 28, 2021

Contact: Andrew Cash,
President
andrewcash@cimamusic.ca
o: 416-485-3152 x232

Background

The Canadian Independent Music Association (CIMA) is the national not-for-profit trade association representing the English-language, Canadian-owned sector of the music industry.  CIMA's membership consists of over 350 Canadian-owned companies, and representatives of Canadian-owned companies, involved in every aspect of the music, sound recording and music-related industries.  They are exclusively small businesses which include record producers, record labels, recording studios, managers, agents, licensors, music video producers and directors, creative content owners, artists and others professionally involved in the sound recording and music video industries.

Creators must be defined as everyone in the music ecosystem of creating, recording, performing and commercializing music. They are the artists, songwriters, composers AND the companies that support them — such as labels, managers and publishers.  We urge the Government of Canada to view these consultations through this lens to ensure that all who create and commercialize intellectual property are properly supported and protected by Canadian law.

The recommendations made in this document complement CIMA’s remarks made during the last Parliament, to the Standing Committees on Heritage and Industry, as they undertook their reviews on copyright.  CIMA’s recommendations to the Committees included the repeal of the $1.25 million exemption in section 68.1(1)(a) of the Copyright Act, which currently provides an outdated and unnecessary subsidy to broadcasters on the royalties they pay at the expense of creators; the amendment s.2 of the Copyright Act to allow recorded music in television and film productions to be eligible for s.19 public performance remuneration; and making the private copying regime technologically neutral to cover audio recording devices such as digital audio recorders, tablets and smartphones.  These recommendations reflect the broad consensus within the Canadian music industry on what crucial steps need to be taken in order improve the livelihood of our music creators.

CIMA is of the view that online intermediaries ‘curate’ the Internet for global audiences, while Canadian carriers as defined by the Telecommunications Act ‘transmit’ or ‘broadcast’ the Internet to Canadian audiences.  Although this document is primarily about the role of online intermediaries, CIMA further recommends to the Department of Canadian Heritage (PCH) and Innovation, Science and Economic Development Canada (ISED) that any future efforts to modernize the Canadian broadcasting framework should seek financial contributions for domestic production at the Canadian carrier level, rather than the online intermediary level.  Variations of this general recommendation were made in written submissions to the Broadcasting and Telecommunications Legislative Review Panel, not only by the Music Policy Coalition, but also by the Canadian Media Producers Association and Unifor, and as such is a policy recommendation proposed by an overwhelming majority of the domestic audio and audiovisual production sectors.

Online intermediaries

In the years since the last comprehensive modernization of the Copyright Act (the “Act”) in 2012, the largest Internet companies have developed into ‘web giants’ that mediate an increasingly large portion of Canadians’ communications and commerce.  This new reality was referenced in the Governor General’s 2020 Speech from the Thrown, which alluded to what researchers in political economy have termed the ‘platformization’ of the Internet, characterized by the increasing accumulation of ‘platform power’ by these web giants.  This new form of power is described in the academic literature as power that integrates gatekeeping, network effects and the setting of both technical and commercial standardsFootnote 1.  Platformization marks a fundamental difference in the role of certain online intermediaries, and therefore how they should be treated by the Act.

American constitutional scholar Jack Balkin has labelled this platformization of the Internet the ‘Algorithmic Society,’ which he defines as "a society organized around social and economic decision-making by algorithms, robots, and Al agents" (Balkin 2017) and “features large, multinational social media platforms that sit between traditional nation states and ordinary individuals, and the use of algorithms and artificial intelligence agents to govern populations” (Balkin 2018).  Although the multinational and global nature of platforms presents a tremendous opportunity for content creators, their position between nation states and individuals present a significant challenge for policymakers.  The emergence of the Algorithmic Society has occurred in parallel to what Shoshana Zuboff calls “a stark new form of social inequality best understood as ‘epistemic inequality.’ It recalls a pre-Gutenberg era of extreme asymmetries of knowledge and the power that accrues to such knowledge, as the tech giants seize control of information and learning itself” (Zuboff 2020).  The extensive examination Internet platforms, by Balkin, Zuboff and other leading academics,Footnote 2 demonstrates that the platform services of the web giants cannot be understood as either neutral or passive intermediaries.  Indeed, Kate Klonick’s research has found substantial evidence that large Internet platforms increasingly fill the growing regulatory void across jurisdictions by imposing their own state-like governance over users and other stakeholders (Klonick 2017).

The stark asymmetries of Internet platforms are of particular significance to the discussion about the liability of online intermediaries in the context of copyright.  Whereas intermediaries have traditionally been understood as the brokers of two-sided markets, matching supply and demand, such as a producer and a consumer, or audiences and advertisers, platformization has resulted in the emergence of complex multisided markets in which the platforms function as data-intermediaries between millions of connections across individuals, organizations, institutions and content producers. Most significantly, platformization unilaterally forces content producers into the role of subsidizing the business model of platforms, while simultaneously making them wholly dispensable in the pursuit of a platform’s business.  David Nieborg and Thomas Poell provide an excellent illustration of this concept using Facebook as an example:

For Facebook, content developers were not a crucial part of the chicken-and-egg equation. That is, when it came to launching the platform and kick starting positive direct and indirect network effects, the most critical sides for the platform were users and advertisers. Content developers are just another side, and individual games, magazines, and newspapers are increasingly interchangeable cultural commodities. Compare this to the aforementioned two-sided nature of print news, in which the news publisher controlled the relationship between readers and advertisers (Nieborg & Poell 2018).

In practical terms, the Act’s broad and ambiguous safe harbor provisions for online intermediaries exasperate the already-vast power imbalance between platforms and content creators and serve to keep creators in this subsidy-side of the market, where the free availability of unlicensed user-uploaded content to platforms functions to artificially depress the commercial value of all the content these platforms employ.  Seen through a lens of market competition, this aspect of the Act negates the market’s role in setting prices, and deprives content creators of the ability to be willing sellers in an open market.  Put another way, the Act’s safe harbour provisions enable Internet platforms to operate as coercive monopolies that suppress content licensing costs.  Evidence of this can be found the government’s own researchFootnote 3 into online streaming commissioned by PCH, ISED and StatsCan.  The 2019 study commissioned by PCH found that YouTube accounted for 49% of streams but only 7% of rights holder payments. This same study also found that rights holder payments from YouTube were 12 times lower than its closest paid-service comparator on a per-stream basis.Footnote 4  Although it is true that Canadian courts have recently begun to issue injunctions forcing ISPs and platforms to disable access to potentially infringing content, the fact that such injunctions cannot be awarded by small claims court puts smaller content creators at a distinct and unjust disadvantage in exercising their rights. Court rulings also do nothing to ameliorate the underlying structural imbalances in multisided platform markets, which are, in large part caused by the Act’s overly broad safe harbor provisions.

Remuneration through collective licensing is not a solution:

Although the possible options of either a compulsory licensing scheme or an extended collective licensing scheme may initially appear to be solutions that could remove content creators from their subsidizing role, these options do nothing to remedy the extreme power imbalance between creators and platforms; rather, both of these options would only serve to legislatively entrench the extreme asymmetries found in the multisided markets of Internet platforms.  Furthermore, as the platforms continue to grow, they are becoming less and less ancillary to content creators’ business.  Research from both ISED and PCH confirms that online streaming is now the primary method by which Canadians consume media,Footnote 5 and as consumer habits increasingly shift towards Internet platforms, these platforms are quickly becoming the core business for content creators.  Any system of compelled remuneration would not only undermine content creators’ ability to directly participate in an open market, it would quickly undermine the entire investment model for new production once platforms become the dominant market for creators’ content.  While arguably beneficial for collective management organizations, eliminating copyright owners’ exclusive right to license platforms would have the immediate effect of eliminating investors’ ability to predictably recoup their capital, and have considerable negative impact on investors’ ability to negotiate with content creators.  This would impair the overall economic ecosystem for content creators, and would ultimately not serve the interests of creators, investors or audiences.  On a more philosophical level, either a compulsory licensing scheme or an extended collective licensing scheme would deprive artists of their moral right to ‘say no’ to specific uses of their creative work on platforms.

The need for transparency within platform advertising networks:

While content creators are relegated to the subsidy-side of intermediaries, electronic ad trading is on the money-side, where platformization has completely transformed the industry now known as ‘programmatic advertising.’  Electronic trading of advertising inventory first emerged in 2005, the very same year the New York Stock Exchange merged with Archipelago Holdings to become a for-profit organization with computerized trading capabilities.  By adopting the same tactics as global financial markets, the advertising industry was recast overnight from a relationship business to a commodity business.  When the Act was last reviewed in 2012, numerous companies (such as Microsoft, Yahoo!, AOL and Google) competed with each other to provide sellers (publishers) and buyers (advertisers) with a plethora of choice when it came to deciding what exchanges, brokers or other middlemen to employ in the trade of advertising inventory.  Today, however, the market for programmatic advertising is dominated by the duopoly of Google and Facebook, and their accumulation of platform power is characterized by serious conflicts of interest.  Google, for example, operates the largest ‘demand side platform’ for placing bids, the largest exchange, the largest intermediaries trading on its exchange, and the largest publisher websites (YouTube and Google Search).  In addition to these conflicts, trading costs are high (between 30%-50%Footnote 6) and the entire supply-chain is extremely non-transparent:

When small businesses use the Google Ads tool to bid on ad space belonging to third-party publishers from Google’s exchange, Google does not disclose to them the price that the ad space actually cleared for and it appears Google can arbitrage advertisers’ bids across two Google-controlled marketplaces — a fact that may go unnoticed by these small mom-and-pop businesses due to the complexity of Google’s terms.  In effect, the counter-party to these advertisers is often Google, though they may be under the illusion that Google is their agent. At the same time, Google does not disclose to the publishers on the other ends of these trades what their space ultimately sold for and how much Google keeps as its share (Srinivasan 2020).

In other words, Google acts on behalf of the buyer, on behalf of the seller and as the middleman — without ever disclosing how much of the money it keeps.  The extent of this self-dealing is further compounded in the case of YouTube, where advertisers have been locked into using Google’s entire proprietary programmatic supply-chain since 2016.Footnote 7

Royalties that are established under Part VII of the Act are dependent on the definition of ‘advertising revenues,’ yet the advertising markets facilitated by online intermediaries are characterized by very serious conflicts of interest and virtually no transparency.  The same is true of royalties that are self-administered by rights-holders, or collectively administered by a collective management organization (CMO) under a direct licensing relationship with intermediaries, where the possibility of non-contracted revenue deductions are a risk born solely by rights-holders — further relegating them to the subsidy side of intermediaries.  This makes it impossible to verify intermediaries’ compliance and ensure that creators are paid what they are due under the Act.  Already a major problem online, this issue is rapidly becoming even more important as the electronic trading of advertising facilitated by online intermediaries expands to additional forms of media, such as IPTV-enabled addressable television and 5G-enabled in-car radio.

Specific recommendations for the treatment of online intermediaries under the Act:

A. Ensure that safe harbour provisions are only for truly passive and neutral intermediaries

The platformization of the Internet was not foreseen in 2012, and the Act’s safe harbour provisions need to be narrowed accordingly to ensure that only passive and truly neutral intermediaries obtain the benefit of the exception under s. 31.1, as was intended by Government. The knowledge requirement in s. 31.1(5) (the hosting safe harbour) should be changed from knowledge of a court order to actual or constructive knowledge of infringement. Finally, safe harbours should only be available to truly passive and neutral intermediaries that have a policy in place to deal with repeat infringers and comply with their obligations under the ‘notice and notice’ mechanism set out by sections 41.25 and 41.26 of the Act.

B. Enact new obligations for qualifying intermediaries (i.e. platforms)

Broad and ambiguous safe harbor provisions for the platforms Balkin described as the Algorithmic Society put content producers into the role of subsidizing the business model of platforms, while simultaneously making them wholly dispensable in the pursuit of a platform’s business.  This negates the market’s role in setting prices, and deprives content creators of the ability to participate in an open market.  The European Union has sought to rebalance the structural inequities of platforms caused by safe harbor provisions by introducing Article 17 in its Directive on copyright and related rights in the Digital Single Market, and Canada should follow the lead of this major international trading partner while continuing to meet its obligations under Article 20.88 of the Canada-United States-Mexico Agreement (CUSMA).  Notably, CUSMA allows Canada to maintain its notice-and-notice framework but it does not require it to do so; rather, Canada is free to adopt any system that fits within Article 20.88, which does not, in itself, preclude the introduction of a ‘notice and stay-down regime.’

The Act should treat Internet platforms as a separate category of intermediary and apply such a notice and stay-down system that aligns with the new international standard set by the EU, namely that:

  1. When an online content-sharing service provider gives the public access to copyright-protected works or other protected subject matter uploaded by its users, it should be required to obtain an authorization from the rights-holders, for instance by concluding a licensing agreement, in order to communicate to the public or make available to the public works or other subject matter.  Full and transparent reporting on usage and work attribution must be a basic prerequisite of any such licensing agreement.
  2. If no authorization is granted, online content-sharing service providers should be liable for unauthorized acts of communication to the public, including making available to the public, of copyright-protected works and other subject matter, unless the service providers demonstrate that they have: (a) made best efforts to obtain an authorization, and (b) made, in accordance with high industry standards of professional diligence, best efforts to ensure the unavailability of specific works and other subject matter for which the rights-holders have provided the service providers with the relevant and necessary information; and in any event (c) acted expeditiously, upon receiving a sufficiently substantiated notice from the rights-holders, to disable access to, or to remove from their websites, the notified works or other subject matter, and made best efforts to prevent their future uploads in accordance with point (b).
  3. A service provider that removes or disables access to unauthorized material in good faith should be exempt from liability for having done so, provided it takes reasonable steps to notify the person whose material is removed.  The system should include appropriate procedures for effective counter-notices, requiring the service provider to restore the material unless the person giving the original notice seeks legal relief within a reasonable period of time set by law or regulation.
  4. In determining whether the service provider has complied with its obligations under paragraph 2, and in light of the principle of proportionality, the following elements, among others, should be taken into account: (a) the type, the audience and the size of the service and the type of works or other subject matter uploaded by the users of the service; and (b) the availability of suitable and effective means and their cost for service providers.
  5. In respect of new online content-sharing service providers, which have been available to the public in Canada for less than three years and which have a global annual turnover below $15 million, the conditions under the liability regime set out in paragraph 4 should be limited to compliance with point (a) of paragraph 4 and to acting expeditiously, upon receiving a sufficiently substantiated notice, to disable access to the notified works or other subject matter or to remove those works or other subject matter from their websites. Where the average number of monthly unique visitors of such service providers exceeds 5 million, calculated on the basis of the previous calendar year, they should also demonstrate that they have made best efforts to prevent further uploads of the notified works and other subject matter for which the rights-holders have provided relevant and necessary information
  6. The cooperation between online content-sharing service providers and rights-holders should not result in the prevention of the availability of works or other subject matter uploaded by users, which do not infringe copyright and related rights, including where such works or other subject matter are covered by an exception or limitation.
  7. Users should be able to rely on the fair dealing exception when uploading and making available user-generated-content on online content-sharing services in all cases in which fair dealing would normally apply.

C. Clarify ‘advertising revenue’ in the case of programmatic advertising

Royalties that are established by the Act are largely dependent on the definition of ‘advertising revenues’ as referenced in s.72(5), yet the advertising markets facilitated by online intermediaries are characterized by very serious conflicts of interest and virtually no transparency.  This is already a major problem on the Internet and it is rapidly becoming a problem in other media too, as the electronic trading of advertising facilitated by online intermediaries expands to media channels such as IPTV-enabled addressable television and 5G-enabled in-car radio.  Without transparency in programmatic advertising, it is impossible to verify if reported revenues are true and accurate, negatively affecting rights-holders’ ability to ensure that creators are paid the royalties to which they are entitled under the Act.

In cases where an intermediary is both an advertising publisher and controls other elements of the programmatic supply-chain, s.72 of the Act should require that ‘advertising revenues’ as defined by the Copyright Board be calculated at the highest business unit held within that intermediary’s proprietary advertising supply-chain.

Summary

The platformization of Internet companies has made the market far more complex that it was in 2012, when the Copyright Act was last amended, and the platform power of Internet companies has changed the way intermediaries should be perceived and treated by the law.  Canada’s broad and ambiguous safe harbour provisions effectively enable the large Internet platforms to function as coercive monopolies, and put content creators in the unjust position of subsidizing their business models.

A system of compulsory licensing or extended collective licensing would (1) legislatively entrench the vast power imbalance between platforms and creators, and (2) have the unintended consequence of dictating the market’s ability to invest in new production.  The best way to deal with this situation is to enact new obligations for qualifying intermediaries, namely to harmonize the Copyright Act’s safe harbour provisions for platforms with Article 17 of the EU Copyright Directive.

Platformization of online intermediaries has resulted in extreme conflicts of interest and poor transparency in programmatic advertising.  This makes it impossible to verify whether copyright royalties paid by intermediaries are based on true revenue figures, or whether non-contracted deductions have been made prior to their calculation.  This problem will grow as new technologies cause programmatic advertising to expand into more traditional media, such as IPTV-enabled addressable television and 5G-enabled in-car radio.  The Act should require that revenues used to calculate royalties be reported from the highest business unit held within an intermediary’s advertising supply-chain.

References