SOCAN Tariffs Nos. 1.A, 1.C, 2.A, 2.B 2.C, 2.D, 15.A, 15.B, 16, 24, 25, and Pay Audio Services

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1 September 2010 SOCAN Tariffs Nos. 1.A, 1.C, 2.A, 2.B 2.C, 2.D, 15.A, 15.B, 16, 24, 25, and Pay Audio Services By: J. Aidan O'Neill On July 31, 2010, the Copyright Board published the most recent tariff proposals of SOCAN in the Canada Gazette. These relate to: the performance in public or communication to the public by telecommunication of works in SOCAN's repertoire for the year 2011 on various media and services. There were multiple tariff proposals published and the following is a summary of a select few. Tariff 1A and 1C, Radio; Tariff 2A, 2B, 2C and 2D, Television; Tariff 15, Background Music in Establishments not covered by Tariff 16; Tariff 16, Background Music Suppliers; Tariff 24, Ringtones and Ringbacks; Tariff 25, Satellite Radio Services; and, Pay Audio Services The Society of Composers, Authors and Music Publishers of Canada is the collective society managing the licences to the performing rights of over 100,000 artists and music publishers in Canada. SOCAN also manages the royalties for the use of international collective societies' repertoire in Canada. The Objection Period Now that the proposed tariffs for 2011 have been published in the Canada Gazette, in accordance with section of the Copyright Act, any person who wishes to object to any of them has 60 days in which to file written objections with the Copyright Board. This means that the Copyright Board must receive any objections by no later than Wednesday, September 29, Tariff 1A, SOCAN-Re:Sound Commercial Radio Tariff, 2011 Tariff 1C, SOCAN Canadian Broadcasting Corporation Tariff, 2011 s Licences pursuant to these tariffs give commercial radio stations the right to air broadcasts for private use of the musical and dramaticomusical works in SOCAN's repertoire and the sound recordings in Re:Sound's repertoire. This tariff is exclusive of other tariffs, such as SOCAN Tariffs 16, 22 or Pay Audio Services. The CBC has its own royalty rate, for the unlimited use, in 2011, of the SOCAN repertoire in association with the operation of the CBC's radio network and stations. Exclusive of federal, provincial or other governmental taxes, the rates are as follows: a) Commercial radio station: 6 per cent of gross income b) Low-use, commercial-radio station: 2.6 per cent of gross income c) CBC: annual fee of $3,750,000 paid in monthly instalments on the first day of each month, (beginning January 1 of the year the licence is issued) 1

2 Gross income is calculated as the amount paid to the station by any person for use of broadcast services or facilities. The gross income calculation excludes revenues such as: income from investments, rents or other income unrelated to broadcasting; and, income from programs commissioned by non-licensees, where the commissioner owns the program. Other exceptions are outlined in s. 2(a) (d). A low-use, commercial radio station is one where broadcasts of SOCAN repertoire works amount to less than 20 per cent of the station's total broadcast time, and, it makes available to SOCAN and Re:Sound complete recordings of its past 90 broadcast days. Licensees should remit to SOCAN and Re:Sound monthly payments and reports by the first day of each month. The same report must be submitted to both collective societies and should include information relating to the usage of the repertoire works as well as the identifying information of each work used. Stations must keep the information relating to the usage reports for six months after the relevant month, and must keep information relating to the gross income for six years. SOCAN reserves the right to audit stations, upon reasonable notice and during normal business hours. SOCAN will give the station a copy of the audit report identifying any required royalty payment adjustments. The station must pay the cost of the audit if the audit reveals underreporting by 10 per cent or more in any month. Any necessary adjustments - including returns from SOCAN in the case of excessive payment - should be reflected in the following payment (with interest, in cases of underreporting). SOCAN will keep confidential all of a station's information and reports, unless it consents to disclosure. However, even without such consent, SOCAN reserves the right to share the stations' information in the following manner: with Re:Sound; with the Copyright Board; in connection with proceedings before the Board; in accordance with the distribution of royalties; and by court order or other law. Upon 30 days notice in writing, SOCAN can terminate a licence for breach of the terms of conditions. 2. Tariff No. 2A Commercial Television Stations, 2011 Tariff No. 2B, Ontario Educational Communications Authority Tariff No. 2C, Société de télédiffusion du Québec Tariff No. 2D, Canadian Broadcasting Corporation s These tariffs are for licences to commercial broadcast television stations' communications, for private and domestic use, of SOCAN repertoire music. Tariff 2A does not apply to the CBC, nor does it apply to uses of SOCAN repertoire music under Tariff 17 or 22. and Payment Requirements Broadcast television stations must elect between two types of licences: a) Standard blanket licence: 1.9 per cent of the station's gross income in the month that is 2 months prior to when the licence is issued. By the first day of the month in which the licence is issued, licensees must submit the payment and the report on the station's relevant gross income. b) Modified blanket licence: The Tariff supplies two forms that govern the modified blanket licence. Form A is the calculation of the royalty rate and Form B explains the cleared program usage (programs featuring music whose use does not require a SOCAN licence). By the last day of the month after the month in which the licence is issued, stations must supply the Forms, any supporting information for the cleared programs usage statement, and the payment to SOCAN. Other specific services have licences under Tariff 2 that allow them to perform SOCAN repertoire works any time and as often as desired in These licences are subject to an annual fee, to be paid in increments as SOCAN stipulates. a) Tariff 2B, Ontario Educational Communications Authority: $300,080 ( ) b) Tariff 2C, Société de télédiffusion du Québec: $216,000 (2011) c) Tariff 2D, Canadian Broadcasting Corporation: $6,922,586 (2011) 2

3 SOCAN reserves the right to audit all licensees' books and records, on reasonable notice and during normal business hours. Some payment calculations in association with the modified blanket licence are not refundable if over-reporting is found. 3. Tariff No. 15A Background Music in Establishments Not Covered by Tariff No. 16, 2011 Tariff No. 15B Telephone Music on Hold Not Covered in Tariff No. 16, 2011 Scope of the tariffs These are licences to perform SOCAN repertoire music as background music in an establishment or as background music for telephones on hold. The former can include the background music played on a television. This tariff excludes the uses covered by Tariff No.16, Background Music Suppliers, Tariff No. 8, and is subject to the exception in section 69(2) of the Copyright Act. Section 69(2) precludes the collection of royalties from owners or users of an establishment in which admission is charged and where the radio is the means of performing SOCAN repertoire works. If an establishment makes payments under Tariff 16, section 3(2), they will not be liable for payments under Tariff 15B (section 3(2) relates to fees payable when suppliers of background music have authorized subscribers to perform music from the SOCAN repertoire on the subscribers' telephones). Proposed rate The licences allow for usage at any time, and as often as desired in 2011, subject to the payment of the annual licence fee. a) Background music in establishments: Either $1.23 per square metre of the establishment, or $11.46 per square foot. b) Background music for telephones on hold: $94.51 for the first trunk line and $2.09 for each additional line. Establishments using background music under Tariff 15A should pay the owing royalties by January 31 of the year the licence covers. If there is no usage in January, the fee will be prorated on a monthly basis, from the first usage. If this is the case, the payment will be due within 30 days of the first performance. Seasonal establishments that operate for less than 6 months of the year will pay half of the general Tariff No. 15A licence fee. Establishments using background music for their telephones on hold under Tariff 15B should make their royalty payments on January 31 of the year the licence covers. This must include a report on the number of telephone trunk lines. SOCAN reserves the right to audit all licensees' books and records, on reasonable notice and during business hours. 4. Tariff No. 16, Background Music Suppliers This tariff relates to background music suppliers' communication to subscribers or the authorization of subscribers to perform in public of SOCAN repertoire music as background music or background music for telephones on hold. Tariff 16 excludes uses covered under Tariff 8 and the Pay Audio Services Tariff. There are two royalty rates for the different uses: a) Supplying: Suppliers must pay to SOCAN a royalty rate, per quarter, of 2.25 per cent of subscriber revenues of the subscribers who received the communications during the relevant quarter. This amount is subject to a minimum fee of $1.50 per premises. b) Authorizing: Where suppliers authorize a subscriber to perform a SOCAN work in public during a quarter as background music or telephone music on hold, the rate is 7.5 per cent of revenue from authorized subscribers during the quarter. This is subject to a minimum fee of $5 per premises. The supplier is not required to make these payments to the extent that it complies with Tariff 15. For small cable transmission systems, the royalty rates are halved. Small cable transmission systems are defined in the Definition of Small Cable Transmission System Regulations, SOR/

4 Quarterly payments and electronic usage reports should be made within 60 days of the end of the quarter. For the supply of background music (see (a) above), the usage report should include a list of the musical works transmitted in the last seven days of each month in the quarter. Also, suppliers must report the names of each subscriber and the addresses of each premise under the subscription. These entries must include identifying information for the works but only to the extent that it is available to the supplier as outlined in the tariff at section 4(2). However, these reports are not required if the supplier is subject to the Pay Audio Services Tariff. Small cable transmission systems need only make the quarterly payments and submit their reports on the calculation of their royalties. SOCAN reserves the right to audit all licensees' books and records, on reasonable notice and during business hours. SOCAN will keep suppliers' and subscribers' information and reports confidential, except upon consent to disclosure. However, even without such consent, SOCAN reserves the right to share the stations' information in the following manner: with the Copyright Board; in connection with proceedings before the Board; in accordance with the distribution of royalties; and by court order. 5. Tariff No. 24, Ringtones and Ringbacks ( ) This is a licence for the unlimited communication, in , of ringtones or ringbacks (rings) of music in the SOCAN repertoire. The licence fee is 5 per cent of the subscriber's price (subscription or per unit, as the case may be) for the rings, net of any network fees. There is a minimum royalty of $0.05 for each ringtone or ringback. The licensee must submit the royalty payments and royalty calculation report within 60 days of the end of the quarter. The report should specify the number of rings provided; the amount that require a SOCAN licence; the total amount subscribers paid for the SOCAN works; and, for each ring that doesn't require a SOCAN licence, supporting information about why the licence was not required. With respect to each ring requiring a SOCAN licence, licensees must also report on the total number of times the rings were provided at a particular price and any identifying information about the work. SOCAN reserves the right to audit all licensees' books and records, on reasonable notice and during business hours. 6. Tariff No. 25, Satellite Radio Services, Satellite radio services are subject to tariffs from Re:Sound, CSI and SOCAN. With respect to SOCAN under this tariff, licensees may communicate SOCAN repertoire music and dramatico-musical works in Canada. This tariff covers only direct communications to subscribers for their private use. That is to say, this tariff does not cover communications to commercial subscribers. This tariff also excludes uses that are covered in SOCAN Tariffs 16, 18 or 22. Licensees must pay a royalty rate of 10 per cent of the service revenues, subject to a minimum fee of $1.00 per subscriber (this includes even subscribers who receive the service free of charge). Service revenues include revenues from subscriptions, advertisments (product placements and sponsorships, for example), and the sale of goods, services and commissions (system access fees, for example). Service providers should consult the tariff, at s. 2, for greater detail as to what are compensable revenues. Payment and Reporting Requirements Satellite services must make monthly payments and also provide a report listing the following corporate information for the reference month: the total number of subscribers; the total number of subscribers in each subscription price point (including those who receive the service free of charge); and the service revenues, broken down by subscriber, advertising, sponsorship and other revenues. The reference month is the second month prior to that for which payment is made. 4

5 The satellite service should also provide a report with information on the works used pursuant to the licence in the reference month. This report must include a sequential list of all the musical works transmitted on each satellite signal for every day of the reference month. These logs should include identifying information for each work used, as available to the satellite service or available to obtain from a third party SOCAN reserves the right to audit the satellite service, upon notice and within regular business hours. As such, satellite services should keep the usage reports and information pertaining to usage for at least 6 months after the payment. Additionally, the satellite service should keep the information relating to the payment calculus for at least 6 years following payments. SOCAN will give the satellite service a copy of the audit report. If the audit reveals more than 10 per cent underreporting, the satellite service will be liable to pay the costs of the audit within 30 days of the demand for payment. Any necessary adjustments the audit reveals should be made with the next royalty payment, with interest. SOCAN will keep satellite services' information and reports confidential, except upon consent to disclosure. However, SOCAN reserves the right to share the satellite services' information in the following manner: with CSI and Re:Sound; with the Copyright Board; in connection with proceedings before the Board; in accordance with the distribution of royalties; and by court order or other law. 7. SOCAN-RE:SOUND Pay Audio Services Tariff, 2011 Pay audio services are subject to tariffs from Re:Sound and SOCAN. This tariff sets the rates for the communications, for the private and domestic use of customers, of SOCAN repertoire music and dramatico-musical by a programming undertaking's pay audio signals supplied to distribution undertakings. The licence applies to the programming and distribution undertakings. This tariff does not apply to uses licensed under SOCAN Tariffs 16, 18 or 22. Distribution and programming undertakings are defined in the Broadcasting Act. The royalty rate has two tiers, depending on the nature and size of the distribution undertaking. a) General: With respect to the uses of SOCAN's repertoire, the licence fee is per cent of the affiliation payments the distribution undertaking makes for the pay audio signal transmission. b) Reduced: Small cable transmission systems, unscrambled Low Power Television Stations, Very Low Power Television Stations, and small transmission systems whose services are comparable to cable transmissions but that use Hertzian waves, pay the reduced rate of per cent of the affiliation payments the distribution undertaking makes for the pay audio signal transmission. Payment and Reporting Requirements For the general rate, licensees must make payments on the last day of the month following the month for which royalties are being paid. For reduced-fee licences, licensees are required to submit an annual payment on January 31 of the year following the year for which royalties are being paid. There are differing reporting requirements on programming undertakings, depending on the type of licence. a) General: Programming must provide the details of each distribution undertaking to which it supplied a pay audio signal. The information includes: the name of the distribution undertakings, the list of pay audio signals supplied, and the amount the distribution undertaking makes in affiliation payments to the programming undertaking for use of the signals. If a distribution undertaking makes a payment, then it must supply this information. b) Reduced: If an undertaking is paying a reduced licence fee, it must report on the number of premises served in the system on the last day of each month for which payment is required. If the system is a Small Cable Transmission System or a master antenna system located in the service area of another cable transmission system, there are other reporting requirements as explained in s. 3(b) and (c). Programming undertakings must also report on the repertoire works used. This information should include sequential lists of all recordings played on each signal, as well as identifying information for each work. This report should represent 7 consecutives days in the month relevant to payment and should be submitted electronically. 5

6 SOCAN reserves the right to audit the programming and distribution undertakings' records on the reports, on notice and during normal business hours. As such, programming undertakings must keep the reports on the SOCAN repertoire works and the information used to make the report for 6 months after payment. Both the programming and distribution undertakings must keep records pertaining to the affiliation payments for 6 years. SOCAN will give the undertaking a copy of the audit report, and the undertaking must pay the costs of the audit if underreporting of more than 10 per cent is found. Any necessary adjustments must be made, with interest, with the next royalty payment. SOCAN will keep undertakings' information and reports confidential, except upon consent to disclosure. However, SOCAN reserves the right to share the undertakings' information in the following manner: with Re:Sound; with the Copyright Board; in connection with proceedings before the Board; in accordance with the distribution of royalties; and by court order or other law. Contacts VANCOUVER OTTAWA MONTRÉAL LONDON David Wotherspoon dwotherspoon@fasken.com Stephen B. Acker sacker@fasken.com Julie Desrosiers jdesrosiers@fasken.com Ralph Cox rcox@fasken.co.uk Roger Kuypers rjuypers@fasken.com Gerald (Jay) Kerr-Wilson jkerrwilson@fasken.com Marek Nitoslawski mnitoslawski@fasken.com TORONTO May M. Cheng mcheng@fasken.com J. Aidan O Neill aoneill@fasken.com Alexandre Abecassis aabecassis@fasken.com This publication is intended to provide information to clients on recent developments in provincial, national and international law. Articles in this newsletter are not legal opinions and readers should not act on the basis of these articles without first consulting a lawyer who will provide analysis and advice on a specific matter. Fasken Martineau DuMoulin LLP is a limited liability partnership and includes law corporations Fasken Martineau 6