Another stab at the iPod levy

I heard a news story last week that still has me absolutely bewildered. According to CTV News, “Canadian music stars want Ottawa to impose MP3 levy.” This idea was put forth in 2003 and again in 2007, but it failed both times. The idea is that we already have a levy on blank recording media that effectively pays for the music you copy for your own use. People are now using fewer cassette tapes, MiniDiscs, and blank CDs because they’re copying music to their iPods. Because the music industry doesn’t want to see the revenue stream from the levy dry up, they want to extend it to the more lucrative personal music players.

There are a number of problems with the idea, however. The first is ‘sticker shock.’ If you buy a blank CD, the levy you pay is 29¢. It’s a sizable percentage of the purchase price, but 29¢ isn’t a lot of money. The proposal put forth by the CCPC for the 2008 – 2009 Private Copying Tariff included a levy on portable music players in which the levy itself was determined by the amount of memory in the device:

• 1 GB or less: $5
• More 1 GB and up to 10GB: $25
• More than 10 GB and up to 30 GB: $50
• More than 30 GB: $75

As I write this, the iPod Shuffle comes equipped with 2 GB of storage space and costs $59. Had this levy come into effect, it would cost $84. I’d suggest an increase of 42% is certainly significant. A 16 GB iPod Nano jumps 26% from $189 to $239. The 160 GB iPod Classic jumps 27% from $279 to $354. The 8 GB, 32 GB, and 64 GB iPod touch would become 10%, 24%, and 17% more expensive, respectively.

And don’t forget that these examples don’t include tax. This levy would be built into the purchase price so it would also be taxed. The $75 levy would actually cost you $84.75.

This proposal went nowhere in 2007 for two reasons. The complicated one is because the Copyright Board of Canada has jurisdiction to impose a levy on recording media. Media players are devices rather than media, and the Federal Court of Appeal ruled that the Copyright Board doesn’t have the jurisdiction to apply the levy to devices. The simpler one is that the public was not alone in its objection to this plan. Electronics manufacturers and retailers were all against it, too.

I can’t see it happening, though. Electronic devices in Canada already costs more than the same devices in the United States, despite the near-parity of our two currencies. A 10% premium here is not uncommon. People will not put up with an additional 10% to 40%. If you wanted an iPod Shuffle, would you happily pay $84 in Canada, or would you look into how you might take advantage of the $49 price in the United States, even if some extra charges narrowed the difference? It’s just $35 you say? How about a 64 GB iPod Touch in Canada for $504 or the same thing in the United States for $399?

Add the tax and it’s worse, even after calculating the exchange rate. The price in Albany, NY (the closest U.S. Apple store to me) would be $430.92 USD. Converted to Canadian dollars at today’s exchange rate, it’s $441.54. The same iPod Touch purchased in Canada would be $569.52. That’s $127.98, or 29%, more expensive.

Under the current levy rules, you would be able to buy the device in the United States and bring it back without paying the levy. Granted, the government may start charging the levy at the border if enough people take advantage of the savings involved in a U.S. purchase, but having to do so will highlight how unhappy people would be about such an arrangement. And make no mistake, Canadian retailers would make sure the public understands why this price disparity exists. Thus, the music industry’s reputation would sink even lower in the public perception.

I also don’t understand how the CPCC managed to get 350 Canadian artists to support this idea in writing. The CPCC has collected this media levy since 2000. Their own Private Copying Levy Calculation and Distribution document states,

For the years 2000 – 2009, over $254 million was available for distribution to music rights holders for private copying. To date, the CPCC has distributed over $184 million dollars.

That’s no small amount of money, and must form a considerable compensation to artists for private copying of their work. Right? You’d think so, as I did, but Howard Knopf set me straight in his September 1999 post, “The Proceeds of Canada’s Blank Media Levy.”

On the issues page of the Save the Levy website, the CPCC states,

more than $150 million has been paid to songwriters, composers, recording artists and other rights holders for the copying of their music. This money has been received by over 97,000 rights holders, most of whom would not be able to continue their careers without this revenue. This isn’t money from government, but it is an important source of earned income for music creators — one of the ways they can make a living from the music they create.

Simple division of $150 million among 97,000 rights holders means that each rights holder received an average of $1546.39 over the first ten years of the private copying levy. That’s $154.64 per year, or a whopping $2.97 each week! Further, the amount each rights holder receives isn’t determined by dividing the levy proceeds by the number of rights holders. Rather, the CPCC samples music sales and radio play of music and divides the payout accordingly. So if your sales are low and you receive no airplay, your compensation will suffer. Given the ratio of blockbuster musical acts to those who make little impact, it would be safe to say that most who receive compensation from the CPCC through the private copying levy receive less than the average. And the CPCC claims this payout is how most musicians have managed to continue their musical careers? Pardon my scepticism.

Either the 350 artists who signed the letter are those who are earning far more than the average payout, or they’re idiots. I suspect there’s a mix of both among them.