In a few weeks, SoundExchange will celebrate the one-year anniversary of its purchase of the Canadian Musical Reproduction Rights Agency Ltd. (CMRRA). The acquisition represents a major opportunity for SoundExchange to diversify lines of business and offer services to the music publishing community, in addition to our work collecting and distributing digital sound recording performance royalties.
The acquisition also represents an opportunity for CMRRA, which is widely recognized as a leader in rights management and a key partner for music publishers and self-published songwriters who are owed royalties in Canada to tap into SoundExchange’s systems and platforms and relationships around the world. CMRRA is part of SXWorks, a wholly-owned subsidiary of SoundExchange that provides global administration capabilities to music publishers.
CMRRA has an incredible team of professionals who issue licenses and collect royalties for the reproduction of musical works in Canada. Caroline Rioux leads the CMRRA team, and we sat down with her recently to discuss the company, its success in 2017 and plans for the year ahead.
SoundExchange: How do you see the partnership between SXWorks and CMRRA benefiting publishers in Canada?
Rioux: For CMRRA, our motivation in partnering with SoundExchange was to increase our economies of scale. The Canadian marketplace, as vibrant as it is, is still a small marketplace. When you don’t have a lot of people, you don’t have a lot of subscriptions being sold, yet the infrastructure required to service that market is still significant, regardless of the volumes. SXWorks is already working closely with publishers across North America and beyond to develop new services to support publishers.
As the industry started to shift from the sale of CDs, we did a very good job of diversifying our lines of revenue. The streaming market is quite strong, but it still doesn’t bring as much as we would like. When a consumer spends $10 a month on a music subscription, we’re not seeing as much of that $10 in mechanical royalties as we used to from the sale of CDs or downloads.
So we looked at our options, and we felt we needed to find a partner to help us expand service offerings beyond Canada. Our best shot was to partner with someone who could help power this expansion, and we found a home in the SoundExchange Companies team. SoundExchange has an incredible team of dedicated IT experts and leaders. CMRRA is now benefiting from that expertise and leadership by identifying areas of performance that can be further improved. While CMRRA adopted a cloud-based infrastructure several years ago to manage the sheer volume of data we get every day, it continues to amaze me how quickly we need to move on to the next stages of technological advancement to keep up with these ever-increasing volumes of data and the needs of our clients for better tools and resources to access that data.
With SoundExchange, we’re able to bring together the publishing and data expertise of CMRRA with the scale and operational capabilities of SoundExchange. We are in great hands on this front, and I sleep better at night knowing that they’ve got us covered, whatever the future brings.
SoundExchange: How will this benefit publishers in the long run?
Rioux: Our ability to leverage the investments that were made in CMRRA’s infrastructure when entering new markets via SXWorks, and to leverage the scale, scope and expertise of SoundExchange to further maximize the efficiency of that infrastructure, will lead to a more efficient, robust administrative engine that will reduce the cost of administration for publishers and speed up royalty collections and distributions in Canada. The efficiencies come from the scale.
SoundExchange: What steps has CMRRA taken to create and ensure a transparent process?
Rioux: CMRRA has always been a transparent organization. Our original purpose was to license physical products on behalf of publishers. The licensing of physical products is, by its nature, very transactional and quite transparent.
A product gets released. Each song is subject to a specific license. In fact, each share of each song on each product is subject to its own specific license. When the royalties are paid by the licensee, the payment is made in relation to that very specific license, based on the number of units of that product that have been sold, and that payment is passed on to the copyright owner, along with all the applicable sales information. It’s very clear to the rights owner what they are getting paid. It’s a very linear process and it’s easy to reconcile and audit. That model continues to be part of our thinking each time we develop a new licensing or distribution scheme; it needs to be specific, transparent and clear.
When the first online music services launched in Canada in late 2004, it was important to us, for this very reason, that we license them directly, rather than via the labels as intermediaries. That paid off for us because, since inception, the services have reported to CMRRA the entirety of their sales in the Canadian marketplace.
For CMRRA to get paid, we analyze the usage data to identify the works in our repertoire and invoice the services for the represented shares in those works. Once the invoice is issued, and the payment is received, it’s a quick process to then distribute the associated royalties to our publishers, again providing all the applicable usage data.
When older works become represented or registered with CMRRA, we are able to easily and retroactively invoice and collect the royalties for those past sales. Each quarter, as part of our ongoing royalty invoicing cycles, our process evaluates new shares and new matches for past sales, and automatically adds those shares to the next invoice. I believe that CMRRA has the most seamless system for the invoicing of past royalties as it doesn’t require a convoluted “back claims” process that we’ve seen in other jurisdictions.
So for us, we don’t tend to think of the online music market as some sort of a black box where it’s impossible to identify what’s been used. The challenge, and where we focus our attention, is our ability to deal with the enormous volumes of data. This is where an efficient and robust system, and smart matching algorithms, are essential.
SoundExchange: CMRRA has an important role in the establishment of rates for reproduction rights in Canada. How does CMRRA negotiate reproduction rights in Canada?
Rioux: There are two avenues to establish rates in Canada for the reproduction right. We can either enter direct negotiations with each user or file a tariff for certification by the Copyright Board of Canada. Once rates are certified by the Copyright Board, the tariff has the force of law.
Over the years, CMRRA has pursued both avenues and we’ve utilized this option strategically depending on the prevailing circumstances. Our strong preference is to negotiate licensing agreements directly with the users but that has not always been possible.
Our first tariff certified by the Copyright Board dealt with the reproduction of musical works by radio stations. In the Canadian marketplace, publishers get paid for those reproductions. The broadcasters initially refused to pay anything for the reproduction right, arguing that the copies made in the course of their operations had no value. So, we took our case before the Copyright Board and got rates certified.
For many years, we also relied on tariffs to license the online music services operating in Canada. This was important strategically to ensure appropriate royalty rates would be set in light of this emerging market, as well as the appropriate data and royalty flow between CMRRA and the online music services. We did not want to be subjected to the “pass-through” licensing regime that had become the model in the United States.
We did very well in those proceedings and ended up with rates that were much better than we would have been able to negotiate on our own, in the absence of full evidence. It was a fair, equitable process and we ended up with some of the highest rates in the world.
But in late 2012, there were several amendments to the Copyright Act that introduced new exceptions to benefit users rather than copyright holders. And now, partially due to determining the effects of all the changes in the Copyright Act, it takes years to get tariff decisions from the Copyright Board. How do you run a business not knowing what your rates will be?
To address those delays, we began negotiating directly with the online services. We entered into licensing agreements with all the major online music services doing business in Canada, and we’re now moving away from filing tariffs for those types of users. That market is now mature enough to have benchmark rates and administrative terms by which ongoing direct negotiations can be framed to maximize the value of the reproduction right.
SoundExchange: Can you address the potential for cross-border cooperation between CMRRA and SoundExchange? Is there an opportunity for SoundExchange’s artist-rights owner community to join CMRRA? And, if so, how should they do that?
Rioux: In addition to new services to be offered on a multi-territorial basis by SXWorks, there are royalties to be earned in Canada. A large number of the rights holders we represent are American rights holders. We represent all the major music publishers and large independents. Rights holders can join CMRRA directly or they can use a sub-publisher in Canada who is already represented by CMRRA. But if you don’t have a sub-publisher, and if you haven’t affiliated with CMRRA directly, chances are you’re not collecting your Canadian royalties.
So, we want to spread the word. We think of it as closing the repertoire gap. We want to close the repertoire gap. Go to the website. It has our affiliation agreement. Also look for sub-publishers.