The Intellectual Property Law and Policy Framework for Sound Recording

The IP legal framework encompassing independent labels comprises both the statutory provisions as well as the political economy of IP rights, which I will consider, in turn, in this section. The statutory amendments affecting the sound recording industry have been the adoption of neighbouring rights, the private copying right and the blank recording levy, and the passage of modernized Copyright Acts in 1988 and 2012. In general, the purpose of the Copyright Act’s sound recording provisions, and of the Act overall, has been to remunerate and recognize creators, protect against unauthorized copying, and provide a legal regime that incentivizes creativity and innovation.^{Footnote 7}

Politically, IP law reform has been an increasing locus of government attention for two reasons. First, IP is critical to the government’s focus on trading the products of the creative economy. Second, the Canadian government has been subject to extensive lobbying and pressure from the United States to reform its copyright law to protect US products. I will consider these two factors in the following paragraphs.

First, politically, the federal government is increasingly embracing a trade-oriented cultural policy that involves the cultural industries as a route to prosperity, and copyright is increasingly seen as playing a role as cultural policy.^{Footnote 8} Copyrights are the currency that aids the movement of Canadian units of cultural production through foreign markets. These units grow more prevalent daily. Automatic copyright protection and the Internet, which, as Larry Lessig puts it, “makes everything a copy,”^{Footnote 9} have made copyright ubiquitous. Encouraging copyright is also critical to the growing domestic policy focus on the creative economy; the creative economy represents a fundamental transformation in the nature of labour and capital, as they have moved away from industrial (modern) capitalist production to the present postmodern stage of information and services production.^{Footnote 10} This “imagination economy” relies on a shift from material to intellectual property,^{Footnote 11} and “creativity” transforms itself from a gift or an inspiration to a skill that anyone can acquire through technique.^{Footnote 12} As Angela McRobbie puts it, creativity means “having ideas.”^{Footnote 13} The goal is a “creative economy,” where creativity leads to innovation that drives technological change, boosting economic growth^{Footnote 14} and putting the arts to work for the economy.^{Footnote 15} IP law, and especially copyright, is the tool that commodifies creativity^{Footnote 16} and is, in this vision, “the most important postulate in the creative economy.”^{Footnote 17}

Doctrinal developments have enabled Canadian copyright law to be a governance tool in the “having ideas” economy. Although the Supreme Court of Canada (SCC) has been assigning less and less docket space to other types of private economic law cases since 1970,^{Footnote 18} it has decided ten copyright cases since 2000. This veritable deluge of copyright cases (especially noteworthy considering that only three copyright cases were decided in the previous thirty years)^{Footnote 19} has been interpreted by one commentator as suggesting an area of law that is “important, and yet in a dynamic state.”^{Footnote 20} In these cases, the SCC has adopted a standard of “skill and judgment” for original copyrighted works,^{Footnote 21} stating that the concept of an original work “includes, if not creativity per se, at least some sort of intellectual effort.”^{Footnote 22} Thus, its interpretation of what constitutes protectable creativity would cover even the more utilitarian of the products produced by the creative economy.

Copyright scholars and others, however, have identified serious gaps in regimes governed by copyright law. Copyright law privileges economic over cultural values and has an individualist, market bias. As articulated in Théberge, Canadian copyright law has been “more concerned with economic than moral rights . . . [t]he economic rights are based on a conception of artistic and literary works essentially as articles of commerce.”^{Footnote 23} Copyright law’s governing notions of individualism, desert, exclusion, and action out of rational self-interest leave no space for community interest, inclusion, and altruism.^{Footnote 24} The author is envisioned as an individual, sole or joint, but never as truly collective or indebted to a tradition.^{Footnote 25} The public domain is limited to what copyright is not.^{Footnote 26} Copyright deals poorly with craft or other informal IP regulatory regimes whose participants are often female or marginalized.^{Footnote 27} Copyright rules ignore Aboriginal and other non-Western ways of knowing.^{Footnote 28} Copyright law also deals poorly (if at all) with non-market uses of works,^{Footnote 29} and copyright legislation and case law barely acknowledge broader social values like education, access, free expression, user creation, and audience engagement with copyrighted works.^{Footnote 30} The scope and seriousness of these concerns suggest the need for caution in considering copyright as part of a cultural policy framework.

Second, the government’s increasing focus on IP law reform can be explained by extensive lobbying by the United States to strengthen Canadian copyright law to protect American products, especially music. The United States is both Canada’s major trading partner and the largest exporter of IP in the world.^{Footnote 31} In the United States, IP rights, especially copyright and trademark, play a central role in remuneration for the cultural industries. US labels and their artists have survived without any direct subsidy or grants for creation since the late 1990s, and without any funding programs for the sound recording industry whatsoever.^{Footnote 32} US independent musicians and labels rely on selling copyrighted goods in markets to support themselves,^{Footnote 33} which has encouraged US cultural industries to continuously expand their markets. Canada has been a prime target.^{Footnote 34} United States-based, multinational major labels, operating in Canada and occupying 70% of its sound recording industry by sales, have brought their business model with them. Understandably, they advocate for IP regulation that protects their products and profits and skew any discussion of cultural policy toward copyright law. Thus, recent Canadian copyright law reforms have been pursued largely to placate the United States and to update the Act for the digital era. Strengthening copyright for sound recordings has been a core focus of US lobbying efforts^{Footnote 35} and particularly those pursued through the Canadian Recording Industry Association (CRIA), which has initiated legal campaigns to prevent music uploading and downloading from peer-to-peer networks.^{Footnote 36} The Conservatives attempted copyright reform three times in five years and were finally successful in 2012. In implementing these treaties, the 2012 copyright reforms increased protection for imported, US-copyrighted goods, particularly sound recordings, and they did so, especially, by preventing circumvention of digital locks.^{Footnote 37} This paper demonstrates that the increasing focus of the law “on the books” and of the government on the importance of IP to sound recordings does not reflect the actual practices and commitments of Canadian independent music labels carrying on business in this area.

The Cultural-Policy Framework for Sound Recording

Canada’s sound recording policy framework has developed out of a need to foster unique Canadian cultural industries, given, on the one hand, the proximity of the United States and its vast, low-priced English-language cultural output,^{Footnote 38} and, on the other, Canada’s small population, large territory, and two major linguistic groups.^{Footnote 39} Unleashed on the market, US products dominate Canada’s domestic markets for cultural goods, particularly in the area of music.^{Footnote 40} The peculiar economics of popular culture mean that the upfront costs of cultural products can be amortized over a much larger US audience.^{Footnote 41} Those products can then be reproduced at little or no cost and sold cheaply in secondary markets such as Canada and still make a large profit, since the costs of creation were likely recouped in the United States.^{Footnote 42} Goods produced primarily for Canadians cannot benefit from similar economies of scale.

Recognizing these conditions and the need to support Canadian cultural production, the government has established structures to support Canadian creators, including musicians and labels, in developing “ideas and practices more in keeping with our own way of life.”^{Footnote 43} These structures have included granting agencies and programs and content requirements. An initial step was the creation of the Canada Council for the Arts (CCA) in 1957. Then, in 1971, the Canadian Radio Television Commission (CRTC)^{Footnote 44} introduced Canadian content requirements as defined by the MAPL (or Maple) system,^{Footnote 45} and by 1991, the CRTC required that 35% of content be MAPL-approved.^{Footnote 46} The Canadian content regulations have demonstrably helped the Canadian sound recording industry grow.^{Footnote 47} Further, broadcasters have agreed to provide financial support to the sound recording industry in return for the privilege of using the public airwaves.^{Footnote 48} Until the Foundation Assisting Canadian Talent on Recordings (FACTOR, or Musicaction in Québec) was created in 1982, such support was haphazard.^{Footnote 49} Established in 1982 by CHUM Ltd., Moffat Communications Ltd., Rogers Broadcasting Ltd., the Canadian Independent Record Production Association (CIRPA), and the Canadian Media Production Association, FACTOR initially delivered private-sector money to artists as forgivable loans by jury.^{Footnote 50} Following the recommendations of the 1982 Applebaum-Hébert Commission,^{Footnote 51} and recognizing the success of FACTOR’s disbursement mechanisms, the federal government decided in 1986 to use FACTOR to distribute money for its Sound Recording Development Program to Canada’s sound recording industry.^{Footnote 52} Today, that funding remains a part of what many regard as a highly successful public-private funding model. In 2000, FACTOR’s success inspired the Canadian Association of Broadcasters to create the Radio Starmaker fund, a grant system funded entirely by private broadcasters to support artists for commercial broadcasting.^{Footnote 53} Meanwhile, the Music Entrepreneur Component (MEC) of the Canada Music Fund,^{Footnote 54} which includes the Aid to Canadian Sound Recording Firms fund, was created to support established independent labels that, upon receiving MEC support, become ineligible for FACTOR funding.^{Footnote 55} MEC also places support for Canadian independent labels more directly under the control of the federal government.^{Footnote 56}

The grants (also called direct subsidies) that support independent music labels intervene at various stages in the creative process. The CCA provides grants to artists principally for the creation and production of music, as well as for professional development through workshops, residencies, and travel. FACTOR, the most significant source of funds for Canadian independent artists and labels, supports all stages of the process, offering not only a demo program that funds artists’ first high quality recordings but also support for domestic and international touring.^{Footnote 57} Starmaker supports domestic and international touring and marketing by musical artists with “star potential.” It is the primary source of funding for bands that wish to tour Canada and abroad.^{Footnote 58}

The various granting bodies allocate funds at different stages of a label’s development and may fund “business” or “creative” aspects of a label. Creative decisions tend to be made by a jury of peers, whereas business decisions are made based on documented facts and figures. The CCA is concerned more with the “creative”: its carefully balanced^{Footnote 59} peer review committees identify “outstanding ability and artistic merit in the arts,” and commercial success is not a criterion.^{Footnote 60} FACTOR’s process is hybrid in nature. Some of its grants are peer reviewed by juries while others, like Direct Board Approval for Sound Recordings, are not. Juries assess the “creative presentation” and marketing plan of a project, whereas Board Approval merely considers the financial viability and track record of an applicant.^{Footnote 61} Starmaker subscribes to a venture capitalist model: a decision to award a grant is not based on the artistic quality or even the commercial merit of a project, once the project has passed a threshold number of “units” sold.^{Footnote 62} Starmaker is successful when it is able to fund a large number of meritorious applicants while weeding out obvious non-contenders.

Each of the granting bodies takes into account a range of non-economic values in its selection criteria. The three major grantors to independent labels encourage and support collaborative, in addition to individual, projects. All three grantors prioritize values such as Canadian creation; sonic (Starmaker), ethnic (Starmaker), linguistic (FACTOR, CCA), or regional (FACTOR, CCA) diversity; financial need (Starmaker); and professional development, at both an emerging (Starmaker, FACTOR, CCA) and a more established (CCA) stage. Collectively, FACTOR, Starmaker, the CCA, and other granting agencies not considered here support both the business and the creative functions of a label. In contrast to copyright law, cultural, economic, and social values are deeply integrated into their decision-making processes and outcomes.

Introduction to the Study

The music produced by independent labels is governed by a matrix of laws deriving from statute, government policy, and support provided by Canada’s sound recording policy apparatus. The purpose of the study that follows was to investigate the IP laws and norms governing how independent music labels conduct business. I chose the independent music sector, as it is one of Canada’s most vibrant scenes both culturally and economically. In a 2012 report to Music Canada, Pricewaterhouse Coopers (PwC) estimated that independent labels are responsible for 30% of music sales in Canada’s $400 million industry.^{Footnote 63} An independent report conducted by the Canadian Independent Music Association (CIMA, formerly CIRPA) in 2011, which considered the economic impact of the independent music industry for the first time, found that its total GDP impact was $303 million and that it employed over 13,000 people that year. CIMA’s report also highlights that those labels are making more than they get from government: $1.22 for every dollar in public funding.^{Footnote 64} The Nielsen Music Year End Music Industry Reports for Canada show that the independent music sector occupies the market share of one of the largest of the four major record multinationals.^{Footnote 65} Montreal-based independent record labels exist in a milieu where 95% of albums released by Québécois artists are produced locally (up from 10% in the 1980s).^{Footnote 66} I focused on Montreal, because Montreal-based artists with roots in independent labels or music scenes have a strong presence at Canada’s major music awards, such as the Junos and the Polaris Prize, and they have gained an international reputation for the quality of their music and the music produced in Montreal.^{Footnote 67} Most recently, Arcade Fire won the 2011 Grammy for Best Album of the Year, a victory that the City of Montreal was quick to share. These facts and numbers do not even begin to account for the impact of local music festivals either specializing in or including independent artists (in Montreal, these festivals include PopMontreal, Osheaga, Mutek, suoni per il popolo, and JazzFest), which contribute millions of dollars to the local economy.

Principles and practicalities underpinned the structure of this study and particularly the choice of participants. I interviewed labels, as opposed to artists or bands, because labels are business-like enterprises that manage the creative work of artists. Thus, they have a direct interest in copyright-like rights and must have encountered them at some point. I interviewed independent, as opposed to multinational major, labels, because the major labels’ legal practices related to IP are well represented in laws, policies, and documentation from their advocacy groups like CRIA. The practices of the large and heterogeneous group of independent labels have been underexplored and underrepresented. This is due, in part, to the fact that independent labels are often sole proprietorships with no easily identifiable group representative or advocacy position.^{Footnote 68} This study serves as a starting point by investigating a small segment of the independent music scene in Canada. Interviewees were drawn from across the label spectrum, from hobby or artisanal labels to professional high-profile labels, and conducted business principally in Montreal. I interviewed twenty people representing thirteen labels and two festivals between November 2009 and August 2010. I found interviewees by asking subjects for recommendations as well as by contacting a list my research assistant and I had compiled of Montreal-based independent labels. I interviewed additional labels until interviews yielded no new information. I developed and used a standard set of interview questions that was informed by colleagues who had conducted structured interviews on the topic of copyright and revenue streams.^{Footnote 69} These colleagues peer reviewed the questionnaire, and I modified the questions based on their advice. Interviews were scheduled for an hour but often lasted longer, in some cases up to two hours; the longer interviews were often those involving two subjects who were joint proprietors of a label.^{Footnote 70} A research assistant transcribed and coded the interviews for twelve themes that emerged from the interviews.^{Footnote 71} An earlier piece discusses all the results of the study.^{Footnote 72} In this paper, I focus on the most surprising theme that arose in the labels’ accounts: the importance of grants as compared with copyright. Grants, as opposed to copyright, formed the key normative framework governing labels’ business decisions. In the next two sections, I summarize the results of the study and conclude by reflecting on the implications of this study for copyright law and norms scholarship.

The Relationship between Copyright and Grants

The concept of copyright plays a supporting role in the operations of independent music labels in Montreal. A number of labels retain the publishing rights of their artists, most adopt a fifty-fifty split-type royalty sharing agreement, and a few do not express what they do in terms of “copyright,” “rights,” “royalty-sharing,” or otherwise. The overwhelming sense gained from interviewees is that exploiting copyright is something separate and “legal,” something that labels do to create a diversified, low-maintenance income stream that provides a financial buffer, and to create a back catalogue of publishing rights that serves as a type of memory of the label’s past cultural production. Only one label (Archipel) signalled any interest in copyright policy reform: “I think Harper was trying to pass a bill about copyright or something . . . it really scared me,” and one interviewee rejected the importance of copyright reform to independent music: “Copyright [reform] maybe works for Nickelback and Sarah McLachlan, but has nothing to do with us.” None of the interviewees indicated that copyright played a role in determining the kind of music the labels promoted or developed. Grants, in contrast, seemed to have a significant influence in the decisions and life of the label.

While the study was qualitative and made no attempt to systematically collect financial information, anecdotally, the labels that earned profits or were profit-seeking enterprises attributed a significant proportion of their income to grants. The grants, however, were not necessarily experienced directly as income, and their effect depended on the nature of the grant and its terms. As one label remarked, “It’s funny to say, but we probably at the end of the year would have no profit if it wasn’t for the grants. But—big but—we probably wouldn’t have spent any of that money if it wasn’t for the grants.” The uncertain relationship of grants to profits suggests that a subtle measure of grants’ importance may be necessary in order to judge their influence. Revenue streams were generally divided among physical products, digital rights, and synchronization rights, with a surprisingly significant role played by physical vinyl sales.^{Footnote 73} While acting as the representative organization for independent labels, CIMA regards “effective efficient, relevant modern and updated copyright legislation as vital to the rights of its members” and the “slow pace” of copyright reform as a cause of the “decline in our businesses and the lack of progress in digital distribution.”^{Footnote 74} This account was countered by the self-reporting of the labels. Only three interviewees were members of CIMA, and none of them mentioned CIMA during the interviews or shared its views on copyright reform. Perhaps some of the labels interviewed are more indie than an indie association.

Label Accounts of Grants

Label interviewees’ responses suggested that, in contrast to copyright, grants from federal, provincial, and private agencies were a significant predictor of or influence on the creative and business choices of the labels. There was a prevailing sense among the interviewees that the real potential for income came from grants (and from the sale of tangible products). I identified three principal types of relationship between grantor and grantee, with overlaps among them. First, the relationship between grantor and grantee was, in some cases, seen as reciprocal as opposed to unidirectional, a type of partnership between the granting agencies and the label (“ . . . FACTOR was great to us. I also like to think that we were good to them, in that they were able to plant their flag in [respondent]’s product, records, and success story and claim it as proof that . . . funding works”). In other cases, the relationship was regarded as one of dependence, a relationship from which labels could ideally gain independence at any stage, since they are businesses and not “not-for-profit” organizations. Finally, in a third type of relationship, grants were seen as cementing a type of gift exchange or network of patronage or support (“[I]t is like a mentoring aspect . . . you can kind of share the money in your community”). From a less positive perspective, grants were also perceived as “mysterious,” with obscure criteria, so that “right now, the best support I’ve seen is just VISA and Mastercard, they’ve been doing wonders for me.” The relationship between grantor and grantee was often personal, and interviewees frequently spoke of their dealings with individuals at granting agencies. Grant getting was also a way to maintain the divide between commercial production (or sponsorship) and creative work. Some interviewees distinguished among grants that were arts-based (e.g., those for CCA), those that were more industry-based (e.g., FACTOR grants), and those related to agencies (e.g., SODEC) that fell between these two categories. There was a perception that grants were growing on “the industry side. And there’s less and less on the arts side.”

The types of issues and questions influenced by grants included: what nationality of artists to sign; when albums would be released; where to set up residency; whether to enter into partnerships with international collaborators wanting to “take advantage of the grants”; how to structure the business; whether labels would make a profit, continue, or survive; what type of, and how much, promotion to pursue (“we probably wouldn’t have spent any of that money if it wasn’t for the grants”); what types of sales targets to pursue; and where to focus energy (e.g., on grant writing)—what one interviewee referred to as jumping through the “flaming hoops.” The significance of grants is represented visually on the CD cases produced by the labels where, in addition to a sign asserting the label’s copyright, equivalent physical space is devoted to acknowledging the contributions of various granting agencies. This information, however, may be read differently by different readers as suggested by the following comments: “Maybe these people are just putting this out so they can get the grant funding,” or “Maybe they’re not very good and no one [wants to support them].”

Among interviewees, there was a sense that grants, like the copyright system, could be gamed. In fact, one label executive admitted that the corporate structure of his label had been established in its particular form to take advantage of grants (“we probably got the best track record of grabbing money of any company”). These so-called “grant labels” excited great emotion among interviewees. In particular, one respondent argued that there might be “a responsibility that once you don’t really need the grants, you just shouldn’t apply for them.” Another respondent expressed concern that a grant might lead to parochialism, or to a focus on distribution and promotion within Canada as opposed to outside the country’s borders.

Respondents perceived the grants-system as generating rent-seeking behaviour exemplified by the need to get “a grant to fund the fact that you spent the last year writing grants.” As one respondent put it: “Everyone is surviving by contorting themselves around the existing system and essentially has a vision of what they want to do. And then, in order to get the resources to do what they want to do, they use the system . . . not quite any way they can, but as much as they can to access resources without totally compromising their values.” The interviews suggested that a grant culture privileges specific attributes such as post-secondary education, planning, managerial, and grant-writing skills, and—particularly if a process of peer review is involved—adeptness at networking.

Labels that did not apply for grants generally did not think of themselves as legitimate businesses. A common sentiment among those at labels not seeking grant funds was that, in order to apply for grants, they would have to keep better accounts, stick to timelines, and file reports, requirements antithetical to their idea of music curation and enjoyment. Some stated that they did not want to be “making music in the service of the state,” since “[w]hen you’re an artist, whoever pays you is your audience . . . there’s always going to be some element of control or reaction.”^{Footnote 75} Government involvement, however, might be less problematic in the reproduction and performance of music already created. Some labels objected to the culture of dependency (referred to as “trust funds”) created by grant funding and demonstrated when grants are given and then withdrawn in later stages of the creative process (e.g., touring). Exiting the granting cycle may require “taking a hit” for one year when no funding is sought. None of the labels, however, objected to grants seen as playing an integral role in fostering artists’ careers and arts institutions.

Thus, the interviews suggested that copyright was much less important than the personal, repeated, and sometimes-collaborative relationships between labels and granting agencies. These relationships might also explain why many respondents chose to speak anonymously. In fact, the interviews suggested that the grants regime plays a more central role in shaping the business models and creative decisions of independent music labels in Canada than does copyright.