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CBC Letter V6

CBC Letter V6

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Published by Steve Ladurantaye

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Categories:Types, Business/Law
Published by: Steve Ladurantaye on Apr 12, 2012
Copyright:Attribution Non-commercial


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Montreal, April 12th, 2012Dear Sir,I am writing on behalf of the undersigned to express our deep concern with the recent launch of the CBC Music service and the very negative impact the launch of this service ishaving on the industry.The group of broadcasters listed below offer a comprehensive suite of music services inboth the regulated and unregulated broadcasting industries in Canada, and in some cases, ininternational markets as well. Combined, the Canadian commercial broadcasters contributeover 210 million dollars per year for the use of music in television and radio. Commercialradio broadcasters and pay audio licensees alone represented over 100 million in royaltypayments to Canadian copyright collecting societies and various rights holders in 2011.These figures are in addition to the approximately $25M paid annually by commercial radiobroadcasters and services for the development of Canadian content and any amounts paidas part of change of control transactions of licensed undertakings, as mandated by theCRTC. In comparison, CBC Radio paid less than 3 million dollars to re:sound and Socan last year, the two main collecting societies in Canada. Commercial broadcasters represent the goto destination for a majority of Canadians that want to be informed and entertained. In2007, commercial radio stations captured approximately 80% of total radio tuning perweek, compared to approximately 8% for CBC radio
CBC’s new Music initiative
The CBC launched its CBC Music initiative with great fanfare a few months ago. This serviceappears to be advertising based for revenue generation and is available completely free toend-users. Extensive advertising supported this service launch during the recent GrammyAwards on Global Television, and the CBC continues to promote the service throughannouncements and advertisements on CBC Radio and other CBC properties. For example,several advertisements for CBC Music could be seen during the prime viewing time slot of Hockey Night in Canada on Saturday nights since the launch of the service.It has been an ongoing debate as to whether CBC should be allowed to use public funds tocompete directly against private broadcasters for sports content or foreign televisionprograms. It appears that this debate is now relevant to the radio and music industries aswell. By launching its new CBC Music service, the CBC competes directly with establishedprivate broadcasters by offering a product that is not differentiated and that seems to focusa lot more on foreign content, rather than focusing primarily and predominantly on
Canadian content, a key component of CBC’s mandate as defined by the Broadcasting Act.
By listening to the service for a short period of time, one can clearly see that theprogramming on most stations has a relatively low level of Canadian content and featuresartists that are already well represented on most commercial radio stations across Canada.This was al
so observed by a reporter of the Globe and Mail that stated “
But the service does
 provide great range, and pulls music from all over the world instead of pushing a steady diet of 
Canadian content” 
 The CBC Music service puts at risk business models that have been developed by privatebroadcasters.
The most common business models consist of:
Subscription based services;
Advertising funded services;Because of the unique royalty structure of most on-line music services, which is based on afee paid each time a song is streamed, it is very difficult to generate any profits fromadvertising-based business models for standalone music services. Popular services likePandora in the United States for example have been losing money since they launched. It istherefore difficult to understand how the CBC intends on financing this service, without considering the possibility that it is funding it through the annual appropriation it receivesfrom the Federal Government. In a March 12
article of the Globe and Mail, Chris Boyce,
Executive Director for radio and audio at CBC was quoted saying “
We do find ourselves in adifferent position than a private broadca
ster because the kinds of questions I’m asking don’t 
necessarily depend on profit margins, at the same time, we need to look at building asustainable business here. We need to look for revenue
If companies like Pandora, with 100million users, have not been able to break even since their launch over a decade ago, how
does the CBC intend to do so in the much smaller market that is Canada? Mr. Boyce’s
comment also raises very serious questions as to the level of planning that went intolaunching this service in the first place. One would assume that any reasonable managerwould know exactly what the business plan anticipates in terms of costs and revenuesBEFORE launching a service that can have such a negative impact in the market place.It could be argued that the CBC is using the preferential royalty rates it receives from thevarious collective societies because of its status as a non-profit public broadcaster to makethe service viable in the long term. This argument has two main flaws;1.
Assuming the CBC is indeed leveraging lower royalty rate structures to launch aservice that competes directly against private broadcasters, it would be subjectingthese private broadcasters to an undue disadvantage under regulatoryconsiderations;2.
If the premise of making the service viable is indeed that the CBC benefits from alower cost model, it appears that they may not benefit from these lower rates forvery long since societies, such as Socan, have already expressed concerns publicallyaround the new service
Chris Boyce, CBC’s executive director for radio and audio,said “
SOCAN’s move isn’t unexpected, and the CBC acknowledges it will need to revisit 
its arrangements at some point 
“We currently have a tariff that applies to CBC’s online delivery of their [broadcast] signals,” he said. “And this [CBC Music] isa new thing they’ve got. We have to look and see how the new facts apply to the tariff, and that’s what we’re considering.”

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