THE COST OF MUSIC
Crisis in the Fitness Industry
| We all have bought music for personal use. You pay the money and you enjoy the songs. But over the years, the music world has changed. Sophisticated recording devices suddenly became affordable, music could be downloaded for free from Internet websites and recorded music sales tumbled.
Almost overnight, one could get all kinds of great music at bargain prices. Many commercial ventures played music without paying a lot of attention to where it came from and without paying too much for it. |
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While large corporate organizations such as radio and television stations have long paid performance, licensing and reproduction fees for music, this payment structure has never fully reached smaller industries such as dance studios and fitness clubs. All of this is changing.
The people who compose, perform, record and distribute the music we exercise to, want to be paid for value delivered. They are able to employ legal tariff, copyright and licensing requirements that will obligate fitness facilities that use background music and music used in exercise classes to pay royalties and license fees.
Are the new fees they are applying for substantial?
Yes.
Could they prove disastrous for some operators?
Yes.
Can fitness providers defend themselves from excessive music usage fees?
They can if they work together with other targeted industries.
Who is standing up for the fitness business in Canada?
The Fitness Industry Council of Canada (FIC).
Tariff No. 6 proposes to charge the following fees:
Fitness Classes
For fitness classes the royalty payable is $3 per class.
Fitness Venues
For fitness venues the royalty payable is calculated as follows:
(a) the monthly rate is 5 per cent of the venue’s gross receipts for the month; or
(b) if gross receipts cannot be calculated, the annual royalty payable is $100.
THE PLAYERS
THE FITNESS PR0VIDERS
Music is used throughout the fitness industry. Brad Trumble, president of DMX Canada, has provided music services to fitness providers for many years. “Music enhances environments, motivates members and clients and sets the tone for the whole area,” he says. While DMX provides primarily background music, he notes that if members “break a sweat” then a whole new tariff structure goes into effect. This reflects the complex structure of music licensing. Much depends on the specific use for which that music is being employed. While recent legislation has clarified the personal recording and use of music, when music is used for commercial purposes a whole new set of licensing requirements applies.
SOCAN
Performance Rights
SOCAN (Society of Composers, Authors and Music Publishers of Canada - www.socan.ca) is a member-owned collective that represents the people who create music, such as lyricists and publishers. SOCAN currently licenses radio stations, television stations, bars, restaurants, nightclubs and fitness facilities and others. Money collected by SOCAN tariffs is distributed to their members and international affiliates in the form of royalties. Many clubs are currently paying SOCAN fees.
On April 22, 2008, the Copyright Board of Canada certified SOCAN’s proposed fee structure for “Fitness Activities and Dance Instruction” entitled Tariff No. 19. SOCAN’s tariff No. 19 license gives gym owners and operators the right to perform musical works from SOCAN’s repertoire to accompany physical “dancercise, aerobics and body building” and other similar activities.
Tariff No. 19 applies only to one single room in a facility; any secondary rooms utilized for fitness activities or dance instruction must be separately licensed under the tariff. SOCAN calculates the license fee per room based upon a fixed fee of $2.14 per participant, depending on the average number of participants per week, per room during the year. The minimum license fee per room is $64.00 per year. Each year the Copyright Board of Canada must re-certify this tariff to make the fees binding.
Currently SOCAN has not actively enforced this regulation at fitness facilities. However, FIC has learned that one of SOCANs initiatives for 2008 is to focus on increasing collections from the commercial fitness industry.
NEIGHBOURING RIGHTS COLLECTIVE OF CANADA (NRCC)
Performer Rights
While SOCAN is responsible for administering the rights of composers, authors and publishers (referred to as “performance rights”) the Neighbouring Rights Collective of Canada (NRCC) administers the rights of performers and makers of sound recordings (referred to as “performer rights”). (For more information, visit www.nrdv.ca.)
On June 2, 2007, the Copyright Board of Canada published statements of proposed royalties filed by the NRCC in the Canada Gazette as required under the Copyright Act, with respect to royalties it proposes to collect effective January 1, 2008. At the time, the Board gave notice that all prospective users or their representatives who wish to object to the NRCC’s proposed Tariff No. 6 (NRCC Dance and Fitness Tariff, 2008-2012), may file written objections with the Board no later than August 1, 2007.
According to Claude Majeau, secretary general of the Copyright Board, no objections were received. FIC has concluded that no one objected to the proposed tariff as most associations do not read amendments posted in the Canada Gazette.
Economic Impact Estimate of Tariff No. 6, NRCC (105kb PDF)
AVLA (AUDIO-VISUAL LICENSING AGENCY)
Reproduction Rights
The Audio-Video Licensing Agency Inc. (AVLA) administers licensing in Canada for the reproduction of sound recordings and music videos on behalf of over 490 record companies. AVLA members own or control the copyright of over 95% of all sound and music videos produced and/or distributed in Canada.
Anyone who copies sound recordings or music videos or who performs or broadcasts music videos in Canada requires a licence from AVLA or authorization from the owner or holder of the copyright (a record company). The unlicensed duplication of sound recordings or music videos and/or the unlicensed exhibition of music videos are an infringement of copyright and may be subject to legal prosecution.
A fitness instructor copying sound recordings onto an MP3 player for use in a group exercise class needs a Hard Drive DJ licence from AVLA because the sound recordings are being performed publicly to class participants. The current licence fee is $312.50 (plus an administrative fee of $25 and GST or HST) per computer hard drive. This fee does not include any applicable SOCAN or NRCC fees. (For more information, visit www.avla.ca.)
FITNESS AUSTRALIA
Fitness Australia is currently struggling with the issue of skyrocketing music fees for use in fitness clubs and gyms. The issue began in 2006 with a proposed drastic increase in usage fees – some as much as 3000 percent. Fitness Australia arranged meetings with the licensing agency, the Phonographic Performance Company of Australia Ltd (PPCA), to negotiate for more reasonable fees.
If music fees are raised, club fees have to be raised to recoup the financial loss of paying extremely high royalty fees. In Australia, if the increase is approved, an average fitness club running 30-40 classes per week would be paying an annual tariff of $40,000 to $70,000 AUD.
Fitness Australia is currently working with various task forces, advocates and expert advisors to create strategies to address this issue. Being proactive and dealing with the PPCA’s proposed tariff is expensive, but the cost of doing nothing would be far higher.
This may seem like an issue a world away, but if a country as fitness-conscious and active as Australia is experiencing issues, Canada won’t be far behind. The fitness industry is a huge consumer of music, and licensers know this. They’re not afraid to try and get as much as they can - at a cost to every club’s profit and to every fitness club member.
FITNESS INDUSTRY COUNCIL OF CANADA (FIC)
FIC is the not-for-profit trade organization, established in August 2005, that represents the Canadian fitness industry. FIC currently represents over 2,000 commercial fitness facilities across Canada. Its mission is to promote and protect the commercial health and fitness industry in pursuit of a more physically active and healthy country.
To fulfill its mission, FIC employs an association manager, communications coordinator, graphic designer and translation specialist. Staff members are led by a board of board of directors. The board reflects FIC’s diverse membership, and represents fitness clubs of all sizes in all regions of the country. The president is David Hardy, owner of Club Fit in Edmonton.
FIC is actively pursuing a legislative agenda with three primary objectives: a) positive support for individual Canadians who have or are striving to embrace fitness through the establishment of an Adult Fitness Tax Credit. b) work with government and non-governmental organizations to reinforce existing active living initiatives by promoting healthy eating habits and physical activity across Canada, and c) work with governments to promote industry self-regulation and fair and equitable legislation.
As part of its mandate, FIC also examines legislative and regulatory initiatives affecting its members. Currently, FIC and its membership respect the rights of creators and performers of musical works and pay royalties for the public performance of music in fitness facilities.
FIC can provide valuable insight into the operation of fitness facilities in Canada, the importance of fitness to the Canadian public and the role that the public performance of musical works plays in relation to those facilities. In addition, FIC is uniquely positioned to contribute to the process of considering and reviewing the reasonableness of music licensing charges, such as Tariff No. 6, by providing information regarding the likely impact on fitness facilities and on Canadian consumers.
FRASER, MILNER, CASGRAIN
Fraser, Milner, Casgrain is a major Canadian law firm hired by FIC to assist the Canadian fitness industry.
The following are excerpts from its initial report of May 16, 2008:
Analysis of NRCC Dance and Fitness Tariff, 2008-2012
If approved as currently drafted, this tariff will certainly have an economic impact on the Canadian fitness industry. Tariff No. 6 is directly aimed at dance and fitness clubs where music has been and continues to be an integral part of their popularity and success. It should be noted that this tariff as it currently stands will be retroactively applicable to January 1, 2008 and continue until the end of 2012. For “fitness classes” as defined, the royalty is $3.00 per class while for “fitness venues” as defined, the monthly royalty would be 5% of the venues “gross receipts” for the month (since it is highly likely that gross receipts can be calculated, the alternative of paying $100 per year would almost never be available). Fitness venues would also be required to provide records to corroborate the royalty amount payable based on gross receipts.
Furthermore, the NRCC would have the ability to audit such records and the fitness venue would be liable to pay the costs of the audit if royalties are underpaid by more than 10%.
Multiple Licenses Required
It should be noted that the SOCAN Tariff No. 19 and the NRCC Tariff No. 6 are not mutually exclusive; payments would have to be made to both of these separate collective societies. The NRCC is responsible for administering the rights of the performers and makers of sound recordings while SOCAN is responsible for administering the rights of composers, authors and music publishers. Therefore, paying the artist directly will generally not override the payment obligation to SOCAN and NRCC for the public performance since these collective societies are still charged with the administration responsibility on behalf of all contributors to the music in their various capacities.
It is certainly conceivable that fitness club owners may need more than one license depending on how it uses the music. There are several different categories of licenses to accommodate the many different uses of music for which a tariff has been approved by the Copyright Board of Canada. If, for example, fitness club owners use a licensed background music supplier, then the supplier should typically pay the tariff on behalf of the fitness club and the fitness club owner should not be required to pay that particular tariff again. This general statement would certainly be subject to the specific contract between the particular fitness club and background music supplier.
However, if the fitness club owner uses that music for any purpose other than background music, it must pay an additional fee based on the applicable tariff. Background music from a commercial provider used to conduct fitness or dance classes is no longer “background” as it falls within the scope of a specific tariff dealing with the use of music in conjunction with physical exercise and dance instruction. Therefore, the background music tariffs (snack bar, locker room, and lobby) and the dance fitness tariffs (workout centre, dance class, exercise class) for both SOCAN and NRCC may have to be paid by the fitness club owners. FBC (with files from FIC)
Economic Impact Estimate of Tariff No. 6, NRCC (105kb PDF)
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