Copy-wrong?

The government and recorded music business have fallen out in Canada ahead of crucial new copyright reform legislation, after a Ministry of Canadian Heritage report claimed the industry's own failures led to the current sales slump.

The report, written by former music retail executive Shelley Stein-Sacks, is highly critical of the music industry and states that by not matching consumer demands, labels pushed fans to peer-to-peer services.

"[It] stands to reason, these fans, fueled by being denied what they wanted when it existed elsewhere, would find a way to get what they want—and so they did—enter Kazaa, Morpheus and Napster," Stein-Sacks writes, adding, "The industry decided to make matters worse," by ceasing to release CD singles.

But Graham Henderson, president of the Canadian Recording Industry Assn. (CRIA)—which represents 21 labels in Canada, including all four majors—is fuming that the "one-sided" report fails to address the copyright issues his members contend are responsible for the decline.

He also notes that a 2006 report from the same ministry also failed to mention copyright. "This is the second time [it] has issued a report that ignores the elephant in the room," he says.

The report comes at a critical time for the Canadian music industry, which saw retail sales of recorded music slide to $719 million Canadian ($619 million) in 2006, down $597 million Canadian ($514 million) since 1999, according to the CRIA. The ministry is jointly responsible—with the Ministry of Canadian Industry—for the Copyright Act, which the music industry has long believed is outdated and unable to deal with the reality of Internet piracy. The CRIA says Canada has one of the highest Internet piracy rates per capita in the world, estimating around 1.6 billion songs are swapped illegally annually.

A new Copyright Act is anticipated later this year, but the omission of copyright from the report—published just days before the Washington, D.C.-based International Intellectual Property Alliance urged the U.S. government to place Canada on its "priority watch list" of IP villains, alongside China, Russia and Belize—has led to fears the government is not in tune with labels' concerns.

Pierre Lalonde, director of sound recording policy and programming for the ministry, says the omission was intentional, as the report was aimed at addressing distribution issues facing Canadian independent labels, including the emergence of big-box chain stores in place of specific music retailers. He claims indie labels have not been as hard hit by piracy.

The report is designed to provide the ministry with background information in order to help them determine public policy, although they are under no obligation to act on the report's findings.

"It was not the report's intent to tell the government what it should be doing [about copyright]," Lalonde says.

The Canadian independent scene has produced several international successes in recent years, including the Arcade Fire, Broken Social Scene, Metric and Stars. But Henderson claims it's "erroneous" to suggest indies have prospered in the current climate, noting that several of the largest labels, like Maple Music and Paper Bag Records, utilize Universal Music distribution.

"There is this strange tendency on the part of [the ministry] to regard the problems facing the music industry as either a phantom or something limited just to the majors," he says. "It does a disservice to both indies and majors to say times in Canada are good."

Last year, several key Canadian indies, including Nettwerk, True North and Linus Entertainment, split with the CRIA over a proposal to change the definition of Canadian content on radio and differences over artist funding.

Indies trade body the Canadian Independent Record Production Assn. spokesman Geoff Kulawick is positive about the report, saying its calls for additional government funding for indies are in line with his members' needs. He agrees piracy is an industrywide issue, but says indie labels also face other uncertainties.

"Anything that can assist with the costs and challenges that independent artists and labels face would be of great economic benefit to all Canadians," he says.