Downloading Legalized in Canada - For a Price

by Richard Menta, 12/12/03

KaZaa, iMesh, eDonkey and all of the other free download site received a Christmas gift this year thanks to the Canadian copyright office. They have ruled that downloading digital music and movie files is legal in Canada.

They allow this because the office will tack on a new levy, up to an additional $25 fee on all devices that can store and play digital files.

The 128MB Philips PSA MP3 player for the gym is available on Amazon.

This type of fee has already been utilized in Canada on audio tape and blank CDs for years. The fees are added to the retail price with the additional monies going to a musicians fund that pays artists and songwriters. Burning music on CDs at home was already legal in Canada because it was paid for in advance by this levy.

The government likes this approach for digital music players because the fees are not visible beyond they fact that cost of the item will become slightly inflated. Furthermore, normal price drops that come with new technology over time hide the fee even more.

The problem comes if the price of the item taxed drops so low that, if left unadjusted, the levy will mark an overly significant percentage of the total cost of purchase.

MP3 players with less than 1GB of memory will have a $2 (Canadian) surcharge added to their cost. This is not that much, even for portables that cost as little as $75.00 where the surcharge is about 2% of the cost. iRiver's 512 MB flash MP3 player the 195T costs around $300 Canadian retail and would still only pay the $2 fee. That come out to 0.7% of its cost.

But the fees go up significantly for portable players that hold multiple GBs of space. Portables with between 1GB and 10GB of space must pay a $15 surcharge. Those with over 10GB of total capacity will pay $25.00.

For example, Apple's lowest capacity iPod is a 10 GB model and a recent price check lists it for $439 Canadian ($300 US). The $15 surcharge will account for about 3.5% of its cost.

iPods are more expensive than like competitors and this is where the math shows an arguable flaw in the recent decision. The 20GB Neuros Digital Audio Computer is cheaper than the 10GB iPod, selling for around $300 Canadian, but has a higher capacity too so it would be hit with the $25 fee, That's an 8% increase in costs.

In a couple of years we should see 10+GB players selling for the $100-$150 range as storage prices continue to drop. If dollar figures are left unchanged, the levy will make up 20-25% of a portable unit's selling price, a large margin.

This is why manufacturers are unhappy with the decision.

No that the record companies are happy with the decision either. Sure they are getting money for NOT providing an actual product, but they lose something they value more, control. The American record lobby, the RIAA, has already lost a recent round in California courts that ruled that the KaZaa, Morpheus, and Grokster services are not guilty of contributary infringment. Now that these services can operate freely in Canada, successfully shutting them down becomes much harder.

The Canadian government has declared downloading files legal. This is a precedent that other govenments will consider as it has finally become apparent to more of hem what file trades have known for years. That evolving P2P technology moves too fast for goverments and industry to effectively control, let alone stop.

Now that Canada is officially a safe haven, the risks to venture capitalists has decreased significantly. Look for aspiring P2P services to set up shop in Toronto, grab an audience and then imitate KaZaa'z successful profit model.

One more note, you may have noticed we keep saying downloading and not file trading. While downloading music files is legal in Canada, "uploading" files was declared illegal. This means that Canadians can't actually trade files, just take. This inspires a whole legion of what fans of the P2P services call leaches. The whole nature of P2P is sharing, without it the concept collapses. Of course, most Canadians will probably still continue to offer their files.

So, will this all work? Those who already purchased their iPods avoid the levy, but someday, they will need to replace it so they are only postponing the fees. As for the artists and songwriters, how much of this money they will ever see is in question as the music industry always seems to maneuvers itself to "collect" these funds in their name.

To some this sounds all great on paper, but overall I'm not sure if this is a good thing. That's because I don't know yet how well the plan will work in real world application.

Ask me in a couple of years.


The iRiver iFP-195T is a 512MB Flash unit and is available on Amazon

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