Cloudy Forecast for Music Cloud Services in Canada

Apple has once again captured the attention of the Internet world with the unveiling of the iCloud, an online backup system that will allow users to instantly store their content on Apple computer servers so that they can be accessed anywhere from any device.

The most notable element of the iCloud is the iTunes Match service that gives users cloud-based access to their full digital music libraries. This includes songs purchased on iTunes as well as any other music files, which will be identified by Apple and made available without the need to upload the copy. iTunes Match has obtained the blessing of the major record labels, who will reportedly receive the lion's share of the service's US$24.95 annual fee.

The Apple announcement comes on the heels of newly launched music cloud services from Internet giants Amazon and Google. The Amazon Cloud Player allow users to upload their own music to Amazon's computer servers and to stream it to any device, while Music Beta by Google similarly involves uploading music files for streaming access. Neither Amazon nor Google obtained licenses for their services, relying instead on their users' fair use rights to shift their music to the "cloud."

While the licensing approaches differentiate Apple from its competitors, all three cloud music services share a common characteristic when it comes to Canada -- none are likely to be available here anytime soon.

Three legal issues in Canada

The Canadian market features at least three legal issues -- licensing, levies and the lack of legal flexibility -- each of which could create a significant entry barrier.

There is nothing to stop the major record labels from licensing a similar service in Canada, yet experience to date suggests it won't happen quickly. Pandora, a popular U.S. online music service, has indicated that it wants to enter the Canadian market, but that the exorbitant licensing pricing makes entry an economic impossibility. Given the current demands of multiple rights holders, the Canadian costs could keep iTunes Match out of the country for the foreseeable future.

Cloud-based music services are based on users storing copies of their music on company computer servers. Since that requires additional "copies" of the music, Canadian copyright collectives will likely adopt the position that without a license, they are entitled to additional compensation for each copy. Collectives already receive compensation from radio stations for format shifting music files from CDs to computer hard drives, and the Canadian Private Copying Collective (CPCC) recently announced that it is seeking to extend the private copying levy to memory cards that are widely used in digital cameras.

Cloud-based copies could be next, given that the CPCC has argued "the economic value of reproducing music in order to make it portable must be recognized. Rights holders deserve to be compensated for all private copies made of their work, regardless of how a copy is made."

Even if the levy issue can be overcome, the lack of flexibility within current Canadian law would create a significant barrier to the Amazon and Google cloud music services. Both of those services rely on fair use, yet Canadian law in this area is far more restrictive than the U.S. The companies would be hard-pressed to argue that the Canadian fair dealing provision could be extended to cover this form of copying. The same is true for other emerging cloud-based applications, such as remote storage digital video recorders offered by some U.S. cable companies.

Focus on flexible fair dealing

To open the door to these kinds of services, Canada needs Industry Minister Christian Paradis and Canadian Heritage Minister James Moore to focus on greater flexibility in the law by implementing a flexible fair dealing model or establishing a specific exception to allow for backup copies and subsequent streaming access.