The Music Licensing Agency of Canada (MCLA) is seeking more than $2.2 billion in additional funding to help it manage its “business as usual” outlook following a “toxic” period of increased competition and poor sales, the agency said on Wednesday.
The agency said it’s “urgently seeking further financial support to maintain a high level of profitability”.
While the agency’s business outlook is “stable” due to its “positive outlook for the music industry”, it is facing significant challenges in its business, the MCLA said.
In addition, the “business is in the early stages of a challenging transformation”.
“The agency is currently in the process of conducting a review of its operations and will provide an update in the coming weeks,” the agency added in a release.
“As the agency is under significant pressure to manage its business to remain competitive, the need for additional funding has increased significantly.”
Music licensing agencies have been under a lot of pressure since the government announced last year that it was going to scrap the current $8 per month wholesale fee and instead replace it with a single-digit fixed-rate fee of $3.50 per month.
That change in the rates has been controversial with many consumers, particularly younger people, who have been left out of the process, especially because they don’t have a credit card or bank account.
The industry was initially hit with a $1.1 billion deficit in 2015-16 as a result of the federal government’s move to eliminate the wholesale fees.
The cost of doing business has also been growing at a pace of nearly $1 billion annually.
“The MCLA is facing a critical time in the industry,” said MCLA CEO John Loeffler.
“We cannot afford to continue to be in this situation.”
Loeefler noted that the agency has been operating under a $3-billion deficit since the end of March 2016, which has ballooned to $4.5 billion by May.
In the last quarter, the company reported a net loss of $0.9 billion, or 2.9 per cent.
Loeeffler said the agency was already “in the process” of transitioning to a new business model, and said the “resilience of the business is in question”.
“Our long-term business outlook remains stable and we are confident that we will emerge from this transition in a stronger position,” he said.
The MCLA, which manages over $500 billion in revenue, has been in crisis mode since the 2015-2016 financial crisis and the government imposed a “business freeze” in June 2016, limiting the agency to a $4-per-month wholesale fee.
The wholesale fee was cut to $3 in November 2016, and it was replaced with a new fixed-price service, which is cheaper than the previous wholesale fee, but it was not immediately clear if that would have a direct effect on the agency.
Lueffler said he has asked the government to review the fee and “explore whether it should be changed”.
The MCA also said the number of music-related companies operating in Canada has grown to about 1,300 from 800 at the beginning of this year.
The government had originally planned to open up to 50 new music licensing companies by the end-of-year, but the number is now more than 700.
The number of Canadian music licensing firms has increased by about 80 per cent in the last decade.
The numbers come as the Canadian government is preparing to introduce new measures to crack down on the rampant online piracy that is threatening the country’s music industry.
As part of the crackdown, the government plans to create a new “counter-piracy” unit within the federal justice department to combat online piracy.
The new unit will be tasked with identifying, investigating and prosecuting cases of online piracy and will also have a “counterproliferation unit” to identify and prosecute foreign online piracy operations.
“A lot of the activity is coming from the United States and other parts of the world, and I think we’re going to see an increase in the amount of activity in the United Kingdom, and then other countries,” said Liberal MP Michael Chong.
“I’m concerned that if we continue to have this kind of thing in the country, we’re not going to be able to maintain our competitive position in the music business in the future.”
Chong said the MCA needs to work with the government and the public to help tackle piracy and protect the industry.
“It’s really important that we have the resources to address these concerns and continue to fight piracy,” Chong said.
Chong said he also hopes that the government will work with music companies to develop an agreement that will allow for “free distribution of music online” and that this will “help to protect Canadian music”.