SOCAN ANNUAL REPORT TO MEMBERS 2011...Transforming SOCAN’s culture is necessary to attain our new...

1 SOCAN ANNUAL REPORT TO MEMBERS 2011

SOCAN ANNUAL REPORT TO MEMBERS

2011


CONTENTS

INTRODUCTION 3

STRATEGY 3

Vision 3

Business Purpose 4

Strategic Objectives 4

GOVERNANCE 6

Introduction 6

Board Structure and Voting 7

Role and Achievements 7

Executive Governance Committee 7

Membership Committee 8

Risk Identifications and Management Committee 8

Tariff, Licensing and Distribution Committee 9

Government Affairs Committee 9

Attendance at Board/ Committee Meetings 9

Directors’ Compensation Policy 10

SOCIETY 11

The SOCAN Foundation 11

Canadian Songwriters Hall of Fame 12

OPERATIONS 12

Executive Compensation Policy 12

Membership 12

Licensing 13

Distribution 14

FINANCIALS 14

Headline Results 14

Looking Ahead 15

APPENDICES 15

Code of Conduct for Directors 16

Board Policy on Committees of the Board 17

Board Composition 18

Socan Board of Directors 2011 19

Socan Executive Team 20

2011 Financial Report 21


INTRODUCTION The music industry is going through a global transformation. Some of the forces impacting this radical change are multi-territorial licensing in Europe, the treatment of the mechanical right, slow pace of enactment of legislation to support new sustainable revenue streams for digital services, growth of the middle class, and music piracy in Asia where copyright regulation is poorly established.

The performing right business model has adapted throughout this period. For example, important legal foundations relating to the communication to the public right help ensure that the performing right itself is still strong and relevant. However, we must continue to look at new approaches, including closer ties to other music rights, to strengthen the industry.

Our stakeholders have come to expect the best from SOCAN and their expectations are increasing as we continue to deliver. SOCAN has not been affected in the way that other copyright organizations in Canada have, but it would be unwise to assume that this will continue as we are not immune to the changing environment.

Our ability to serve our members and remain competitive will be challenged. The way we operate, including our tolerance for risk and appetite for grasping opportunities must continue to develop. SOCAN needs an integrated approach to our overall business strategy; one that considers all the elements of our operations and provides ways to improve in all aspects of the organization.

As part of that integrated approach we embrace the opportunity to provide more information to our stakeholders. This expanded Annual Report to Members is a first step in our commitment to measure and report on more of what we do so that it is clear we are ‘raising the bar for music rights’. We hope that you find this new expanded report informative. It is with these efforts that we work to increase our transparency and inform stakeholders of all elements of our strategy, governance and operations. We welcome and appreciate your feedback on how we are doing. Please contact us at [email protected].

This report begins by presenting you with SOCAN’s strategy. We will then go on to see how the strategy will be achieved through good governance, SOCAN’s efforts in society, efficient operations, and effective financial management.

STRATEGYThe following section summarizes SOCAN’s 2011 Strategic Plan’s core strategic elements including our Business Purpose and Strategic Objectives, which work together to help us attain our Vision.

VisionOur Vision is what we want our business to look like in the future; it provides something to aim for and is captured in a statement that articulates a realistic, credible, and attractive aspiration for the business. It is our guiding focus describing the desired organization of the future.

The SOCAN Vision is: “To raise the bar for music rights.”

Raising the bar is the inspiration and expectation for SOCAN in the years to come; to make improvements, do things differently and stretch what we do. Taking the analogy of the high-jump sport, SOCAN will raise the bar to the next level through both incremental and breakthrough improvements attained with an innovative and proactive mindset. This is about organizational change in our culture and may be related to weaknesses that we need to improve on, like bureaucracy. We want to set new standards for other performing rights societies and music collectives, and to explore new business opportunities and activities.


This is a bold and challenging goal rooted in optimism. Our benchmark needs to be against not just other Music Rights Organizations, (MROs), but also other industries that manage services to large member bases. This Vision paints an exciting future for the organization and resonates with the passion SOCAN employees have for what they do and what the organization represents. The new Vision is supported by our primary business mandate, to anticipate trends and make appropriate changes to ensure our members are compensated fairly for the use of their works.

Business PurposeSOCAN’s Business Purpose is a framework for organizing and communicating the basic identity and intentions of the business. It answers the question, “Why are we in business?”

The SOCAN Business Purpose is: “SOCAN serves and champions the needs of music creators and publishers. We advocate and protect their rights, license access to the world’s music, collect and distribute royalties in Canada and around the world.”

The Business Purpose is our raison d’être, it is what we do. This includes all our activities: service to members, licensing and distribution. SOCAN is an enabler for licensees to earn more money as they rely on music to enhance their businesses; for members to write and perform music, and build their careers in Canada and internationally; and for employees to develop their careers and achieve their career objectives. The Business Purpose reflects our culture; that is, we are champions of music creators and publishers across Canada representing all cultures and languages. We have a global reach through our partner MROs in more than 80 countries. This is our mission and works hand-in-hand with our Vision of raising the bar, which speaks to what we want to achieve. It is about moving from good to great.

Strategic ObjectivesSOCAN’s Strategic Objectives (or strategies) are the high-level guiding principles that help move our organization toward attaining our Vision. Our Strategic Objectives build, communicate and maintain our business direction by linking high-level guiding principles to operational action. SOCAN’s seven current Strategic Objectives are:

Improve Member Recruitment and RetentionSOCAN must recruit new members and retain existing members, to ensure the strength and viability of the organization into the future. This will be achieved by providing leading edge core services (e.g. distribution) and value-added services to members, thus ensuring SOCAN remains our members’ society of choice and that we attract potential new members. This will support the collective administration of rights by SOCAN; and, through our members becoming vocal advocates, be a rebuttal against anti-copyright advocates.

Increase, Maintain and Develop Revenue SourcesIn the face of a rapidly changing industry landscape driven largely by technology, we need to be bold and innovative in order to ensure that our existing performing rights revenue sources remain strong and that we develop sustainable long-term revenue sources. This will be achieved by monetizing emerging new performing rights revenue sources quickly and efficiently, and by supporting the growth of existing performing rights sources. This also means collecting all monies owed on behalf of SOCAN members from our foreign partners as quickly as possible.

Optimize / Improve Value for Money This Strategic Objective is about ensuring that SOCAN spends money wisely through questioning what we spend it on; that is, we get the best return for any dollars spent and what we spend supports our strategic goals. This means continually reviewing the efficiencies of the services we provide to minimize cost and optimize processes through streamlining and continual improvement, thus providing the most value. This is about providing more royalties to members faster, accurately and at lower cost.


Strengthen Reputation with Industry StakeholdersSOCAN has three key stakeholder groups that we must strengthen our reputation with: licensees, the government and the media. We also need to improve our profile with licensees so that they see us as both legitimate and user-friendly. We need to improve how we are viewed by the media and government. This will help us achieve legislative change essential to our future and the future of our members. By strengthening our reputation we will be able to lead a united industry, speaking a common language that sends a consistent united message in support of the Canadian creative community.

Improve Visibility of Copyright AdvocacyAs a part of providing long-term benefit to our members, SOCAN must continue to be viable in the future. To do this SOCAN needs to proactively ensure that members are aware of the purpose of, and value provided by, SOCAN so that they become vocal SOCAN advocates. We also must ensure that when issues arise, we communicate our position and respond in a timely manner not shying away from conversation of issues, thus publically advocating in our members best interests.

Expand RoleExpanding SOCAN’s role will ensure our viability in the future, through new areas of business and in most cases related additional revenue streams. SOCAN can move beyond its current role by co-operating with other music collectives in all ways possible including, providing support, cost sharing, and joint ventures or mergers. Expanding beyond SOCAN’s current mandate of performing rights management could mean moving into related activities including licensing beyond Canada’s borders and engaging in mechanical, synchronization, or other rights.

Transform Corporate CultureTransforming SOCAN’s culture is necessary to attain our new Vision taking into consideration the unsettled industry environment and the accelerating pace of change. SOCAN’s company culture can be transformed by eliminating unnecessary bureaucracy, empowering employees at every level to make more decisions, and supporting and nurturing innovation in all the things we do. This requires being a values-driven organization that is transparent and effective in its communication; recognizes and rewards superior performance; and takes responsibility ethically, morally and environmentally. This will also require SOCAN to be an employer of choice by building a high-performing leadership team, ensuring the right people are in the right places, and developing and challenging employees.

For a number of years SOCAN has been using FOCUS, a custom balanced scorecard, to measure our success in meeting the Strategic Objectives and in turn indicating whether we are achieving our Vision. Viewed graphically as a Strategy Map we can see below how the four perspectives relevant to SOCAN - People, Activities, Financial and Members – are used to illustrate the inter connectivity between SOCAN’s Strategic Objectives.

For example by ‘Transforming Corporate Culture’ we can help ‘Strengthen Our Reputation with Industry Stakeholders’ because we become more customer focused with our licensees. This will lead us to more general tariff income as business owners better understand SOCAN and we ‘Increase, Maintain and Develop Revenue Sources’. By having more available to distribute to members this helps ‘Improve Member Retention and Recruitment’.


GOVERNANCE

IntroductionCore to SOCAN’s success is a robust governance structure that helps us to maintain the trust and respect of members, licensees, employees, media and the government, and allows us to operate in an open and transparent way.

We pride ourselves on a sound governance structure that supports us in achieving our Vision and Strategic Objectives. This structure includes a Code of Conduct for Directors (Appendix A) and a Policy on Committees of the Board (Appendix B), There is a regular evaluation of the CEO’s performance process by the Board and a self-assessment questionnaire completed by the directors to measure the Board’s own performance.

SOCAN provides an orientation program on governance policies and procedures for new directors, and a refresher for returning directors. Directors are provided with a Resource Guide at the start of their three-year term and there are structured education and orientation sessions. While the formal interface between the Board and management is through the CEO, there are numerous opportunities, both formal and informal, for Board members to interact with management. Directors are encouraged to discuss matters that they may wish to pursue with management and to meet with other employees at social functions throughout the year.

SOCAN CORPORATE STRATEGY MAP

Members

Financial

Activities

People

Improve MemberRecruitment and Retention

Transform Corporate

Culture

Expand Role Strengthen Reputation with Industry Stakeholders

Improve CopyrightAdvocacy

Increase, Maintainand Develop

Revenue Sources

Optimize / ImproveValue for Money


Board Structure and VotingThe foundation of sound governance begins with the membership voting for a board of directors. Every three years, more than 35,000 earning members are eligible to vote to elect the Board of Directors comprising nine songwriters and nine publishers. For the first time in SOCAN’s history the 2012 voting system has been exclusively online, making it simpler, more cost effective, and inclusive to earning members.

A unique feature of SOCAN’s by-laws is that we must have a minimum of 36 candidates running for the 18 Board positions. This ensures that our members have choices when they vote.

The composition of the Board reflects the geographic and bi-cultural distinctiveness of Canada, along with a balanced representation of music genres. The by-laws that govern the Board composition are characterized by regional representation, Francophone representation, new classical music representation, and music other than new classical music representation.

See Appendix C for details on the Board Composition See Appendix D to meet your Board of Directors

Role and AchievementsWhile the day-to-day operations are the responsibility of SOCAN’s management team and staff, the Board of Directors is responsible to agree the strategic direction for SOCAN, set policies, distribution rules, and approve the annual budget.

The Board of Directors is accountable to members to ensure on their behalf that they are receiving the best value for their investment in SOCAN. They also work with management to develop, plan, and approve the strategic plan. They monitor implementation of the plan, measure progress at meeting targets and manage risk.

Among the various matters that the Board dealt with in 2011 was the acquisition of the assets of the Canadian Songwriters Hall of Fame (CSHF) which is discussed in more detail in our Society section. The Board also agreed SOCAN’s technology strategy, tackled public policy issues, and formalized our approach to the proposed C11 Copyright Act.

The Board establishes committees to help create efficient governance and effective decision making:• Executive Governance Committee• Membership Committee• Risk Identification and Management Committee• Tariff, Licensing and Distribution Committee• Government Affairs Committee

Executive Governance CommitteeThe Executive Governance Committee is made up of the Board’s elected officers and committee chairs. The purpose of the Committee is to ensure the governance system and processes are effective, efficient and enhance corporate performance, enable efficient and effective Board work, and provide continuity for SOCAN operations between Board meetings.

In cooperation with the management, the Committee developed an annual schedule of board presentations. These presentations allow directors to remain up-to-date on operations and major endeavors undertaken by management. Similarly, the committee created a calendar of strategic discussions for the year regarding development of the 2011-2015 strategic plan, self-assessment of the Board, budget, advocacy policy, and CEO performance feedback program. The calendar made it easier for both management and the Board to monitor progress towards meeting our strategic objectives.

In 2011 some of the key topics reviewed included new accounting rules, SOCAN’s “go green policy”, distribution philosophy and policies and SOCAN’s technology strategy.


Membership CommitteeThe purpose of the Membership Committee is to identify and recommend member service opportunities, consider all of SOCAN’s constituencies, determine retention and growth strategies for SOCAN’s membership, and develop policies and strategies to ensure a high integrity link between the Board and SOCAN members.

SOCAN has conducted member surveys regularly since 2002. The Membership Committee’s role is to oversee the questionnaire and review the results of the survey and the implementation of the management recommendations to address issues raised in the survey. The results of the 2011 membership survey are discussed in more detail within the Operations section of this report.

The Membership Committee also oversees SOCAN’s Annual General Meeting (AGM). In 2011, the AGM was for the first time webcast live allowing members to attend remotely. The Committee also oversaw the organization of the 2011 SOCAN Awards in both Toronto and Montreal.

Risk Identifications and Management CommitteeThe purpose of the Risk Committee is to assist the Board of Directors in fulfilling its oversight responsibilities. The Committee does this is by ensuring that management has implemented appropriate systems to identify, monitor, and mitigate significant business risks, and incorporate priorities and new initiatives outlined in the organization’s Strategic Plan.

In 2011, the Committee oversaw the development of a new approach to the documentation of risk management that will provide further insight in to where management’s efforts need to be concentrated.

The audited financial statements were reviewed in detail by the Committee and then recommended to the Board for approval. This year saw the introduction of an ‘in camera’ session where the Committee met with external auditors KPMG without SOCAN management being present. This is seen as governance best practice because it allows for a candid discussion without the possibility of management influence. The Committee reviewed quarterly revenue and expense forecasts to ensure any issues were being addressed and recommended approval of the 2012 budget to the Board.

Management looks to ensure returns on investments are generated within a level of risk agreed by the Committee and advice from an external financial consultant. Similar investment policies and principles apply to the management of the employees’ pension fund. Three members of the Risk Committee form half of the Society’s Pension Committee, with the Chief Executive Officer, Chief Financial Officer and Chief Administration Officer being the other half.

Along with internal departmental audits and pension plan control audits, the Operational Audit team undertook compliance audits to verify the amounts paid by licensees and, as a result, uncovered several million dollars of additional revenue.

The Committee continues to work with management to fine tune SOCAN’s effective business continuity planning and IT security.


Tariff, Licensing and Distribution CommitteeThe purpose of the Tariff, Licensing and Distribution Committee is to assist the Board of Directors in ensuring appropriate tariffs are proposed to the Copyright Board, oversee SOCAN’s licensing strategies, and approving fair and appropriate Distribution Rules.

Some of the key activities of the Committee include reviewing the results of first arrears distribution for T25 (Satellite Radio), the performance logging methodology for Tariff 1A (Commercial Radio), SOCAN’s strategy regarding paying royalty distributions for music used in commercials, the relevance of Grand Rights to SOCAN and changes to Distribution Rules regarding the AV Live Audience Concert feature.

Three particularly exciting areas involving the Committee is working with management are:• Domestic cue sheets: SOCAN will be starting development this year to build a portal for Members and ultimately other cue sheet providers to submit cue sheets on-line directly or by sending files electronically. By providing tools to our Members to create, edit, delete and store cue sheets we will have an opportunity to capture more complete and accurate information which will allow us to improve and speed up our AV distributions.

• Unidentified works: Over the last few years we have built new processes to help us look through unidentified works of foreign societies to identify SOCAN Member interest. We have submitted claims to over 25 societies and have collected close to $2 million for thousands of works for which our members would not otherwise have received royalties.

• International initiative: In 2012, as part of a more proactive approach, we are also investigating new technologies, tools, and new suppliers of performance and broadcast schedules for airings in other countries to identify our members’ works and assess the feasibility of making claims where they have not been paid or have not been paid correctly.

Government Affairs CommitteeGovernment affairs are a strategic issue and therefore the Board of Directors want to actively participate in discussing them before SOCAN takes a position on issues. The Government Affairs Committee is a Committee of the Board with the purpose to assist the Board of Directors to ensure that SOCAN has appropriate policies with regard to Canadian and international law; and the policies and programs of the Canadian government and its regulatory agencies, as they affect the rights of SOCAN Members.

The work of the Committee includes reviewing SOCAN’s government policies and, where required, propose changes; reviewing policy statements and submissions to government by SOCAN (excluding tariff-related submissions to the Copyright Board, which are the responsibility of the TLD Committee); Review SOCAN’s Public Advocacy Strategy.

Attendance at Board/ Committee MeetingsThe Board of Directors has four scheduled meetings per year. All Committees of the Board also meet four times a year, on a scheduled basis. The Executive Governance Committee meets generally three weeks before Board meetings to prepare the agenda for the board. Other Board Committees meet either the day before or the day after the Board meetings to minimize traveling expenses. Occasionally, a Committee may require more than the scheduled meetings to discharge its mandate.


Rosaire Archambault A, B 5 4 4 Geneviève Côté D 4 3Victor Davies A, C 5 4 4 Jodie Ferneyhough D 5 4Gary Furniss A, C 5 4 4 Bill Henderson D 5 4Craig Horton B 5 4 4Michael McCarty C 5 2 Ben Mink D 5 4Glenn Morley B 5 4 Stan Meissner A, B, C 5 4 4 4 Marc Ouellette C 5 4 Pierre-Daniel Rheault A, B 4 3 4 Earl Rosen* A 5 4 4 4 4Carol Ryan C 5 4 Tony Tobias C 3 3 Gilles Valiquette A, D 5 4 4Jim Vallance B 5 4

A – Denotes membership in the Executive Governance CommitteeB – Denotes membership in the Risk Identification and Management CommitteeC – Denotes membership in the Tariff, Licensing and Distribution CommitteeD – Denotes membership in the Membership committee* Note: President of the Board may attend all Committee meetings in his capacity as ex-officio

Directors’ Compensation PolicySOCAN’s Directors’ Compensation Policy is positioned as to recognize: • the demands placed on elected Directors by their fiduciary duties • the special nature of SOCAN as a not-for-profit member owned organization and • the responsibility associated with the stewardship of a $250+ million organization

with 300 employees and offices across Canada

To this effect, SOCAN positions its Directors’ compensation by reference to the compensation paid by a group of Canadian publicly listed financial sector organizations with annual revenues of $100 million to $500 million.

The median compensation paid by these organizations (50th percentile) is discounted by at least 25 to 40% to reflect the unique character of the organization in order to arrive at the compensation to be paid to SOCAN Directors.

Every three years, the outgoing SOCAN Board of Directors obtains relevant market data from a reputable, independent compensation consultancy organization and uses that information to establish the compensation of the incoming Board for the following term in accordance with the above policy.

MEMBERSHIP COMMITTEE TARIFF, LICENSING & DISTRIBUTION COMMITTEE RISK ID & MANAGEMENT COMMITTEE EXECUTIVE GOVERNANCE COMMITTEEBOARD OF DIRECTORS

MEETING ATTENDANCE

JANUARY -DECEMBER

2011

NUMBER OF MEETINGS HELD: 5 4 4 4 4


SOCIETY SOCAN recognizes it has a role to play in improving Canadian society as it relates to our Business Purpose - to serve and champion the needs of music creators and publishers. Two of SOCAN’s key contributions to the music industry are through the SOCAN Foundation and the Canadian Songwriters Hall of Fame.

The SOCAN FoundationWhile a distinct legal entity from SOCAN, the SOCAN Foundation was established many years ago by SOCAN to support events and projects benefitting songwriters, composers and music publishers. Details on the Foundation’s mandate, granting programs and other activities are available on the SOCAN Foundation website (www.socanfoundation.com)

For the last three-year term, the seven directors from the SOCAN board have been Jodie Ferneyhough, Geneviève Côté, Victor Davies, Craig Horton, Pierre-Daniel Rheault, Marc Ouellette and Stan Meissner (Foundation president. The additional appointed directors were John Burge, Ajene “Agile” Griffith, Steve Horne, Murray McLauchlan and Jean-François Denis. As well, we have an honorary director, Pierre Lalonde, from the Department of Canadian Heritage, as required by our agreement with the Government of Canada to administer the Creators’ Assistance Program of the Canada Music Fund.

The Foundation’s revenue is derived, in part, through funding from SOCAN, which amounted to approx. $1.5 million for the year 2011. Also, the Foundation earned approx. $250,000 in investment revenue from its own endowment fund and from other sources. After expenses, The Foundation distributed $1.5 million in various grants and funding.

Last year, the SOCAN Foundation provided core funding to 10 national associations, who ran programs that benefitted Canadian music creators and publishers, helping to foster musical creativity and promote a better understanding of the role of music creators in today’s society.

Additionally, the Foundation board approved grants to 485 recipients in our various granting categories including music festivals, international show casing and educational initiatives. As well, for the 11th year, the SOCAN Foundation administered “the Creators’ Assistance Program of the Canada Music Fund” on behalf of the federal government.

In the last year, the Foundation continued to refine its online grant-application process, which has streamlined the application process and the grant-review process. As of 2011, all applications must be submitted online. 2011 also saw the launch of the new SOCAN Foundation Awards for Young Audio-visual Composers, offering cash prizes to composers under 32 years of age for work in the film, TV and media fields.


Canadian Songwriters Hall of Fame As an industry leader, SOCAN made a strategic decision in December 2011 to acquire the assets of the Canadian Songwriters Hall of Fame (CSHF).

The CSHF is an important institution that celebrates the successes achieved by Canadian music creators and gives our legendary songwriters and composers the public recognition they deserve. Their creations form not only a cherished part of the fabric of Canadian culture, but also contribute to the economic success of the music industry. This acquisition is a great fit for SOCAN as it allows us to honour and celebrate the outstanding accomplishments of Canada’s songwriters as well as champion their work.

SOCAN will help to create a new Board of Directors for the Canadian Songwriter’s Hall of Fame and develop a strategy going forward. This marks the growth of the SOCAN family and an exciting opportunity to increase our presence in the Canadian music industry.

OPERATIONSThe three operational functions at SOCAN are Membership, Licensing and Distribution. Although reviewed separately below, these functions do not operate in a vacuum but rather they are highly interactive and reliant on each other to work toward achieving SOCAN’s strategic objectives. For example, Licensing and Membership partnered on an initiative that doubled the number of 4A Concerts distributed in 2011 over 2010.

The operational functions are supported by Information Technology (IT), Human Resources, Legal, Finance, Communications, Facilities & Administration. Collectively these support functions are critical to ensuring SOCAN’s position as an industry leader and our ability to provide the best service to Members. For instance, IT ensures the smooth flow of accurate information, data management systems, along with the protection and security of information. They work to create new and innovative systems and ways to interact with members and licensees. In 2011, SOCAN launched a new mobile app for iPhone, iPad, and Android devices, offering its members and licensees 24/7 access to a wide array of functionality wherever they are.

See (Appendix E) to meet your Executive Team

Executive Compensation PolicySOCAN, with the assistance of independent external advisors Hay Group Limited, undertakes a periodic review of executive compensation to ensure that it is properly aligned to external markets for comparable positions. The governing principle is that compensation will be fair and equitable in order to attract, retain and motivate effective and efficient employees.

Management cash compensation is made up of two components; base salary and an incentive plan. Incentive amounts are based on corporate, departmental and individual performance goals and payments are only generated if the company achieves its targeted net management expense ratio.

Included, as part of the executive compensation package, are a competitive health plan, pension arrangements and a car allowance.

Membership SOCAN has over 110,000 members of which 48,000 are earning members representing all genres of music and composing music for film and television.

We have 47 employees providing high level frontline service to our members.


The best way to measure the quality of our services is through our members’ survey. SOCAN’s latest survey indicates member satisfaction on a scale of 1 to 10 is at an all-time high of 7.99. Our seventh online survey was completed by 3,262 members, a 60% increase in the participation rate over the previous survey in 2009. Some areas of improvement included the promptness of service, the knowledge of the staff, clarity of the information provided and how well questions or problems are solved.

In 2011, to address members’ comments communicated in the past, Membership developed a series of podcasts focusing on SOCAN’s distributions, new media tariffs and strategic intelligence. In the same spirit of providing better information to members on how SOCAN is distributing royalties, Membership has prepared a simplified version of the Distribution Rules for the Web.

Our education team has offered over 115 information sessions at schools, events, seminars and other various organizations across Canada. Topics discussed varied from SOCAN 101, copyright, publishing, the music industry, the role of Music Rights Organizations (MRO) and rights management. Plus we participated in nearly 100 events including partnering with other industry organizations to present seminars and panels. We have also participated in various showcases and contests for recruitment and retention purposes.

SOCAN increased its partnership with the Canadian Independent Music Association (CIMA) as a key partner of the Canadian Blast events to be held around the world. These events provide opportunities for our members to develop their careers internationally. In addition, SOCAN partnered with Les Francofolies de Montréal for Les Rendez-vous Pros des Francos.

Our SOCAN Awards shows, which celebrate the national and international successes of our members, were very successful. The Life Time Achievement Award was presented to The Stampeders in Toronto and Stéphane Venne in Montréal. Award recipients included Prairie Oyster, K’Naan, Nickelback, Dragonette, Johnny Reid, Diane Juster, Dumas and Lynda Lemay.

In 2011, SOCAN launched the sixth annual ECHO Songwriting Prize that is designed to identify what’s next and what’s best in the current Canadian independent music scene. This prize honours some of the most innovative and artistic songs created in the past year by independent songwriters in Canada. The 2011 winners were Katie Moore for her song “Wake Up Like This” and Olivier Langevin for “Piste 1”. They each earned a prize of $5,000 and were invited to perform at the SOCAN Awards.

Finally, Membership rolled out its new strategy and a number of initiatives to help attain its vision to be “The #1 Choice for Canadians”. Some of the ways that Membership works to achieve their Vision are by continuing to be on top of technology, be pro-active, and offer attractive value added benefits and top-notch services to members.

Licensing Licensing had a successful year in 2011, bringing in $218.4 million, which was more than $6.0 million over budget.

In addition to our financial success, we rolled out the 2015 Licensing Strategy and a number of initiatives to help us attain our vision to “Transform the Way SOCAN is Viewed. Licensing Simplified.” This strategy focuses on simplifying our internal processes and how we interact with licensees. We will be monitoring our progress against a number of key success factors to ensure we meet our Vision. Most of the work done in 2011 was to prepare for future implementations. Two of the largest roll-outs to impact licensees in 2012 will be providing access to enable online reporting from SOCAN’s systems and easy to read information cards that outline the various tariffs.


Licensing also partnered with Membership on an important project to help obtain set-lists from members to increase Concert distributions. As a result, SOCAN doubled the number of 4A concerts distributed in 2011 over 2010.

Throughout 2012, we will work toward achieving our 2015 Strategic objectives as we move to “Simplify Licensing”.

DistributionDistribution plays an integral role in SOCAN’s operational framework. It ensures that composers, authors and music publishers receive fair and accurate reward for their work.

In 2011, SOCAN logged close to 55 million musical performances, a tremendous increase considering that as recently as 2006 the volume of performances was just over 8 million. The increase is due to a combination of factors, including the implementation of audio fingerprinting and creation of the census radio pool in 2007.

More recently, new tariffs and distribution streams for ringtones and for satellite radio have resulted in a staggering increase in the volume of performances. It is only through the efforts of our dedicated team and with ongoing investment in automation and process efficiencies that we have been able to consistently improve identification results to ensure accurate and complete royalty distributions. In 2011, almost 98% of audio performances logged by SOCAN were identified and successfully matched to our musical works repertoire database.

Highlights from 2011 include:• In November 2011, we paid our first distribution under Tariff 25 (Satellite Radio). The

initial distribution represented license fees and performances pertaining to arrears from 2006-2010. Close to $20 million was distributed.

• Based on a recent change to Tariff 1A (Commercial Radio) reporting requirements we were able to increase our survey from 4% to 8% of performances for commercial radio

stations beginning with the November 2011 distribution. A number of other stations began to provide 100% performance information (known as census) and have been moved to the census radio distribution pool.

Distribution will continue to invest in automation and improve the identification processes so that we can deal with further increases in the volume of performances.

FINANCIALS

Headline Results2011 saw strong financial results, highlighting the further continuation of the positive trends observed in 2010; stronger collections and higher distributions to members. We distributed a record-setting amount of royalties by licensing music usage in more businesses, expanded our membership pool, and kept our expenses in check. What this all means is more money went into the hands of our members, something SOCAN strives to accomplish each year.

Total revenue was $267 million, a 3.7 percent increase year over year if excluding the one-time internet arrears revenue of $17 million reported in 2010’s revenue.

SOCAN distributed a record-setting $262 million to songwriters, composers and publishers in 2011. However, this figure included the special distributions of radio and ringtones arrears, and the first-ever distribution of satellite radio arrears under Tariff 25. If these one-time arrears payments are excluded, SOCAN’s regular distributions in 2011 were $209 million, still a very healthy $14 million or 7.1 percent increase from 2010 ($195 million).

The overall net expense ratio remained the same as 2010 at 14.3 percent. As a result, 86 cents of each dollar that SOCAN collected were distributed to members.


Traditional media (cable, TV, radio) revenue increased 3.5 percent. International revenue increased 8.3 percent to $46 million due to strong member activity abroad, proactive relationship management with affiliated music rights organizations around the world, and slightly more favorable exchange rates.

The full 2011 Financial Report can be found in Appendix F.

Looking AheadSOCAN has made a cautious start to the year with revenue up marginally over 2012 projections and gross expenses on budget. There is a considerable amount of economic uncertainty in the world fueled by financial doubts in Europe and the risk of a slow down in growth for China. The recovery in the United States is encouraging but not yet ensured and Canada is looking at high levels of debt.

Management will continue to monitor SOCAN’s financial performance and maintain effective controls over our spending. If we see revenue dropping below budget we will look at ways we can reduce expenses further to keep the Corporate Recovery Rate in the 14% - 15% range that Members have come to expect.

In 2011 we started to publish on the SOCAN website a quarterly forecast of the upcoming distributions by pool type and a note on expected future special distributions. To date SOCAN is the only MRO to offer this service and we hope it will encourage similar efforts from our fellow societies.

APPENDICESCode of Conduct for DirectorsBoard Policy on Committees of the BoardBoard CompositionBoard of Directors (photos)Executive Team (photos)2011 Financial Report: A Word from the CFO and the Audited Financial Statements


APPENDIX A

CODE OF CONDUCT FOR DIRECTORS

1. Act in the overall best interests of all members of SOCAN.

2. Declare known or potential conflicts of interest to the President, e.g. possibility of personal pecuniary gain when a company owned, operated or affiliated (majority of minority) by a Director, wishes to do business with SOCAN. This includes acting as a Director for one or more organizations whose interests are or may be conflicting with those of SOCAN or those engaged on opposing sides of the same transaction.

(a) All Directors of SOCAN are also members of the organization and therefore have a business relationship with SOCAN that is bound by the membership agreement. Any other business relationship a Director may have with SOCAN will likely find the Director facing conflicting interests: those of his/ her fiduciary responsibility as a SOCAN Director and those of his own business or of the business that he/she represents. Therefore these business relationships should generally be avoided. However there may be times when it is in SOCAN’s interest, as determined by the CEO, to have such a business relationship with a Director. When that is the case, the advantages may outweigh the risks. However, great care must be taken by the Director to ensure the following:

• that SOCAN’s President and Executive Governance Committee are notified and kept apprised of the relationship

• that the Director abstains from voting on any resolution to approve the contract or transaction in question

• that the contract or transaction is fair and reasonable to SOCAN

(b) Regarding notification: The President and EGC must be notified and informed by the Director of all relevant matters:

• at the time SOCAN decides to initiate a business relationship with the Director• at the time a business agreement is reached with SOCAN• at any time of a breakdown in negotiations and/or decision to not go forward with agreement• at any time when a dispute arises between SOCAN and the Director over the business agreement or

relationship

The Director must answer any questions the President or EGC may ask him/her at any time regarding any business relationship the Director may have with SOCAN.

3. Vote on all motions before the Board unless potential conflict of interest exists.

4. Maintain confidentiality of information related to employees, licensees, members and SOCAN’s strategic interest (survives the Director’s term).

5. Return all documents and materials received as a Director to SOCAN if requested.

6. Make every effort to be fully prepared in advance of meetings including reviewing the advance materials.

7. Attend meetings as scheduled (missing 3 consecutive meetings may result in being dismissed from the current Board).

8. Recognize that SOCAN’s CEO is the only member of SOCAN’s management and staff that is directly accountable to its Board of Directors, and that no individual director, only the Board as a whole, has authority over the CEO. The President, however, acting on behalf of the Board, interfaces with the CEO between meetings as required by the day-to-day development of issues.

9. Do not advocate on behalf of individual members.

10. Acknowledge leadership role of the Chair of the Board of Directors in managing discussion according to agreed upon rules and interpreting this Code of Conduct.

11. Regardless of individual vote, supporting and championing decisions of the Board in public.

12. Forward requested agenda items or informational materials through the Chair for circulation to the Board


APPENDIX B

BOARD POLICY ON COMMITTEES OF THE BOARD

Purpose and ResponsibilitiesCOMMITTEES OF THE BOARD OF DIRECTORS OF SOCAN WILL:• provide information, research and in-depth analysis as well as clear and well digested thinking to help the Board make informed decisions• may or may not make a recommendation to the Board, depending on how options and conclusions can most usefully be packaged for the Board i.e. Committee may refer to the Board issues for full Board debate without a recommendation• follow the agreed Information Framework of the Board of Directors• welcome Board colleagues to ask questions to assure comprehensive research and analysis, but not to retrace in detail the work of the Committee

COMMITTEES OF THE BOARD OF DIRECTORS OF SOCAN WILL NOT:• take over the action or decision making role of the Board unless specifically mandated by the Board• do work that is appropriately the role of management, although management may seek the advice of Committee members in these areas• direct management in operational areas• approve or manage SOCAN’s operational budgets

Leadership and Membership• The Executive/Governance Committee of the previous Board will recommend to the

incoming Board, in an election year, Board members for Committees. This is done after receiving the election results but before the first meeting of the new Board. The current Executive/ Governance Committee will recommend candidates for any Committee vacancies that occur.

• The President is an ex-officio, non-voting member of all Board Committees.• Standing Committees will have 6 members and Ad Hoc Committees will have 4

members, unless otherwise agreed to by the Board of Directors.• The Committee will elect its own Chair and Vice-Chair.• The Committee Chair will preside at meetings and will be responsible to ensure the work

of the Committee is well organized, adheres to the Board’s governance guidelines, remains within the scope of the Committee’s Terms of Reference and meets any timelines provided by the Board.

• The Committee Chair will ensure the Committee prepares an Annual Committee Plan for Board approval.

• The Committee Chair will communicate and liaise with the Chairs of other Board Committees when issues of mutual interest arise.

• The Chair will arrange for the Vice-Chair to preside in the Chair’s absence.• No one shall sit as Chair for more than two consecutive terms.• A quorum consists of four members for standing committees and three

members for ad hoc committees.

Operating Principles• Committees will exist for a maximum term coincident with that of the Board.• Committees may request Board approval for the use of external advisors as described in

the Committee’s Annual Work Plan. • The Chair, in consultation with Management, prepares agendas consistent with the

Annual Committee Plan and Annual Committee Schedule and ensures minutes are prepared and distributed on a timely basis. These minutes are subsequently presented to

the Board.• The Chair will respond to any requests from members of the Board of Directors to review information used by the Committee in its work, unless the information is confidential, as per the Code of Conduct.• All Committee members, including the Chair, have one vote.• Committee members will review this Board Policy on Committees of the Board of Directors before electing the Committee Chair and Vice Chair.


APPENDIX C

BOARD COMPOSITION

Number of DirectorsThe business and affairs of the Society shall be managed by a Board of Directors consisting of eighteen (18) Directors, nine (9) of whom shall be Writer Members and nine (9) of whom shall be Publisher Members. The Board shall be elected or appointed as the case may be in accordance with this By-law. The Board shall have the authority to appoint, from the Members, additional Directors provided that any appointments are made in pairs, namely, one (1) Writer Member appointment and one (1) Publisher Member appointment. The maximum number of additional appointments by the Board at each election shall be six (6).

QualificationIn addition to any qualifications provided by the Act and by this By-law or any of the other By-laws, the eighteen (18) Directors referred to shall meet the qualifications set out in this section.

Regional RepresentationTHE REGIONAL REPRESENTATION ON THE BOARD SHALL BE AS FOLLOWS:a) Three (3) Directors shall reside in the West. The “West” shall mean the provinces of Manitoba, Saskatchewan, Alberta, British Columbia, and the Northwest Territories, Yukon and Nunavut. Two (2) of these Directors shall be Writer Members and one (1) shall be a Publisher Member.b) Six (6) Directors shall reside in the Province of Quebec. Three (3) of these shall be Writer Members and three (3) shall be Publisher Members.c) Nine (9) Directors shall reside in the East. The “East” shall mean the provinces of Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador. Four (4) shall be Writer Members and five (5) shall be Publisher Members.d) “Reside” shall mean, in the case of a Writer Member, the place where the Writer Member has his/her principal residence and in the case of a Publisher Member, the place within Canada where the Publisher Member carries on business.

Francophone RepresentationTHE FRANCOPHONE REPRESENTATION ON THE BOARD SHALL BE AS FOLLOWS:a)) Six (6) Directors shall be Francophone.

b) “Francophone” shall mean, in the case of a Writer Member, an individual who declares himself/herself a Francophone for the purposes of the nomination procedures and, in the case of a Publisher Member, a music publishing business that declares itself to be a Francophone music publisher.

New Classical Music RepresentationTHE NEW CLASSICAL MUSIC REPRESENTATION ON THE BOARD SHALL BE AS FOLLOWS:a) Two (2) Directors shall be writers of New Classical Music and one (1) Director shall be a Publisher Member of New Classical Music.b) “New Classical Music” shall mean, in the case of a writer, a composer who declares himself/herself and is active as a New Classical Music writer and in the case of a publisher, an entity that declares itself and is active as a publisher of musical works created by New Classical Music writers.c) “New Classical Music” for the purpose of this Section V of this By-Law shall include but is not limited to music that is referred to by the music community as serious music, electroacoustic music, contemporary classical music, concert music or experimental music and that excludes music otherwise included in popular genres.

Music Other Than New Classical Music Representationa) Five (5) Directors shall be writers of music other than New Classical Music, at least one (1) of whom

shall reside in the West, at least two (2) of whom shall reside in the East and at least two (2) of whom shall reside in Quebec.

b) “Music Other than New Classical Music” shall mean, in the case of a Writer, a Member who declares himself/herself a writer of music other than New Classical Music and who creates music or songs including, but not limited to, pop, country, rock, blues, folk, jazz, film and television music.


APPENDIX D

SOCAN BOARD OF DIRECTORS 2011

Rosaire Archambault

BillHenderson

MarcOuellette

GenevièveCôté

CraigHorton

Pierre-DanielRheault

VictorDavies

MichaelMcCarty

EarlRosen

JodieFerneyhough

StanMeissner

CarolRyan

GaryFurniss

BenMink

GillesValiquette

Tony Tobias

GlennMorley

JimVallance


APPENDIX E

SOCAN EXECUTIVE TEAM

Eric BaptisteChief Executive Officer

France LafleurVice President, Membership & General Manager, Quebec & Atlantic Division

C. Paul SpurgeonVice President - Legal Services & General Counsel

Jennifer BrownVice President - Licensing

Michael LewinVice President, Distribution

Randy Wark Vice President - Human Resources & Chief Administrative Officer

Dan GreenwoodVice President, Strategy & Development

Christian SarrazinVice President, Industry Development & International

David WoodChief Financial Officer

Jeff KingChief Operating Officer

Janice ScottVice President - Information Technology


APPENDIX F

2011 FINANCIAL REPORT A WORD FROM SOCAN’S CHIEF FINANCIAL OFFICER

SOCAN distributed a record $261.5-million in 2011 (2010: $194.8-million) due to Radio and Ringtones arrears distributions and our first distribution of Satellite Radio.

SOCAN’s regular revenue increased 3.7 percent in 2011. Total revenue however declined to $266.7-million because of one-time recognition of arrears revenue of $17.0-million in 2010.

The main financial highlights of 2011 were:

• Final installment of Radio arrears distributions for the period of 2003 to September 2010, totaling $21.6-million, due to resolution of an outstanding dispute with commercial radio broadcasters over a change in the revenue base for Tariff 1A. An additional $6.7-million was distributed to non-radio earners for the same period as an overhead rebate.

• First Satellite Radio distribution totaling $19.3-million to satellite radio earners for the period 2006 to 2010, following conclusion of a judicial review in 2010. An additional $4.6-million was distributed to non-satellite earners for the same period via an overhead rebate.

• New CBC radio tariff generating an additional $1.0-million in 2011 and $0.2-million in subsequent years.

• A $2.4-million reduction in gross expenses.

There are three sources of revenue: domestic performing rights from licensing use of the world’s repertoire in Canada; international royalties from affiliated Music Rights Organizations (MROs) covering foreign performances of works by SOCAN members; and private-copying royalties from a levy on the sale of blank CDs, audiotapes and similar media.

As shown on CHART 1, because the increase in regular collections, even if significant at $5.9 million, was not enough to offset the absence of arrears revenues in 2011, as compared to 2010, SOCAN’s domestic revenue for 2011 decreased by $12.2-million to $221.1-million (2010: $233.3-million). Domestic revenues were $218.4-million for performing rights (2010: $229.5-million) and $2.7-million for private-copying (2010: $3.8-million).


PERFORMING RIGHTS REVENUEPerforming rights revenue decreased year-over-year by $11.1-million. This was due to the recognition in 2010 of Internet, Radio and Satellite Radio arrears, totaling $17.0-million. Regular revenue increased $5.9-million in 2011.

Traditional Media (TV, Cable & Radio) showed strong performances, increasing $5.6-million over 2010, and we continue to see double-digit growth in New Media such as Internet and Satellite Radio, albeit on a lower base.

If you exclude the effect of the recognition of arrears revenue, SOCAN’s performing rights revenue increased 2.8 percent in 2011.

CHART 1

SOCAN DOMESTIC REVENUESTOTAL = 2011: $218,411 (2010: $229,541)

IN THOUSANDS OF DOLLARS

PRIVATE-COPYING ROYALTIESSOCAN is a member of the Canadian Private Copying Collective (CPCC). The CPCC collects private-copying revenues generated by a levy on the sale of blank CDs, audiotapes and similar media. The resulting funds are distributed based on radio airplay and CD sales. SOCAN claims royalties on behalf of those members who have assigned SOCAN the right to collect their private-copying royalties. In 2011, SOCAN received $2.7-million (2010: $3.8-million) from the CPCC. The reduction was due to lower revenue collected by CPCC.

SOCAN’s 2011 private-copying revenue came from a CPCC analysis of works that received radio airplay and enjoyed CD sales in the period 2000-2010. SOCAN continues to deduct only direct costs incurred in the distribution of private-copying royalties. In 2011, overheads charged on distributions averaged 2.8 percent (2010: 3.8 percent), the decrease being as a result of lower costs.

INTERNET: ARREARS

RADIO: ARREARS

SATELLITE RADIO: ARREARS

GENERAL (HOTELS MOTELS)

CINEMA

RINGTONES

PRIVATE COPYING

PAYAUDIO

INTERNET: CURRENT

SATELLITE RADIO: CURRENT

CONCERT

GENERAL

TELEVISION

CABLE

RADIO

10,000 20,000 30,000 40,000 50,000 60,000 70,000

2010

2011


INTERNATIONAL ROYALTIESRoyalties from international-affiliated MROs increased by $3.5-million in 2011, for a total of $45.6-million (2010: $42.1-million). The increase arose from a combination of strong member activity overseas, increased proactivity in the management of our international relations and a still strong but favorably weaker Canadian dollar against major foreign currencies.

CHART 2 shows a breakdown of the international revenue SOCAN received from the top ten MROs for the past two years and a summary total for those outside the top ten. The top two earning MROs in 2011 for SOCAN members were ASCAP and BMI from the US, where approximately $14.5-million was collected (2010: $15.5-million), representing 31.7 percent of total international royalties. The decline from the US is due to lower member activity than in 2010.

The next top earning MRO was SACEM in France, where SOCAN collected royalty income of $6.3-million (2010: $6.2-million), representing 13.9 percent of total international royalties. The top ten MROs accounted for 79.7 percent of SOCAN’s international royalties, a decrease from 83.2 percent in 2010 due to increased royalties from emerging markets outside the top ten.

CHART 2

INTERNATIONAL REVENUE BY COUNTRYTOTAL = 2011: $45,590 (2010: $42,071)

IN THOUSANDS OF DOLLARS

TABLE 1 details the international revenue received from each MRO and the distributions paid by SOCAN to each MRO in 2011.

NON TOP TEN

BELGIUM: SABAM

NETHERLANDS: BUMA

AUSTRALIA: APRA

JAPAN: JASRAC

ITALY: SIAE

GERMANY: GEMA

UNITED KINGDOM: PRS

FRANCE: SACEM

USA: ASCAP

USA: BMI

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000

2010

2011


TABLE 1

ROYALTIES FROM AND TO INTERNATIONAL MROs (IN THOUSANDS OF DOLLARS)

COUNTRY MRO REVENUE FROM MRO REVENUE TO MRO 2011 2010 2011 2010

Argentina SADAIC 220 205 31 26 Australia APRA 1,611 1,317 1,458 1,142 Austria AKM 378 281 55 48 Belgium SABAM 1,000 740 207 152Brazil Various 665 396 110 78Bulgaria MUSICAUTOR 38 14 0 2 Chile SCD 88 43 5 7Colombia SAYCO 1 12 18 3 Croatia HDS 29 30 1 1Czech Republic OSA 150 109 5 5 Denmark KODA 935 749 144 101 Estonia EAU 7 11 1 1 Finland TEOSTO 816 607 62 30 France SACEM 6,327 6,183 3,157 2,595 Germany GEMA 3,051 2,679 903 725 Greece AEPI 60 171 10 11Hong Kong CASH 113 76 14 11 Hungary ARTISJUS 199 161 7 13 Ireland IMRO 419 194 127 102 Israel ACUM 122 207 13 17 Italy SIAE 1,904 1,650 391 357Japan JASRAC 1,866 1,396 87 75Korea KOMCA 42 12 8 13 Latvia AKKA/LAA 10 7 0 0Lithuania LATGA-A 33 15 0 1Malaysia MACP 36 35 1 0Mexico SACM 96 83 71 14 Netherlands BUMA 1,225 1,148 193 129 Norway TONO 552 293 55 33Poland ZAIKS 477 397 16 17 Portugal SPA 160 75 20 27Romania UCMR 208 182 30 19Russia RAO 94 118 23 6Serbia SOKOJ 11 16 3 6Singapore COMPASS 93 74 2 4 Slovakia SOZA 48 36 1 1Slovenia SAZAS 19 16 1 3South Africa SAMRO 338 323 41 34Spain SGAE 925 1,115 247 152Sweden STIM 1,057 797 897 438 Switzerland SUISA 691 501 143 88 Turkey MESAM 21 0 0 6 United Kingdom PRS 4,914 4,031 11,323 7,715 United States* (See below) 14,493 15,513 72,776 48,871Countries under $10k 48 53 20 28 TOTAL 45,590 42,071 92,677 63,107 ASCAP* 6,486 7,780 36,466 25,589 BMI 7,973 7,706 33,621 21,377 SESAC 34 27 2,689 1,905

TOTAL UNITED STATES 14,493 15,513 72,776 48,871

Countries under $10k include Barbados, Burkina Faso, Bosnia Herzegovina, China, Costa Rica, Cuba, Iceland, India, Ivory Coast, Jamaica, Kazahkstan, Mali, Maruitius, Panama, Peru, Philippines, Senegal, Taiwan, Thailand, Trinidad, Uruguay, Venezuela, Vietnam.


EXPENSES SOCAN’s net administrative expenses (gross expenses offset by other income, which mainly consists of investment and rental income) decreased to $38.1-million in 2011 from $39.4-million the previous year. Gross expenses favorably decreased by $2.4-million and other income unfavorably decreased by $1.1-million, which resulted in a net improvement of $1.3-million. Net expenses in 2011 represented 14.3 percent of total revenues (2010: 14.3 percent) which is the same as 2010 even with the reduction of revenue.

SOCAN’s three core activities of collecting license fees (Licensing), registering works and analyzing performances (Distribution), and supporting members (Membership) accounted in total for $20.2-million (2010: $20.8-million), or just under half of our expenses.

Infrastructure-type costs, such as Information Technology and Facilities & Administration, accounted for $10.7-million (2010: $11.7-million), or approximately a quarter, and other support services such as Finance, Legal, Communications and Human Resources, accounted for most of the other quarter. The SOCAN Foundation was supported with $1.5-million in 2011, the same as 2010.

As shown in TABLE 2, SOCAN’s 2011 gross expenses of $43.1-million were 5.4 percent lower than in 2010. Listed below are explanations for some of the variances by cost category.

TABLE 2

GROSS EXPENSES BY EXPENSE TYPE 2011: $43,082 VS 2010 $45,538

(IN THOUSANDS OF DOLLARS)

2011 EXPENSE TYPE AS A PERCENTAGE OF TOTAL GROSS EXPENSEINCR/(DECR) FROM 2010 TO 2011VARIANCE 2011–201020102011

GROSS EXPENSES

MEMBERSHIP

COPYRIGHT ADMINISTRATION

OTHER

DATA PROCESSING

COMMUNICATION, MARKETING AND LIASON

FOUNDATION

TARIFF AMINISTRATION

STEWARDSHIP

OFFICE OCCUPANCY

OFFICE OPERATIONS

SALARIES AND BENEFITS

TOTAL GROSS EXPENSES

126

417

781

1,169

1,296

1,504

1,506

1,732

2,232

2,703

29,616

43,082

113

419

2,318

1,240

1,397

1,457

1,125

1,999

2,058

2,917

30,495

45,538

(13)

2

1,537

71

101

(47)

(381)

267

(174)

214

879

2,456

-11.5%

0.5%

66.3%

5.7%

7.2%

-3.2%

-33.9%

13.4%

-8.5%

7.3%

2.9%

5.4%

0.3%

1.0%

1.8%

2.7%

3.0%

3.5%

3.5%

4.0%

5.2%

6.3%

68.7%

100.0%

$ $ $ % %


Salaries & BenefitsSOCAN’s most significant expense lies in human resources, with an average of 325 full and part-time employees in four offices across the country. Compensation decreased by $0.9-milllion from the previous year, mainly attributable to capitalization in 2011 of internal staff working on the development of SOCAN’s new core systems solution BEST (Business Enterprise Solution for Tomorrow).

Office OperationsExpenses in this area relate to equipment purchases and leases, telephone, office supplies, subscriptions, postage, couriers, insurance, etc. There was a $0.2-million reduction due to lower depreciation and stationery costs.

StewardshipThese costs include consulting where there was a decrease over 2010 of $0.3-million due to one-off consulting costs in 2010, including special projects for the technology strategy and corporate documentation as well as tax consulting.

Tariff AdministrationThis includes costs related to copyright reform initiatives and Copyright Board hearings to approve changes in licensing tariffs. The 2011 figure was $0.4-million higher than in the previous year because of increased activity in preparation of hearings before the Copyright Board and the courts.

OtherThese costs include travel, hotel and company car expenses. Other costs were down $1.5-million from the previous year. This was mainly due to a 2010 provision of $0.9-million for interest on taxation being reversed in 2011 once successfully resolved with the Canada Revenue Agency. The net effect year-over-year was a reduction of $1.8-million.

SOCAN DISTRIBUTIONSSOCAN’s total royalty distributions in 2011 was $261.5-million (2010: $194.8-million). The increase of $66.7-million was mainly due to special distributions of $52.9-million for Radio arrears ($21.6-million), Ringtone arrears ($0.7-million) and for the first time Satellite Radio ($19.3-million). There were overhead rebates totaling $11.3-million for Radio ($6.7-million) and Satellite Radio ($4.6-million).

If you exclude special distributions, there was an increase of 7.1 percent due to increased revenue and lower overhead costs. Member advances are reflected in these numbers. Further details can be found in TABLE 3

Writer/Composer DistributionsTABLE 4 summarizes the average distribution per writer/composer (excluding all special distributions related to domestic revenues for 2011), i.e., the amount distributed to writers/composers divided by the number of writers/composers. The average will be different year-over-year if either of these elements changes.

The average distribution increases year-over-year by distribution type per writer/composer were Cable (3.9 percent), Television (17.8 percent), Radio: Survey (1.3 percent), Radio: CBC (4.7 percent) and Pay Audio (22.5 percent). The average increases were due to a greater increase in revenues than the increase in the number of writer/composers receiving a distribution.

Radio, Census, Concerts, International Royalties had average distribution decreases year-over-year, per writer/composer, of 10.7 percent, 5.9 percent, 10.0 percent and respectively. There was a greater general increase in the number of writer/composers receiving a distribution than the increase in revenues.

Cinema, Ringtones and Private Copying had average distribution decreases year-over-year of 18.5 percent, 25.0 percent, and 28.8 percent respectively. There was a greater general decrease in revenues than in the number of writer/composers receiving a distribution.


NORMATIVE DISTRIBUTIONS Cable Television Radio and General Radio - Census Radio - Survey Radio - CBC Total Radio and General Concerts Cinema + Hotel, Motel Services Pay Audio Ringtones Satellite Radio International affiliated MROs

Distributions in advance of normal payment date Private Copying TOTAL NORMATIVE DISTRIBUTIONS

SPECIAL DISTRIBUTIONS Cable Television Radio and General Radio - Census Radio - Survey Radio - CBC Concerts Cinema + Hotel, Motel Services Pay Audio Ringtones Satellite Radio TOTAL SPECIAL DISTRIBUTIONS TOTAL DISTRIBUTIONS Cable Television Radio and General (old pool) Radio - Census (new pool) Radio - Survey (new pool) Radio - CBC (new pool) Total Radio and General Concerts Cinema + Hotel, Motel Services Pay Audio Ringtones Satellite Radio International affiliated MROs Distributions in advance of normal payment date

Private-copying TOTAL DISTRIBUTIONS

9,964 9,591

-

5,677 2,641 2,297

10,615

3,007 20

370 48

- 33,615 39,427 73,042

(430) 72,612

777

73,389

803 964

1,610 1,542

838 121 192

2 48 24

971

7,115

10,767

10,555

1,610 7,219 3,479 2,418

14,726

3,199 22

418 72

971 40,730 39,427 80,157

(430) 79,727

777

80,504

18,081 15,203

- 13,736

5,170 1,893

20,799

5,780 297 737 356

- 61,253 8,005

69,258

(472) 68,786

567

69,353

1,337 1,447 3,296 3,689 1,673

93 387 30 93

259 6,671

18,975

19,418 16,650

3,296 17,425 6,843 1,986

29,550

6,167 327 830 615

6,671 80,228

8,005 88,233

(472) 87,761

567

88,328

17,472 12,620

- 15,908 6,466 2,578

24,952

6,883 421

1,096 447

- 63,891

753 64,644

- 64,644

1,275

65,919

1,402 1,469 4,392 4,469 2,133

134 547 44

147 367

11,654

26,758

18,874 14,089

4,392 20,377 8,599 2,712

36,080

7,430 465

1,243 814

11,654 90,649

753 91,402

- 91,402

1,275

92,677

45,517 37,414

- 35,321 14,277

6,768 56,366

15,670 738

2,203 851

- 158,759 48,185

206,944

(902) 206,042

2,619

208,661

3,542 3,880 9,298 9,700 4,644

348 1,126

76 288 650

19,296

52,848

49,059 41,294

9,298 45,021 18,921

7,116 80,356

16,796 814

2,491 1,501

19,296 211,607 48,185

259,792

(902) 258,890

2,619

261,509

INTERNATIONAL MROsSOCAN PUBLISHERSSOCAN WRITERS

TOTAL TOTAL

INTERNATIONAL MROsSOCAN PUBLISHERSSOCAN WRITERS

9,229 8,310

- 5,368 2,521 2,231

10,120

2,550 22

328 57

- 30,616 36,134 66,750

270 67,020

1,292

68,312

-

9,229 8,310

- 5,368 2,521 2,231 10,120

2,55022

328 57

- 30,616 36,134 66,750

270 67,020

1,292

68,312

16,627 13,255

- 12,697

5,012 1,742

19,451

4,201 318 662 508

- 55,022 7,024

62,046

250 62,296

1,057

63,353

-

16,627 13,255

- 12,697

5,012 1,742

19,451

4,201 318 662 508

- 55,022

7,024 62,046

250 62,296

1,057

63,353

16,306 13,057

- 15,063 6,298 2,412

23,773

5,061 418

1,027 739

- 60,381

772 61,153

-

61,153

1,954

63,107

-

16,306 13,057

- 15,063 6,298 2,412

23,773

5,061 418

1,027 739

- 60,381

772 61,153

- 61,153

1,954

63,107

42,162 34,622

- 33,128 13,831 6,385

53,344

11,812 758

2,017 1,304

- 146,019 43,930

189,949

520 190,469

4,303

194,772

-

42,162

34,622

- 33,128 13,831 6,385

53,344

11,812 758

2,017 1,304

- 146,019 43,930

189,949

520 190,469

4,303

194,772

2011 2010

TABLE 3

DISTRIBUTION BY POOL, BY MEMBER TYPE AND INTERNATIONAL MROs(IN THOUSANDS OF DOLLARS)


TABLE 4

SOCAN WRITER/COMPOSER 2011 VS. 2010

AMOUNT OF DISTRIBUTION TO WRITERS/COMPOSERS (‘000’S)

NUMBER OF WRITERS/COMPOSERS

AVERAGE DISTRIBUTION PER WRITER/COMPOSER

CABLE

TELEVISION

RADIO: CENSUS

RADIO: SURVEY

RADIO: CBC

CONCERTS

CINEMA

PAY AUDIO

RINGTONES

INTERNATIONAL AFFILIATED MROs

PRIVATE COPYING

9,964

9,591

5,677

2,641

2,297

3,007

20

370

48

39,427

777

9,229

8,310

5,368

2,521

2,231

2,550

22

328

57

36,134

1,292

8.0

15.4

5.8

4.8

3.0

17.9

(9.1)

12.8

(15.8)

9.1

(39.9)

2011 2010 %

10,799

7,244

7,241

16,822

9,294

8,644

929

7,625

2,235

17,478

6,818

10,397

7,392

6,117

16,229

9,467

6,896

830

8,154

2,067

14,419

8,057

3.9

(2.0)

18.4

3.7

(1.8)

25.3

11.9

(6.5)

8.1

21.2

(15.4)

2011 2010 %

923

1324

784

157

247

348

22

49

21

2256

114

888

1124

878

155

236

370

27

40

28

2506

160

3.9

17.8

(10.7)

1.3

4.7

(5.9)

(18.5)

22.5

(25.0)

(10.0)

(28.8)

2011 2010 %

Note: These figures are normative as they exclude all special distributions

David WoodChief Financial Officer


Financial Statements of

SOCIETY OF COMPOSERS,AUTHORS AND MUSIC PUBLISHERS OF CANADA

Year ended December 31, 2011


KPMG s.r.l./S.E.N.C.R.L. Téléphone (416) 228-7000 Comptables agréés 3217-822 )614( rueipocéléT

ac.gmpk.www tenretnI ertneC etaroproC egnoY 002 uaeruB ,egnoY eur ,0014

3H2 P2M )oiratnO( otnoroT adanaC

KPMG s.r.l./S.E.N.C.R.L. est une société canadienne à responsabilité limitée et un cabinet membre du réseau KPMG de cabinets indépendants affiliés à KPMG International Cooperative (« KPMG International »), entité suisse. KPMG Canada fournit des services à KPMG s.r.l./S.E.N.C.R.L.

INDEPENDENT AUDITORS' REPORT

To the Members of the Society of Composers, Authors and Music Publishers of Canada

Report on the Financial Statements

We have audited the accompanying financial statements of Society of Composers, Authors and Music Publishers of Canada, which comprise the statement of financial position as at December 31, 2011, the statements of operations, changes in net assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


Page 2

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Society of Composers, Authors and Music Publishers of Canada as at December 31, 2011, and its results of operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Report on Other Legal and Regulatory Requirements

As required by the Canada Corporations Act, we report that, in our opinion, the accounting policies applied in preparing and presenting the financial statements in accordance with Canadian generally accepted accounting principles have been applied on a basis consistent with that of the preceding year.

Chartered Accountants, Licensed Public Accountants

March 20, 2012 Toronto, Canada

32 SOCAN ANNUAL REPORT TO MEMBERS 2011 1

SOCIETY OF COMPOSERS, AUTHORS ANDMUSIC PUBLISHERS OF CANADA Statement of Financial Position (In thousands of dollars)

December 31, 2011, with comparative figures for 2010

2011 2010

Assets Current assets:

439,51 $ 939,51 $ hsaC 510,21 592,8 seef esnecil deurccA 020,4 992,2 stessa dna selbaviecer rehtO 747,501 710,27 )2 eton( stnemtsevni mret-trohS 111,401 994,111 )2 eton( seitiruces rehtO 728,142 940,012

624,8 126,9 )3 eton( stessa latipaC 651,3 066,3 )4 eton( noisnep - tessa tifeneb deurccA

904,352 $ 033,322 $

Liabilities and Net Assets Current liabilities:

Accounts payable and other liabilities $ 8,691 $ 10,552 License fees received in advance 5,211 4,194

647,41 209,31

Accrued benefit liability - other employee future benefits (note 4) 672,31 220,41

Royalties owing to music copyright owners (members and affiliated societies):

020,7 150,8 detacolla snoitubirtsid morFFrom distribution fund 636,712 847,481 )5 eton(

656,422 997,291 876,252 327,022

Net assets: 137 706,2 stnemtsevni no niag dezilaernu teN

Commitments and contingencies (note 8)

904,352 $ 033,322 $

See accompanying notes to financial statements.

On behalf of the Board:

Director Director Stan Meissner Earl Rosen


SOCIETY OF COMPOSERS, AUTHORS ANDMUSIC PUBLISHERS OF CANADA Statement of Operations (In thousands of dollars)

Year ended December 31, 2011, with comparative figures for 2010

0102 1102 etavirP gnimrofreP etavirP gnimrofreP

latoT gniypoc sthgir latoT gniypoc sthgir

Fees from Canadian licensees $ 218,411 $ – $ 218,411 $ 229,541 $ – $ 229,541 Royalties received from

international affiliated societies 45,590 – 45,590 42,071 – 42,071 – seitlayor gniypoc etavirP 2,684 2,684 – 3,772 3,772

483,572 277,3 216,172 586,662 486,2 100,462

Expenses and other income: Administrative expenses (42,940) (142) (43,082) (45,411) (127) (45,538) Investment and rental income

871,6 – 871,6 810,5 – 810,5 )7 eton()460,83( )241( )229,73( (39,233) (127) (39,360)

Total distributable income 226,079 2,542 228,621 232,379 3,645 236,024

Allocated to royalties owing to music copyright owners

,822 245,2 970,622 )5 eton( 621 232,379 3,645 236,024

Unallocated income $ – $ – $ – $ – $ – $ –



SOCIETY OF COMPOSERS, AUTHORS ANDMUSIC PUBLISHERS OF CANADA Statement of Changes in Net Assets (In thousands of dollars)


Net unrealized gain stnemtsevni no

2011 2010

)836( $ 137 $ raey fo gninnigeb ,stessa teN

963,1 678,1 stnemtsevni no niag dezilaernu ni egnahc teN

137 $ 706,2 $ raey fo dne ,stessa teN



SOCIETY OF COMPOSERS, AUTHORS ANDMUSIC PUBLISHERS OF CANADA Statement of Cash Flows (In thousands of dollars)


2011 2010

Cash provided by (used in):

Operating activities: Increase (decrease) in royalties owing to music

$ srenwo thgirypoc (31,857) $ 42,166 )921,2( )648,2( snoitubirtnoc tifeneb erutuf reyolpmE

Items not involving cash: 523,1 181,1 stessa latipac fo noitazitromA

Net realized loss (gain) on sale of 930,1 )625( stnemtsevni mret-trohs 382,3 880,3 esnepxe tifeneb erutuf eeyolpmE

Change in non-cash operating work )277,41( 795,4 latipac gni 219,03 )363,62(

Investing activities: )435( )673,2( stessa latipac fo esahcruP )805,41( 652,43 ten ,stnemtsevni mret-trohs fo )esahcrup( elaS )616,8( )215,5( ten ,seitiruces rehto fo esahcruP )856,32( 863,62

452,7 5 hsac ni esaercnI

086,8 439,51 raey fo gninnigeb ,hsaC

439,51 $ 939,51 $ raey fo dne ,hsaC



SOCIETY OF COMPOSERS, AUTHORS ANDMUSIC PUBLISHERS OF CANADA Notes to Financial Statements (In thousands of dollars)


5

The Society of Composers, Authors and Music Publishers of Canada ("SOCAN") is a not-for-profit organization, incorporated without share capital on March 16, 1990 under Part II of the Canada Corporations Act, which administers, for copyright-protected musical works, the right to perform in public and to communicate to the public by telecommunication in Canada. SOCAN collects license fees on behalf of music copyright owners pursuant to tariffs proposed by SOCAN, and approved by a quasi-judicial federal tribunal, the Copyright Board. Licensees can and do object to proposed tariffs, and public hearings can be, and are, held at which SOCAN acts to support the rights of its members and international affiliates. SOCAN also has reciprocal contracts of affiliation with similar societies throughout the world, which provide for the exchange of copyright royalties. Total revenue, net of operating expenses, is distributed to members and to affiliated societies on account of their members pursuant to distribution rules approved by the Board of Directors. Amounts generally become distributable upon receipt of the related fees and royalties.

SOCAN is a non-profit organization under the Income Tax Act (Canada) and, accordingly, is exempt from income taxes, provided certain requirements of the Income Tax Act (Canada) are met.

The SOCAN Foundation - La Fondation SOCAN (the "Foundation") was incorporated by Letters Patent under the provisions of Part II of the Canada Corporations Act on May 13, 1976. The Foundation is a not-for-profit organization under the Income Tax Act (Canada), set up to promote and further the publication, recording, distribution and performance of music generally in Canada. SOCAN has the ability to control the Foundation by virtue of common membership in the Boards of Directors of the two organizations.

1. Significant accounting policies:

The following is a summary of the significant accounting policies followed by SOCAN, which are in accordance with Canadian generally accepted accounting principles:

(a) Financial instruments other than investments:

SOCAN designates its cash as held-for-trading, which is measured at fair value. Accrued license fees and other receivables are classified as loans and receivables, which are measured at amortized cost. Accounts payable and other liabilities are classified as other financial liabilities, which are measured at amortized cost.


SOCIETY OF COMPOSERS, AUTHORS ANDMUSIC PUBLISHERS OF CANADA Notes to Financial Statements (continued) (In thousands of dollars)


6

1. Significant accounting policies (continued):

In accordance with the Accounting Standards Board's decision to exempt not-for-profit organizations from the disclosure requirements with respect to financial instruments contained within The Canadian Institute of Chartered Accountants' Handbook Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation, SOCAN has elected not to adopt these standards in its financial statements.

The carrying values of cash, other receivables and assets, accounts payable and other liabilities and royalties owing to music copyright owners approximate fair values due to the immediate or short-term nature of these financial instruments.

(b) Investments:

Short-term investments have original maturities of less than one year. Other securities include fixed income investments and equities. Investments are classified as available-for-sale and stated at fair value. The change in the difference between the fair value and cost of investments at the beginning and end of each year is reflected in the statement of changes in net assets.

Fixed income securities and equities are valued at year-end quoted market prices, where available. Where quoted market prices are not available, estimated fair values are calculated using comparable securities.

Transaction costs that are directly attributable to the acquisition of investments are not considered significant and are expensed when paid. Investment purchase and sale transactions are accounted for on the trade date.

Funds awaiting distribution are invested in marketable securities to provide a reasonable return while the distribution is being allocated.

(c) Investment income:

Investment income, which is recorded on an accrual basis, includes interest income, dividends and net gain (loss) on sale of securities.




7


(d) Recognition of fees and royalties:

Fees from Canadian licensees and royalties from international affiliated societies are recognized when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured.

Private copying royalties are recognized when received.

(e) Capital assets:

Capital assets, other than land and artwork, are carried at cost less accumulated amortization. Land and artwork are carried at cost. Capital assets are amortized on a straight-line basis over their estimated useful lives. Annual amortization rates used are as follows:

%7.3 stnemevorpmi gnidliub dna gnidliuB esael fo mret revO stnemevorpmi dlohesaeL %3.33 - %0.02 tnempiuqe dna serutxif ,erutinruF

(f) Employee future benefits:

(i) Pension benefits:

SOCAN offers a pension plan with a defined benefit provision and a defined contribution provision, which between them cover substantially all employees of SOCAN. Employees joining SOCAN after January 1, 2009 are not eligible to join the defined benefit provision.

The defined benefit provision provides pensions based on length of service and final average earnings. The defined contribution provision provides benefits based on the amount of employee and employer contributions and the rate of return on such contributions.




8


The cost of the defined benefit provision is actuarially determined using the projected benefit method prorated on service and management's best estimate of expected pension plan investment performance, salary escalation, retirement ages of employees and discount rate. The discount rate used to determine the accrued benefit obligation was determined by reference to market interest at the measurement date, December 31, on high-quality debt instruments with cash flows that match the timing and amount of expected benefit payments.

For the purpose of calculating the expected return on the defined benefit provision of the pension plan assets, those assets are valued at fair value. The excess of the net actuarial gain (loss) over 10% of the lesser of the accrued benefit obligation and plan assets and the transitional asset are amortized over the average remaining service period of active employees of 14.0 years (2010 - 14.0 years).

The most recent actuarial valuation of the defined benefit provision for funding purposes was as of January 1, 2011.

The cost of the defined contribution provision is based on a percentage of the employee's pensionable earnings.

SOCAN sponsors a supplementary non-registered plan ("SERP") for its executives providing benefits above the maximums prescribed under the Income Tax Act (Canada). The cost of the SERP is actuarially determined and is not funded.

(ii) Post-retirement benefits other than pensions:

SOCAN provides certain benefits to retired employees and their dependants. The benefits include medical services and dental. The cost of these benefits is actuarially determined using the projected benefit method prorated on service and management's best estimate of retirement ages of employees, expected health care costs and discount rate. The post-retirement benefit plan is not funded. The average remaining service period of the active employees covered by the post-retirement benefit plan is 8.1 years (2010 - 10.6 years).




9


Employees joining SOCAN after January 1, 2009 are not eligible for post-retirement benefits other than pensions.

(g) Investment in Canadian Music Rights Joint Venture Inc.:

SOCAN controls a wholly owned subsidiary, Canadian Music Rights Joint Venture Inc. ("CMRJV"). CMRJV was established to allow SOCAN to fund and participate in joint ventures.

CMRJV is accounted for in SOCAN's financial statements using the equity method. The activities of CMRJV are not material to these financial statements.

(h) Translation of foreign currencies:

Assets and liabilities denominated in foreign currencies have been translated into Canadian dollars at exchange rates prevailing at the year-end date. Revenue and expenses have been translated using exchange rates prevailing on the transaction dates. Gains and losses arising from these translation policies are included in the statement of operations.

(i) Use of estimates:

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates.




10

2. Short-term investments and other securities:

Short-term investments consist of bankers' acceptances, treasury bills and notes, bearing interest at rates ranging from 0.92% to 1.24% and maturing January 4, 2012 to April 2, 2012. They also include a bond fund, consisting of various short-term instruments.

Other securities are as follows:

0102 1102 riaF dezitromA riaF dezitromA eulav tsoc eulav tsoc

Government of Canada: Due after five years $ 3,410 $ 3,985 $ 5,110 $ 5,167

Canadian provincial and public authorities and companies:

Due in one year or less 205 203 1,869 1,796 Due after one through

548,42 939,42 038,83 374,83 sraey evifDue after five years 21,181 22,378 22,904 23,229

Corporate: Due in one year or less 1,808 1,747 1,165 1,039 Due after one through

482,9 622,9 674,9 981,9 sraey evifDue after five years 2,320 2,362 4,959 5,011

Mortgage-backed: Due after one through

444,4 684,4 857,2 667,2 sraey evifEquities:

246,8 844,8 131,8 786,8 citsemoD 456,02 446,91 926,12 409,91 ngieroF

111,401 $ 057,201 $ 994,111 $ 349,701 $




11

2. Short-term investments and other securities (continued):

Details of significant terms and conditions and exposures to interest rate risk on these investments are as follows:

0102 1102 egarevA egarevA evitceffe evitceffe setar setar

%)23.0( %)61.1( adanaC fo tnemnrevoGCanadian provincial and public authorities

% 80.3 % 40.2 seinapmoc dna % 04.4 % 30.4 etaroproC % 74.2 % 93.1 dekcab-egagtroM

Interest receivable for the above investments is calculated on a semi-annual basis.

3. Capital assets:

2011 2010 koob teN koob teN detalumuccA eulav eulav noitazitroma tsoC

370,3 $ 370,3 $ – $ 370,3 $ dnaLBuilding and building

748,3 085,3 491,6 477,9 stnemevorpmiLeasehold improvements 130 114 16 49 Furniture, fixtures and

163,1 318,1 404,6 712,8 tnempiuqeComputer software

– 740,1 – 740,1 tnempoleved 69 29 – 29 krowtrA

624,8 $ 126,9 $ 217,21 $ 333,22 $

Amortization charges included in administrative expenses amounted to $1,181 (2010 - $1,325). Disposals include $4 (2010 - $86) of fully depreciated assets.




12

4. Employee future benefits:

(a) Information about SOCAN's employee benefit plans (excluding the defined contribution portion of the pension plan) as at December 31, 2011 and 2010, in aggregate, is as follows:

lacidem eeriteR nalp tifeneb PRES nalp noisneP

0102 1102 0102 1102 0102 1102

Accrued benefit obligations $ 52,207 $ 43,168 $ 10,884 $ 10,232 $ 4,492 $ 4,295

Fair value of plans' assets 38,265 38,579 – – – –

Funded deficit $ (13,942) $ (4,589) $ (10,884) $ (10,232) $ (4,492) $ (4,295)

Pension plan assets consist of:

nalp noisneP 0102 1102

%45 %26 seitiruces ytiuqE %63 %23 seitiruces tbeD %01 %6 rehtO

%001 %001

Continuity of the accrued benefit liability (asset) is as follows:

eeriteR lacidem noisneP latoT nalp tifeneb PRES nalp 1102

Balance, beginning of year $ (3,156) $ 9,164 $ 4,112 $ 10,120 Benefit expenses 1,750 859 479 3,088 Employer contributions (2,254) (447) (145) (2,846)

Balance, end of year $ (3,660) $ 9,576 $ 4,446 $ 10,362




13

4. Employee future benefits (continued):

eeriteR lacidem noisneP latoT nalp tifeneb PRES nalp 0102

Balance, beginning of year $ (3,035) $ 8,252 $ 3,749 $ 8,966 Benefit expenses 1,543 1,257 483 3,283 Employer contributions (1,664) (345) (120) (2,129)

Balance, end of year $ (3,156) $ 9,164 $ 4,112 $ 10,120

The significant actuarial assumptions adopted in measuring the accrued benefit obligations as of December 31 are as follows:

lacidem eeriteR dna nalp noisneP nalp tifeneb PRES

0102 1102 0102 1102

Accrued benefit obligation: %00.5 %57.4 %00.5 %57.4 etar tnuocsiD

Rate of compensation increase 3.50% 3.50% – – Benefit costs:

%00.5 %57.4 %00.5 %57.4 etar tnuocsiDExpected long-term rate of return

– – %52.6 %52.6 stessa nalp noRate of compensation increase 3.50% 3.50% – –

Other information about the employee benefit plans is as follows:

lacidem eeriteR nalp tifeneb PRES nalp noisneP

0102 1102 0102 1102 0102 1102

Employer contributions $ 2,254 $ 1,664 $ 447 $ 345 $ 145 $ 120 Employees' contributions 653 680 – – – – Benefits paid 1,479 1,198 447 345 145 120

(b) The contributions paid and expensed by SOCAN under the defined contribution portion of the pension plan for the year amounted to $92 (2010 - $47).




14

5. Royalties owing to music copyright owners:

The availability of funds for distribution is dependent upon the realization of assets at not less than their carrying values in the financial statements.

etavirP gnimrofreP latoT gniypoc sthgir 1102

Balance, beginning of year $ 216,346 $ 1,290 $ 217,636 126,822 245,2 970,622 emocni elbatubirtsiD )905,162( )916,2( )098,852( snoitubirtsiD

847,481 $ 312,1 $ 535,381 $ raey fo dne ,ecnalaB

etavirP gnimrofreP latoT gniypoc sthgir 0102

Balance, beginning of year $ 174,436 $ 1,948 $ 176,384 420,632 546,3 973,232 emocni elbatubirtsiD )277,491( )303,4( )964,091( snoitubirtsiD

636,712 $ 092,1 $ 643,612 $ raey fo dne ,ecnalaB




15

6. The SOCAN Foundation:

Included in administrative expenses is $1,504 (2010 - $1,457) in funding provided to the Foundation. Included in other assets is $542 (2010 - $395) owing from the Foundation.

A summary of the financial information for the Foundation for the year ended December 31 is as follows:

0102 1102

449,5 $ 560,6 $ stessa latoT 871,1 293,1 seitilibail latoT

667,4 $ 376,4 $ stessa teN

566,2 $ 627,2 $ euneveR )165,2( )957,2( sesnepxE

89 )06( stnemtsevni no )ssol( sniag dezilaernU

202 $ )39( $ stessa ten ni egnahC

Commencing in fiscal 2002, the Foundation began to administer the Creators' Assistance Program on behalf of the Department of Canadian Heritage. The results of this program are included in the above amounts.

7. Investment and rental income:

0102 1102

773,4 $ 529,4 $ emocni tseretnI 292 684 emocni dnediviD 649 046 emocni suoenallecsim dna latneR 930,1 )625( stnemtsevni fo elas no )ssol( niag dezilaer teN )674( )705( seef gnitlusnoc tnemtsevni dna egarekorB

871,6 $ 810,5 $




16

8. Commitments and contingencies:

(a) SOCAN has various operating lease commitments for branch office premises, vehicles and office equipment. The future minimum lease payments, inclusive of maintenance costs and realty taxes, for years subsequent to December 31, 2011, are as follows:

294 $ 2102 092 3102 752 4102 52 5102

460,1 $

(b) SOCAN is party to legal actions arising in the normal course of operations. While it is not feasible to predict the outcome of these actions, it is the opinion of management that the resolution of these matters will not have a material adverse effect on operations.

(c) During the year, the Company entered into a Retirement Compensation Arrangement Trust Agreement with CIBC Mellon Trust Company to secure all or a portion of the payments required under the pension plan by letters of credit.

9. Risk management:

Risk management relates to the understanding and active management of risks associated with all areas of the business and the associated operating environment. Investments are primarily exposed to interest rate, market and foreign currency risks. SOCAN has formal policies and procedures that establish target asset mix. SOCAN's policies also require diversification of investments within categories, and set limits on exposure to individual investments.

(a) Interest rate risk:

Interest rate risk arises from the possibility that changes in interest rates will affect the value of fixed income securities held by SOCAN. SOCAN manages this risk by holding primarily debt issued by the Government of Canada and corporate companies and by staggering the terms of the securities held.




17

9. Risk management (continued):

(b) Market risk:

Market risk arises as a result of trading in equity securities and fixed income securities. Fluctuations in the market expose SOCAN to a risk of loss. SOCAN mitigates this risk through controls to monitor and limit concentration levels.

(c) Foreign currency risk:

Foreign currency risk arises from gains and losses due to fluctuations in foreign currency exchange rates on SOCAN's foreign equity securities.

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