Canadian Heritage Committee on April 27th, 2010

[The Chair, Conservative, Gary Schellenberger]

I'll open the meeting and then we'll discuss what we're going to do here.

Welcome to meeting number 10 of the Standing Committee on Canadian Heritage, pursuant to Standing Order 108(2), a study on emerging and digital media: opportunities and challenges.

This morning because of the vote we're out by half an hour. Our meeting will run until 1:05. I'm going to suggest that we split it into two segments of three-quarters of an hour each. This meeting will carry on until 12:25.

We welcome our first set of witnesses. We apologize for the short time here today.

As an individual, we have David Wolfe. From the Alliance of Canadian Cinema, Television and Radio Artists we have Stephen Waddell and Tyrone Benskin.

If you can keep your presentations to 10 minutes in length, or a little less, that will be great. It will allow for more questions.

Mr. Wolfe, please begin.

[Professor David Wolfe, Professor of Political Science, Co-Director of the Program on Globalization and Regional Innovation Systems, University of Toronto, As an Individual]

Thank you very much for the opportunity to appear. I'm delighted to be here.

By way of background, I'm a professor of research at the University of Toronto. For the past 10 years, I've been studying industrial clusters and economic development in Canada and the role of research and creativity in promoting the growth of Canadian cities. My expertise is in the development of digital media and digital media clusters as they contribute to regional economic development.

I tend to see digital media as an integrated set of activities that produce digital text, audio, and interactive computer graphic material that may be accessed through the Internet, films, and related communication channels.

It is important to note that where we have concentrations of digital media strength and firms in the country, it is usually where there is a preceding base of firms concentrated in related industries. These are the creative industries, such as film, television, and broadcasting. Sound recording often goes together with publishing, because the skills sets required to feed one industry draw very heavily upon the other industries. I'd be happy to go into that in more detail.

We also see, though, that the process of digitization is impacting all the creative industries and all the electronics industries, publishing in particular. In some work we did about a year ago in interviewing magazine publishers and book publishers in Ontario, everyone made a point of saying that they knew that their industries and their businesses were going to be strongly impacted by the process of digitization. It wasn't exactly clear how it was going to fall out and how it was going to impact them, but they were all trying to prepare for it.

The other thing about interactive digital media is that they tend to be very highly concentrated. In the work we did for the Ontario Ministry of Culture about a year or a year and a half ago, there was an overwhelming concentration in and around the greater Toronto region. There's some concentration in the Ottawa area. Some is spread out in southern Ontario through the Kitchener-Waterloo-Cambridge-Guelph area, down to London, and there is a small concentration in the Niagara Peninsula.

But it is hugely concentrated in the Toronto region. From related work that some of my colleagues have done, we know that there's a huge concentration, of course, in Montreal and Vancouver. Overall, nationally, those three large cities have the greatest concentration of digital media firms. We need to recognize the importance of those cities for this industry.

The other thing about the firms in this industry is that they tend to be quite small. There are some large firms in related industries that have established related activities in new media or digital media, but the majority of firms tend to be quite small. They tend to operate very much the same way firms in the television industry do; that is, they create teams on a project-by-project basis. That means that they draw very heavily upon a very deep labour market of people with strong skill sets, such as those represented by my colleagues to the right.

But the conditions of work in these industries are not always the greatest. They tend to be contract jobs. They tend to be project-based. In general, digital-media-cluster wages tend to be smaller than they are in related high technology industries. If you compare firms in these industries with ICT firms, you'll see a notable difference.

The importance of clustering is quite significant in these and other industries that we've studied in Canada. The advantages of clustering, in this particular industry, are first and foremost related to the labour market. There's a mutual reinforcing effect between the concentration of firms and the growth of a dense labour market.

The firms draw in labour and create a labour supply. Related educational institutions develop new training and education programs geared to the firms in the regional economy. That generates, in firms on the outside, more interest in coming in. The presence of a cluster of firms also facilitates specialization. Firms can concentrate on specific areas of strength, knowing that there are related firms in the regional economy they can work with and cooperate with. It also helps create branding and marketing for the firms in the region.

In the case of Ontario right now, the provincial Ministry of Economic Development and Trade is clearly recognizing this as an area of great strength. Both the industry ministry and the Ministry of Culture, and also the Ontario Media Development Corporation, are all focusing on digital media industries as an area of strength, and concentrating a number of policy tools that can go to support this. I'd be happy to go into those in more depth.

Also, as I said, once you have this concentration, you tend to get a response from local educational and post-secondary institution gearing programs. In the Toronto area and southwestern Ontario, which I know best, there's a tremendous concentration of strength. Sheridan College has long been known for its digital animation program, but in addition, Seneca College has an animation arts centre and has recently installed a state-of-the-art motion-capture facility. The University of Ontario Institute of Technology in Oshawa is offering degree programs in this and related fields.

The University of Toronto, in the last two years, has conducted university-wide surveys of all of the research activities going on in the university, with the intention of coordinating and mobilizing them more effectively. Also, there was a proposal several years ago to link this into the MaRS facility in downtown Toronto. That got put on hold when phase two of MaRS was suspended.

Most recently, Kitchener-Waterloo has taken tremendous initiatives in this area through the local high technology association, Communitech. They've obtained two significant grants, one from the federal Networks of Centres of Excellence commercialization program and the second from a provincial program. They're creating something in downtown Kitchener called the Digital Media and Mobile Accelerator hub.

It's a joint initiative of Communitech, the Centre for Digital Media, and the new Stratford Institute, which the University of Waterloo has established in Stratford, Ontario. They're partnering with some of the leading firms in the region: Open Text, Christie Digital, RIM, Agfa HealthCare, and COM DEV. The goal is to create a facility that ties in the creative artistic capabilities concentrated in Stratford and that part of southwestern Ontario with the more high technology display kinds of capabilities that some of the other firms in the Waterloo region have.

The bottom line is that linkages in this sector, in this industry, are hugely important, linkages in two dimensions: one between related firms within digital media itself and the other within the broader cross-section of other creative industries. Those linkages are hugely important, as are linkages with a broad base of supporting infrastructures within the regional economy.

If you're considering policy or policy recommendations, it's vitally important that policy be geared to the local level, to what's going on at the local level, and recognize and work to support capabilities at the local and regional levels. It's also hugely important from a federal point of view that you take into account what the provinces are already doing. Quebec, Ontario, and British Columbia in particular have a huge set of policies in place to support and promote the growth of digital media.

It is critical to help these small firms gain access to international markets. Very rarely will any of these firms survive and prosper on sales in the Canadian market alone, so federal programs and provincial support programs that help firms sell programs through Telefilm, through interrelated federal programs, and through EDC and related provincial activities are hugely important to help these firms sell into international markets.

My final plea is for greater efforts to try to achieve policy alignment across all three levels of government in support of these firms.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

Which one of you next gentlemen is going to present first?

Mr. Benskin.

[Tyrone Benskin, National Vice-President, Alliance of Canadian Cinema, Television and Radio Artists]

That would be me, thank you.

My name is Tyrone Benskin. I'm a Montreal-based Canadian performer with over 150 film and television credits to my name, including six national, international, and Canadian series, and numerous digital gaming programs. I'm also the national vice-president of ACTRA. With me today is Stephen Waddell, ACTRA's national executive director.

Thank you for giving us this opportunity to speak on behalf of the 21,000 professional performers in film, television, sound recordings, radio, and digital media who live and work in every corner of this country.

We are also pleased to represent ACTRA's Recording Artists' Collecting Society, which distributes neighbouring rights and private copying moneys to musicians, including the 17,000 members of Canada's AFM.

As creators, we are excited by the opportunities we see before us, as it gets easier for people around the globe to see and enjoy our work. We're already working in new and emerging media, creating the content that Canadians want to enjoy on their computer screens, cellphones, and iPods, through their gaming consoles, and sometimes even through their TVs.

Today Canada's cultural industries represent $85 billion, or 7.4% of Canada's GDP. As this is home to some of the largest video game manufacturers and most innovative digital creators, this number will get even higher as we move further into this digital world.

However, in order to seize the opportunities of this creative economy and compete in an increasingly digital and borderless world, we need your leadership.

Canada needs a national digital media strategy that combines several key components. These include: strict limits on foreign ownership; increased investment in content creation; a modern regulatory framework that ensures there is shelf space for Canadian content; and new copyright laws that give audiences access to the content while ensuring creators are justly compensated.

Technology has changed the way Canadians, and indeed the world, engage in new media. What hasn't changed is that content is king. And the demand for content has never been higher.

Canada has some of the most diverse, educated, and creative minds in the world. Canadian workers in communications technology are some of the most skilled in the world. That said, we need the leadership of the federal government--indeed, this government--in the development of a national digital strategy that ensures we don't fall behind when it comes to producing content.

But with that also comes space. For far too long we've struggled to get space in prime time on our own TV screens and screens in our own movie theatres. Now, when there's no end to screens and paths of distribution, I worry that we won't be prepared to fill that space.

The corporate consolidation and the rapid evolution of technology, telecommunications, and broadcasting have converged. Telephone companies own cable, broadcast, and satellite assets; and cable companies own telecommunications, satellites, and broadcasters. And content is being delivered to Canadians through all of these media.

How do we ensure in an increasingly borderless world that we are able to continue to create Canadian content, by Canadians, for Canadians and the world to enjoy?

First, make sure the Canadian-owned communication companies can flourish. That means maintaining the current restrictions on foreign ownership of telecoms and broadcasters so that Canadians, and not foreign interests, control our content.

Our converged communications companies are too economically vital to be given away to foreign conglomerates. We've seen what happens to other industries when they are bought by foreign companies. They send their folks in here to manage things for a while and take advantage of tax breaks. Then they shut them down and ship the equipment and jobs overseas, tossing Canadian workers aside. I suggest that this would be no different for the cultural industry.

Foreign companies won't care about telling Canadian stories. In the interests of cost versus profit, they'll ship prepackaged monoculture across the border, leaving Canadians without a voice. It is the government's duty to make our communications industries stronger, not to sell them off.

We also need to support Canadians who are creating Canadian content. Government must embrace policies that promote the production of content that reflects Canada to Canadians and the world, regardless of the types of screens we're watching them on.

The Canada Media Fund is a positive step in this direction; however, it isn't new money. For Canada's digital media industry to thrive, it needs enhanced, long-term government investment. CBC, Telefilm, and the NFB also need clear mandates and stable public funding to ensure that they are again leaders in telling Canadian stories in this new digital world.

A federal tax credit for original digital media production, similar to the Canadian film or video production tax credit, would encourage private investment, further developing and, as importantly, retaining Canada's highly skilled digital media workers.

The federal government could also offer incentives to encourage Canadian advertisers to support websites featuring Canadian content. You can expand section 19.1 of the Income Tax Act to give Canadian advertisers tax deductions for advertising on Canadian-owned websites that give prominence to Canadian digital media content.

I will now ask Stephen Waddell to speak about shelf space for Canadian content and about copyright reform.

[Stephen Waddell, National Executive Director, Alliance of Canadian Cinema, Television and Radio Artists]

Thank you, Tyrone.

Good morning.

If we're going to keep creating exciting content, we need to make sure that Canadians can find it. We need shelf space.

That's why ACTRA appeared before the CRTC last year to argue that digital media was just another way of broadcasting content. We asked the federal regulator to establish rules that would help provide shelf space in digital media for Canadian content. Unfortunately, the CRTC chose once again, as it did 10 years ago, to do nothing.

ACTRA also urged the CRTC to create a new fund for Canadian content online by requiring Internet and wireless service providers to make contributions to a digital Media Fund out of their enormous revenues. We remain hopeful on that one. ACTRA, together with several of our industry partners, are parties to the Federal Court process that will determine whether such a levy may be implemented to create a digital Media Fund like the Canada media fund.

The final and critical piece is to find a balance between giving people around the world access to our Canadian content and making sure creators are getting paid. We do that by modernizing our copyright laws.

Frankly, it's embarrassing and economically damaging that Canada has failed to update our copyright laws in keeping with international norms, especially when we signed the World Intellectual Property Organization Internet treaties 13 years ago, back in 1997. There's an international community out there that thinks it's okay to come and set up illegal downloading sites in Canada. We need laws that make it clear it's not okay.

The conversation about copyright is frequently not a dialogue. It is often a yelling match between the makers who want locks on their IP products and users who want free access to content.

Performers and other creators want a balance. Performers want people to enjoy their work where and when they want, but performers can't afford to work for free unless they choose to. We need a balance: a balance between the performer's right to protection and payment for use of their work, and Canadians' ability to enjoy what they have legally purchased when and where they want.

How do we get that balance? The answer already exists in audio recordings: it's called “collective licensing”. Canada's private copying regime in audio recordings has worked by putting millions of dollars directly into the pockets of singers and musicians since it was introduced in 1999.

The problem is that this regime is limited to devices people hardly use anymore to copy music--blank audio cassettes, mini-discs, and CD-Rs. So this income artists rely on is vanishing. The Copyright Act must be updated to extend the levy to devices that people actually use today.

To be clear, this isn't a new levy. It's merely updating something that already exists. If the government does not extend the private copying levy, then the government is taking money out of artists' pockets.

Last week, my colleague Graham Henderson and others appeared before you on behalf of Canada's major record labels. Despite what the media and others reported, the record companies, the recording industry, and performers agree that the private copying regime should be extended to include digital audio recorders.

In his appearance before you, Graham's main point was that the private copying levy is not a replacement for the millions of dollars lost to them and to us through illegal file sharing. However, it is much needed income for artists and for the record labels. That said, there's no doubt that the revenues flowing from the private copying levy contribute to creating more music and are critical to Canadian artists and the music industry.

On another copyright issue, fair dealing needs to stay where it is. None of us wants fair dealing to be endlessly interpreted by the courts, which is what will happen if the list of exceptions to copyright becomes merely illustrative, as proposed by some open access advocates.

We also need to expand the rights to audiovisual works now available only to audio performers and makers by getting the AV Performances treaty passed at WIPO. There is a real opportunity for the treaty to be passed this year and the Canadian government can play a leading role in making that happen.

This standing committee has a great opportunity to assist the government to steer the right course in its digital media strategy. In our view, there are four key compass points.

First, make sure control of Canadian communications companies remains in Canadian hands.

Second, invest in Canadian content creators and suppliers.

Third, reserve space and provide incentives for production of Canadian content in digital media.

Finally, extend collective licensing to make it easy for Canadians and people around the world to enjoy our content while compensating creators and makers for use of their products.

Thank you very much. We're happy to answer any of your questions.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

Our first questions come from Mr. Rodriguez, please.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Thank you, Chair.

Welcome to all of you.

Mr. Waddell, it's a pleasure to see you again. I guess you're here every day or every week; we keep you busy. We see you in every committee. Do you have another job or is that your full-time job?

[Stephen Waddell]

This is my full-time job, sir, coming to see you. It's a pleasure indeed. Thank you.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Before we move to something different, you spoke briefly about the levy. Can you explain to me the difference between a levy and a tax, and if this levy were created how much money would that represent?

[Stephen Waddell]

Mr. Rodriguez, a tax is what the government applies. A levy, in this case, is something that the Copyright Board will assess, we hope, based upon presentations made by record labels and others, and determine a fair value for the levy.

This levy represents hundreds of millions of dollars. So far, it's paid out close to $200 million worth of earnings.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Do you have an idea of the amounts that would be levied per—

[Stephen Waddell]

Oh, the amount that actually would be levied? Well, the Copyright Board has previously ruled that the levy would be between $2 and $25. Some folks have been advocating or suggesting that it would be up to $75. That's absurd. That's not the case. It would be as low as $2, and up to $25, depending on the capacity of the digital device.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Let's look ahead a bit to the future. We know that people watch television less and less and use the Internet more and more, whether for listening to music, watching news and television programs, and so on. The other day, I saw somebody flipping through regular television channels on their mobile phone.

In today's new world where everything is changing with increasing speed, how can we continue ensuring that a certain portion of the content available is Canadian? How can we ensure that there is more Canadian content instead of less?

[Stephen Waddell]

Thank you, Mr. Rodriguez.

On the way in which we believe we can generate shelf space or generate product for Canadian content online, we'd love to see regulation, but that's not going to be the case. We certainly don't want to get painted with the view that we want to regulate the Internet; that's what they do in China and Saudi Arabia.

What we suggest, though, is that incentives be put in place, things like, as Tyrone suggested, amending section 19.1 of the Income Tax Act. For those who are not aficionados of the Income Tax Act, section 19.1 is something already in place.

It's a provision that allows advertisers to deduct their business expenses with respect to advertising placed on Canadian broadcasting outlets versus U.S. outlets. This was in the year, of course, when border stations were competing with Canadian stations. The government then put this in place, amending the act, to provide that advertisers could deduct their expenses if they put the ad on a Canadian border station versus a U.S. border station.

Well, it's not much of a stretch to apply section 19.1 to websites. If you put your ads on Canadian websites versus U.S. websites, that would be an incentive to put advertising on Canadian websites, which would obviously build up Canadian websites.

Another idea is to do as Google already does. When you Google, you're asked if you want to Google in Canada; everybody knows that. Let's apply that to Yahoo and the other search engines, again giving Canadians an opportunity to indicate a preference for Canadian material to come to the top of the heap when they're searching for materials.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

I have to interrupt because I only have a few seconds left. You touched on foreign ownership. What's the importance of keeping control of our cultural institutions in this new world?

[Stephen Waddell]

Well, clearly we're in a global environment; the web is available to everyone around the world. We can't cede our Canadian communication system to other countries, and obviously, principally, the United States, which would be anxious to buy up our telecommunications system and our Canadian broadcasting system.

So in order to retain an opportunity for Canadians, as our colleague Professor Wolfe said, we need to have Canadian clusters, a Canadian environment, and Canadian ownership. It all goes hand in hand.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Would you like to add something?

[Prof. David Wolfe]

I'd like to add something on the cross-platform. I think it's really important to recognize that the dividing line between all the cultural industries is rapidly collapsing--television, film, and interactive digital media. So increasingly, producers in television, as part of their licences with broadcasters, are being expected to provide content for websites, for mobile devices. So a television licence no longer just applies to a licence for a particular TV show broadcast over one channel.

A huge proportion of those productions takes place with federal and/or provincial support from the federal funds and from the cable funds that are regulated by the CRTC. So it's really important to recognize that for these small independent firms that I was talking about, the potential to generate additional licensing revenue by licensing to other platforms, other media, is disappearing, as the large broadcasters that dominate the industry are expecting one licence fee to cover all of those.

What this means is that if we're going to continue to support and sustain those firms in business, whether in broadcasting or in digital media, the funding programs that are crucial to their survival are going to have to take into account and recognize the collapsing boundaries or barriers between the different cultural industries.

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Thank you.

[The Chair, Conservative, Gary Schellenberger]

Thank you.

Madame Lavallée, please.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

Thank you very much.

Mr. Waddell, I would like to get some clarifications on a point that has remained ambiguous since the last meeting of the Committee on Canadian Heritage.

Mr. Graham Henderson, of the Canadian Recording Industry Association, appeared before us last week. At first, he told us that his organization was not in favour of setting levies on MP3s. We then explained to him that while the levy was already included in the act's provisions, the act legislation needed to be amended to cover modern technological devices. We also told him that the levy was an ancillary support measure and not the only form of support for artists, or the only royalties they would receive. He said he understood and he admitted that setting levies on MP3s would be acceptable.

However, on that same day, I was checking out Twitter, which I follow regularly, and I saw that the Minister of Canadian Heritage had a Twitter account. He was declaring victory because, according to him, the music industry was against the setting of levies on MP3s.

I know that you follow our meetings religiously. Perhaps you are acquainted with Mr. Henderson. What do you think of his testimony?

[Stephen Waddell]

Thank you, Madame Lavallée.

What do I think of his testimony? Well, unfortunately, it was misinterpreted by some.

I know, having read his testimony, that Mr. Henderson was talking about his concern--and the concern of the music industry and ourselves--that only 5% of music on the Internet these days comes from legitimate copies. What he's concerned about is the other 95%, which is a result of illegal file sharing and which we all wish the government could do something about.

He was here to talk principally about the fact that illegal file sharing is killing the music industry. That's what his opening statements were all about.

In questioning, he was asked about the private copying levy, and he said it's an ancillary use; it does provide income to the companies. But he doesn't want the private copying levy to legitimize illegal file sharing. That's what his point was.

But just to be clear, if I can read from his testimony for the record, what he said was:

We do support levies like this. We are also a member of the CPCC through our membership in the NRCC.

That's the Neighbouring Rights Collective. As we are. We all--

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

I can see that we have the same concerns. You even have the quote on hand!

[Stephen Waddell]

Yes, absolutely. I was prepared for this. Mr. Henderson went on to say:

It's not just artists who benefit. It's independent labels, major labels, songwriters. A lot of people benefit from the levy....

So that's pretty straightforward.

[Carole Lavallée, Bloc, Saint-Bruno—Saint-Hubert, QC]

I am now going to talk about the four main solutions you recommended. I am sorry that we have so little time to go over them. At least you'll have time to get started on the subject.

You recommend the following: ensuring that telecommunications companies remain under Canadian ownership; investing in digital media; setting aside space in the media for Canadian content; and extending collective licensing. Unfortunately, we will not have time to go over the four recommendations, but we can at least talk about the first one. I am referring to your concerns about foreign ownership. Could you give us more details on this subject?