Canadian Heritage Committee on Feb. 2nd, 2011

[The Chair, Conservative, Michael Chong]

Welcome to the 38th meeting of the Standing Committee on Canadian Heritage. Today is Wednesday, February 2, 2011.

Pursuant to Standing Order 108(2), we're here for a study on the opportunities and challenges of emerging and digital media.

We have in front of us officials from three departments: Madam Downie and Madam Miller from the Department of Industry; Monsieur Beauséjour from the Department of Human Resources and Skills Development; and Madam Cliff and Madam Motzney from the Department of Canadian Heritage.

Bienvenue à tous. We'll begin with an opening statement.

[Amanda Cliff, Director General, Broadcasting and Digital Communications Branch, Department of Canadian Heritage]

Thanks very much.

It's a pleasure to be before the committee today as part of your study on emerging and digital technologies.

We have a collective deck to support our remarks. We thank the chair for agreeing to this format, since it best reflects our collaborative approach to the issues. My colleagues and I will each speak to our areas of focus. We'll be passing the baton at various stages in the presentation.

I'll begin with slide 2.

I would like to start by congratulating the committee on its work on emerging and digital technologies. The committee's study is of great interest to us. It confirms things we have heard about and brings to light new perspectives for us.

We would like to use this opportunity to share our views on each of the seven questions brought up in the mandate of your study and to outline the next steps.

As we cannot speculate on the government's future policy directions, we hope that the information and the analysis we will present today will help you complete your report.

Looking at slides 3 to 5, we'll begin our presentation with the first question the committee asked--namely, how developments in emerging and digital media are affecting Canadian cultural industries.

I'll speak in depth to this question, since we believe the impact is profound. Slides 3 to 5 address this question, and I will speak to the slides as a whole in my remarks.

Technology is affecting arts and culture around the world. It may be a renaissance of sorts, with seemingly unlimited opportunities to create, share, and consume cultural content. The audience is global and wants to engage, demanding all sorts of content as and when they want it, and on the platform of their choice.

Devices, suppliers, and traditional lines of business are blurring. To meet market and creative demand, new partnerships and business models are emerging, bringing together those who traditionally define themselves as part of the cultural industries and those who do not.

Several of the committee's witnesses noted the hybrid environment, where there is significant interaction between traditional and new media. We note the same trend.

Canadians are heavy consumers of media: 95% of Canadian households have access to broadband and spend about 42 hours a month on the Internet, yet they continue to watch over 100 hours of television and listen to over 73 hours of radio a month. In addition, 2 billion videos were viewed on YouTube alone in November 2010; 83% of Canadians online are on Facebook, and 17% are on Twitter. As well, comScore data for the month of October 2010 demonstrated that the eight most visited Canadian domains were those of Canadian media companies.

At the same time, we're seeing total album sales declining. While there was increased growth in digital album sales in 2009, it did not offset the decline in physical album sales.

While a dominant business model has yet to emerge as a sustainable replacement to CD sales, there is reason for hope. The popularity of music streaming services, although still small, appears to be on the rise in Europe, where such services are more widely available than they are in North America. This model is based on revenue from advertising and subscriptions, and has been identified by some in the music industry as a strong alternative to unpaid downloading via peer-to-peer networks.

With respect to books, U.S. estimates are placing the market share of digital book content at less than 10%, with digital rights issues dividing publishers from authors and rights holders. The issue of borderless markets for digital books is challenging traditional territorial rights of publishers and distributors.

The periodical industry is expecting a change in digital ad revenues, which could increase by almost 30% by 2013. In the film and television industry, the volume of production has remained stable. Digital media production, which is defined as content delivered by the Internet, mobile networks, gaming consoles or media stockage devices, is growing.

Creators working in this field generated $2.24 billion in gross revenue in 2008. Canada's video game development sector generates about $3.5 billion in revenue and employs directly and indirectly more than 14,000 highly skilled employees.

In 2009, as many Canadians listened to streaming AM/FM radio as to downloaded music. Some three-quarters of radio stations stream their content live online in Canada, and for the past three years, Canadians listened to streamed AM/FM radio more than any other source of streamed audio content.

The committee has heard from a broad spectrum of witnesses, who have provided many examples of Canadian success stories. I want to add a few more examples to that list.

Flashpoint is a Canadian production funded by what was formerly the Canadian Television Fund. It has been extremely successful in Canada as well as in the United States. It is the first Canadian dramatic series to be broadcast in prime time on an American network since Due South in the mid 1990s.

In addition, the dramatic comedy Les hauts et les bas de Sophie Paquin continues to garner interest in France, Belgium, Switzerland, Italy and Russia. The broadcasting rights to its English counterpart Sophie have been sold to South Korea and Brazil.

YouTube continues to be a valuable promotional vehicle for Canadian artists. For example, Jeremy Fisher's homemade video for his 2007 single, Cigarette, topped over two million views.

The Kobo eReader is competing with global brands such as Amazon and Apple, and digital book warehouse Agrégateur ANEL- De Marque's online marketing and digital content management service for the French-language book market in Canada is drawing attention from French and Italian publishers.

In fact, since 2009 annual online sales by Canadian publishers have increased by 13% to over $18 million. These publishers produce over 3,500 e-books annually, generating $8 million in sales, and both figures are expected to grow exponentially.

In periodicals, The Hockey News has been downloaded by over one million users since its launch in October 2008.

National cultural organizations have also made considerable progress. We gave a few examples during our presentation to the committee last November, so I will only mention a few others. Radio-Canada's website TOU.TV has received more than 25 million web hits during its first year of existence. The National Arts Centre's website Artsvivants attracts young Canadian from across the country.

The committee met with Tom Perlmutter, of the National Film Board. He talked about the enormous success enjoyed by the organization's national online screening room. The website nfb.ca was the first platform in North America where French-language films by francophone creators could be viewed. The NFB application for iPhone was also very successful with more than 700,000 film viewings on iPhone in less than six months.

We will move to slide 6 and turn to the second question you addressed in your study, which is the opportunity piece.

In its DES consultation paper, the government said that in the global reality, digital media and content are essential to Canada's economy and society, and digital media creators are at the centre.

Digital media can be compared to the soft infrastructure that is as important as the hard infrastructure, such as broadband connectivity. Both will have a deep impact on Canadians as citizens, consumers, and creators. Digital content will drive the uptake of infrastructure and devices, distinguishing Canadian digital offerings in a crowded global marketplace.

As noted by Monsieur Pierre Proulx of Alliance numérique in his presentation to your committee, the whole world is the market, and cultural industries are looking internationally.

Moving to slide 7, we see a range of business strategies emerging that are being led by cultural entrepreneurs who understand that like all sectors adapting to technological change, they must take risks, invest, innovate, and interact with audiences, new partners, and new markets.

As Carolle Brabant of Telefilm noted when she appeared before the committee, the capacity for infinite mobile and instantaneous reproduction of content with marginal costs is leading cultural industries to think differently about what they are selling.

A review of the testimony that you've heard shows that many in the industry are not waiting for legislative solutions. They are exploring, taking risks, and feeling things out to see what works and what doesn't.

The government is supporting cultural entrepreneurs to take risks. A prime example is the experimental stream of the Canada Media Fund, which funds the development of leading-edge non-linear content and applications.

The private sector is stepping up with the launch of innovative funding models like Kickstarter, a platform where creators post ideas and visitors offer funding for the ideas they like best.

The creation of the Canadian Media Production Association shows the way producers are now thinking of themselves in the digital space.

Microsoft's contract with Toronto-based Polar Mobile to build 500 applications for its new smart phone shows that Canadian companies are at the top for providing content and content applications.

On slide 8, we address your third question.

The committee asked whether there is a way of ensuring that creators of artistic and cultural content are compensated for their work. I have talked about how business models are evolving and about the emergence of new value-added networks.

Financial support for the creation of content comes from governments, the private sector, the not-for-profit sector, ticket buyers, readers, donors, artists, creators, publishers, and producers, among others.

Market framework legislation also plays a role in the digital market. We have the Electronic Commerce Protection Act and the Personal Information Protection and Electronic Documents Act.

We have the act to amend the Criminal Code with regard to unauthorized recording of a movie.

We also have the Copyright Act.

My colleagues could answer any questions you may have on these policies.

Really, Canada's creative entrepreneurs have the drive to take on emerging and digital media, develop opportunities with new partners, negotiate their terms, and manage their success.

Now, I will let my colleague from the Department of Human Resources and Skills Development, Louis Beauséjour, answer the committee's fourth question.

[Louis Beauséjour, Associate Assistant Deputy Minister, Human Resources and Skills Development Canada , Department of Human Resources and Skills Development]

Good afternoon.

My colleague already said that digital technologies are providing Canadians with new possibilities and are having strong repercussions on many sectors, including the cultural sector. Clearly, digital skills are becoming increasingly important in the labour market.

We are faced with two challenges.

One issue is ensuring that Canadians have the right mix of skills to participate in the ICT sector and other sectors that depend on emerging digital technologies.

The other issue is that we know that more than 40% of Canadian workers have low levels of essential skills, such as literacy, numeracy, and problem solving. These are not just older workers: many lacking essential skills are under 35 years of age. Without these basic skills, it is difficult to upgrade to digital skills, and a workforce lacking digital skills is less adaptable to new technologies.

During the consultations the Government of Canada held on the digital economy, several major themes related to skills development emerged. These themes are the following: support of digital skills development through training, teaching and mentorships; increased recognition of foreign academic qualifications; improved information on the labour market; and support for research and innovation in digital training.

We also know that the Government of Canada cannot act alone in this regard. That means working with provinces and territories, given their responsibility for education. It also means working with industry to ensure those already in the workplace are digitally literate so that they can adapt to the changing economy.

Let me briefly describe some of the steps we are already taking to support digital skills development.

The Office of Literacy and Essential Skills, OLES, is collaborating with partners from across Canada in order to improve literacy and essential skills, including the digital skills of adults.

The department provides support to provinces and territories through labour market agreements and through labour market development agreements. These agreements can be used in part to fund digital skills training.

Finally, the sector council program supports two sector councils that address human resources issues in the digital economy. These are the Information and Communications Technology Council, ICTC, and the Cultural Human Resources Council. These organizations are involved in a number of digital skills projects. Overall, the department is looking forward to constant engagement in the digital economy strategy and the opportunity it presents for increased digital skills for Canadians.

[Pamela Miller, Director General, Telecommunications Policy Branch, Department of Industry]

We will turn now to the fifth question: What could be done to ensure that all Canadians, no matter where they live or what their socio-economic status is, have access to emerging and digital media?

The Government of Canada has adopted an approach that consists in enabling competition and encouraging private investment by companies while allowing market forces to prevail whenever possible.

However, the government does recognize there may be a need for government support in regions the market does not reach, particularly in rural and remote areas. As I reported in testimony in November, as part of Canada's economic action plan the Government of Canada provided funding to develop and implement a strategy to extend broadband coverage. To date, 98 projects totalling $139 million have been announced, covering more than 250,000 rural and remote households.

Once the current program is fully implemented, we expect that more than 98% of Canadian households will have access to basic broadband speeds of 1.5 megabits per second by early 2012. These speeds offer a dramatic improvement over dial-up access, and they greatly enhance the online experience of users, allowing Canadians to partake of a wide variety of online activities, including video streaming and teleconferencing.

[Amanda Cliff]

Let us turn to slide 11.

The sixth question touched on what policies the federal government could adopt to help Canadians and Canadian cultural industries benefit from the developments in emerging and digital media. The government has reoriented a suite of digital media and content programs, including those for music, television, books, and periodicals. The Canada Media Fund is one example of programs to which changes have been made. It has been praised by stakeholders and has generated interest internationally.

The Canada Media Fund has received 85% more applications than did the Canadian Television Fund in its last year. There were 460 applications to the experimental stream alone. We see that as demonstrating a clear appetite for innovation here in Canada. Together these renewed programs represent close to $300 million a year of support by the federal government, as part of a total of almost $500 million when combined with investments by private sector funding partners. If you include in that the Canada feature film policy, the total investment goes up to $820 million.

My colleague Pam Miller will speak to the seventh question.

[Pamela Miller]

The question is with regard to the impact of changes in foreign ownership rules, including legislative and regulatory changes, on Canadian content and culture.

In June of last year the government released a consultation paper inviting views on foreign investment in telecommunications and noting that foreign investment restrictions on broadcasting are not being considered.

This decision is explained by the fact that policy objectives under the Telecommunications Act and the Broadcasting Act are distinct. Strategic issues relating to telecommunications networks differ greatly from those regarding broadcasting and content.

Broadcasting plays a key role in developing, protecting, and promoting Canadian culture, and the Broadcasting Act is primarily cultural in nature. The Telecommunications Act, by contrast, is primarily economic in nature. All major telecom and cable providers in Canada, such as Bell, Telus, Rogers, and Videotron, are regulated under the two acts. The Broadcasting Act applies to their subscription television services such as Bell's IPTV service and Rogers cable service. The telecom act applies to telecom services such as Internet service, fixed telephony, and wireless telephony.

Independent of telecom foreign investment restrictions, provisions of the Broadcasting Act remain in place. Canada's broadcasting system will continue to be supported by a number of policy, regulatory, and funding provisions in place to achieve the objectives of Canada's broadcasting policy.

It was very clear from the consultation paper that the government will not consider anything that might impair its ability to pursue Canadian cultural content policy objectives. In November, Minister Clement indicated that the foreign investment rules for telecom and decisions concerning the next 700 megahertz spectrum option will be considered together as part of an integrated regulatory approach.

Let us turn to the last slide.

At the November 22 International Institute of Communications conference, Minister Clement articulated his vision of a globally competitive Canadian digital economy, which is characterized by innovation and enhanced productivity, which in turn results in enduring prosperity.

Minister Clement indicated that the digital economy strategy will become a key plank of the post-economic action plan governmental agenda, with a focus on supporting jobs of tomorrow and economic growth to ensure future prosperity. He highlighted a broad objective for Canada to be a nation where business, community, and individuals have the skills needed to use digital technologies to their advantage, and where a globally competitive information and communication technology sector supplies more markets with more innovative products and more new services.

Federal action alone will not achieve this objective. It will require collaborative action across the economy. Industry, provinces, and individual Canadians must all play their part. In that context, the government is focusing its efforts in five priority areas.

The first is to facilitate the development of a world-class infrastructure. This is essential for business to adopt ICTs and innovate and for Canada to attract investment.

Second is supporting business adoption of digital technologies to boost productivity and innovation. Adoption of digital technologies is essential to improving Canada's lagging productivity and innovation performance, especially for small business.

The third is to enable a digitally skilled workforce. A leading digital economy will require a workforce with the skills and creativity to develop and use new global digital technologies.

The fourth is to help successful Canadian companies supply digital technologies to the world. A globally competitive Canadian digital industry will protect high-paying jobs, attract investment, and provide a trusted supply of critical technologies.

The final priority is to create the conditions necessary to realize Canadian content on all digital platforms. This will help to profile Canada as a creative and innovative nation.

As part of the collective national effort needed to realize a successful digital economy, Minister Clement met with his provincial and territorial counterparts on January 13 and 14 to discuss key issues pertaining to the digital economy. The meeting was very positive, and the ministers left with a shared agreement on the importance of the digital economy. Officials will be following up with work in some key areas.

[Amanda Cliff]

Federal departments have adopted an approach emphasizing collaboration to ensure that our recommendations to ministers are in the best interests of Canadians. We recognize the fact that our areas of responsibility are deeply interrelated and that we need to work together in order to build coherent strategies.

Unless my colleagues have something to add, I would like to thank the committee once again. We are now ready to answer your questions.

[The Chair, Conservative, Michael Chong]

Thank you for your opening remarks. We'll have about an hour and a half of questions and comments from members, beginning with Madam Crombie.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Thank you very much, Mr. Chairman, and I want to thank each of the departments for appearing here today with us.

As you know, we've been undertaking a study of emerging and digital media. We've met with dozens of groups, probably before I joined this committee.

One of the reasons we wanted to have all of you in today was to learn more about your priorities in each of your departments. My question is this: how can we help you achieve your goals? What are the kinds of recommendations you would like to see us focus on in our report?

[Amanda Cliff]

I'll start with that. I can talk to you about the priorities we're working on.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Sure.

[Amanda Cliff]

I can provide some general observations on your report, but I would not feel comfortable getting into specific recommendations, because ultimately my job will be to provide advice to the minister on any recommendations you make, particularly if you require a response.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

We'd certainly be interested to know how we can help you make your job easier and know the kinds of things you are focusing on. Why don't you tell us that?

[Amanda Cliff]

One area, actually, that I think people involved in this all around the world are struggling with is performance measurement. It might sound dry, but there are no standard metrics for measuring success or measuring what's happening in the new media environment. It's important for us in terms of measuring the success of federal interventions, but it's also important in trying to understand what the evolving business models might be--what's working, what isn't working. I don't know if you've heard testimony from other experts in that area, but that certainly is something that we at the federal level are working on collectively, including Statistics Canada.

In terms of what we're working on in the department, there are a couple of trends that we are focusing on. In particular they include the convergence of devices, platforms, and content; the blurring of traditional roles; and the transformation of the production chain into a complex network with new business models emerging. The second theme or opportunity we're looking at is audiences seizing control; the third is more open markets; the fourth is new opportunities for entrepreneurs. I think there's probably a fair amount of alignment with what you've heard from other witnesses.

In terms of the work we have under way, it includes the digital economy strategy, copyright, the Canadian feature film policy, the audiovisual treaty coproduction policy, and foreign investment in terms of books and telecommunications, and the transition to digital television.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

I'd like to hear from the other departments as well, if there is time.

[Pamela Miller]

Speaking for Industry Canada, I would point to the digital economy strategy, because I think our minister has really laid a very clear vision of where we see the priorities. There are five priority areas. The first is to have world-class infrastructure. Another is having business adopt ICTs, and I think this is really critical; we know that small businesses have had some challenges in fully utilizing ICTs to enhance productivity, so that's certainly a key area of focus for us. The other priorities are in the ambit of the colleague department: having a digitally skilled workforce and then growing the ICT sector so that we have more ICT companies that are supplying on a global scale. I think those were very well articulated in the DES strategy. As I mentioned, the minister had a statement in November, and there will be a response to that consultation coming out some time in late spring.

[Bonnie Crombie, Liberal, Mississauga—Streetsville, ON]

Okay, thank you.

Is HRSDC here too? Would you comment, Monsieur Beauséjour?

[Louis Beauséjour]

Clearly, it is of key importance for the department to ensure that our human resources have the essential skills required to fully participate in the labour market. Possessing digital economy skills is crucial in today's world. Much of the future economic growth will be tied to our digital skills. We are already moving forward with a certain number of initiatives through our Office of Literacy and Essential Skills, or OLES, which is working with various stakeholders on improving essential skills. These are things we are already doing.

The committee can contribute by reporting on what's already in place and by identifying shortcomings, in which sectors those shortcomings are and whether there are certain areas we should focus on more than on others. As my colleague pointed out, we have to know what works and what does not. You have surely already heard from people who have identified what seems to work and what does not. That type of information could clearly be useful.

[The Chair, Conservative, Michael Chong]

Thank you, Mrs. Crombie. We'll have more rounds.

Thank you very much, Monsieur Beauséjour.

Please go ahead, Madame Lavallée.

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

Thank you very much for being here and welcome. I apologize for the delay, but there was no way around it. I am terribly sorry.

I heard what you said earlier about what you have done so far. However, we have been conducting a study over the last few months, and various witnesses have suggested some solutions. For all sorts of good reasons, we could consider some of those solutions. I will list seven or eight of them. Maybe you would categorize them differently. Let's say that I have seven suggestions. I would like you to first tell me whether any of those seven solutions are currently being considered.

Basically—and I will allow each one of you to speak if there is time—I would like to know which of those solutions we can prioritize and which are not feasible.

First, it was suggested that the Broadcasting Act and the Telecommunications Act be merged. I could not agree more with that idea. It was also suggested that we not open our market to foreign companies. Globalive has been in Canada for a year and, despite that fact, the price of cellular phones has not gone down, which was why the market was opened up in the first place.

Second, it was recommended that wireless telecommunications companies be considered as broadcasting companies.

Third, it was suggested that convergence be regulated by requiring converging companies to divide their business.

I am not necessarily promoting these suggestions, but this is what we have heard here.

Fourth, it was recommended that convergence also be regulated by asking converging companies not to give priority to their own business.

Five, it was suggested that the Internet be regulated in a number of ways. Among other things, you talked about streaming, about streaming music. However, we know that this has more to do with the right of public communication. We could perhaps make those who stream music pay royalties, like broadcasters do.

Six, it was recommended to increase funding to the Canada Media Fund and to already existing programs, assistance programs for digitalizing several elements that are currently in the process of digitalization, such as Canadian and Quebec literature.

Are some of these solutions already being studied? Which of them would you prioritize? Do you believe that some of the solutions are unworkable?

[Amanda Cliff]

I hope I interpreted the member's list accurately.

In terms of legislation, I understand that you've heard from the chair of the CRTC that it's time for a merged act. I also know that experts are divided on the issue. Other than saying that, I really can't comment on any future direction the government may want to take, but we are obviously watching the debate with interest.

Pam, do you want to take the second question, on wireless?

[Pamela Miller]

You were suggesting that wireless be considered as a....

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

We are talking about broadcasting and not just about telecommunications companies. In that case, they would be subject to the Broadcasting Act. Like me, you know that they do actually broadcast and they do really make choices.

[Pamela Miller]

In terms of the provision, I think you have to distinguish between carriage and content. Telecom services are the carriage of the actual telecom signal. What is regulated under the Telecommunications Act is separate from what's regulated under the Broadcasting Act. The wireless service provided through the cellphone provider is considered a telecom service, because it basically uses the radio spectrum and does not touch the content; it simply provides the signal. That is the part that falls under the Telecommunications Act.

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

You are right. We have come to the same realization. However, people have suggested that the content of wireless telecommunications companies falls under telecommunications, since the industry is in fact responsible for the signal.

On my iPhone, I can watch RDI news or any other television program. There are programs and series that have been created specifically for our cellular phones. So, our cell phones are now being used for cultural broadcasting. According to our witnesses, these companies should therefore be subject to the Broadcasting Act. They should be considered as broadcasters.

Do you think that this is viable? Are you currently looking into this issue?