Canadian Heritage Committee on March 25th, 2014

[The Chair (Mr. Gordon Brown (Leeds—Grenville, CPC)), Conservative, Gord Brown]

Good morning, everyone. I am going to call to order meeting number 14 of the Standing Committee on Canadian Heritage. The orders of the day are our review of the Canadian music industry.

Today for the first hour we have Alain Lauzon from the Society for Reproduction Rights of Authors, Composers and Publishers in Canada. From Connect Music Licensing, we have Victoria Shepherd. From the Alliance of Canadian Cinema, Television and Radio Artists, we have Brad Keenan, director, and from Faber Drive, we have David Faber.

We have three different groups, which have eight minutes each. I will stick with the order on the agenda. We'll start with Mr. Lauzon, for eight minutes.

[Alain Lauzon, General Manager, Society for Reproduction Rights of Authors, Composers and Publishers in Canada]

I have the papers that have been asked for, the translation.

Mr. Chair, I am very pleased to be here today to speak on behalf of the SODRAC. Thank you for inviting me to participate in your review of the Canadian music industry.

A copyright collective society like ours is first and foremost an economic advocacy tool used collectively by authors, composers and publishers. Royalties collected by copyright collective societies in Canada and everywhere else in the world for exercising the rights granted to creators by the various copyright laws are often their sole source of income. It cannot be said too often that these royalties make up their revenue. They represent their sole income.

Representatives of professional music associations whose members are the main beneficiaries of government support programs will no doubt be in a much better position than we are to answer your questions about how well government support objectives have been met. However, the fact that the government has confirmed that its industry support programs will continue is very good news. My remarks today therefore will focus more on the effects of technological changes on the creation, distribution and consumption of music in Canada, as well as their effects on the authors, composers and publishers we represent.

First, here are a few statistics that describe the industry's situation and issues. As you know, more than 10 years ago, the music industry—more specifically the recorded music industry—was the first to be affected by the global digital transition and it suffered the most. Canada was no exception. According to Music Canada statistics, for the period 2001 to 2012, published by the International Federation of the Phonograph Industry, or IFPI, revenue for physical recorded music went from $765 million in 2001 to $217 million in 2012. That decrease represents a cumulative lost revenue of over $3.147 billion.

The digital industry only truly started generating revenue in 2004, and reached $196 million in 2012, with cumulative revenue of $787 million. The Canadian recorded music market therefore suffered a net loss of $2.380 billion from 2001 to 2012. The decrease was similar for the francophone market in Quebec, proportionally speaking, although the decrease in sales began a few years later.

In 2012 Canada ranked 7th on the international recorded music market with a total value of $454 million. That amount broke down as follows: physical recorded music, 48%, digital, 43%, performing rights, 7% and synchronization rights, 2%. Globally, according to the Digital Music Report 2014 that the IFPI has just published, recorded music sales increased by 0.8% in 2013, and digital sales increased by 4.3%, reaching 39% of the industry's overall revenues. In fact, currently digital sales represent more than 50% of sales in only 3 of the 10 largest international markets. In terms of digital sales in 2013, 67% resulted from downloading and 33% represented streaming.

What does the market look like in Canada over the next few years? Statistics tell us that in 2010 the recorded music market reached its lowest level in Canada and that after more than a decade of declining sales its value started to increase. In a study published in 2013, Futuresource Consulting estimated that that increase would continue until 2014 and then fall by 1% to 2% per year until 2017. At that point, digital sales will represent 78% of all sales and physical recorded music will represent 22%. One can see that digital technology has resulted in dramatic changes for the music industry. Consumers now have a multitude of choices in terms of distribution methods, however, in the current market, the sources of royalties that used to provide adequate support for many creators are no longer sufficient.

In terms of new kinds of digital distribution, we now know that downloading will not compensate for the decrease in physical recorded music sales.

We also know that in terms of online distribution methods, the revenue that is generated comes from subscriptions or advertising, which do not constitute sustainable economic models for creators.

The current unprecedented access to musical works provided by digital services and technology is a key factor in the wealth of choices for consumers and the prosperity of intermediaries, made up of hosting providers, Internet access providers, search engines, etc. Yet, even though these intermediaries owe their economic success to the access to works that they provide, the chain of financial benefits does not ensure a fair share for the creators whose royalties continue to decrease. Fair compensation for the exercise of copyright is essential for our culture because it sustains the creative process. This must continue within a digital environment.

We therefore believe that a real balance now has to be struck between creators, digital intermediaries, and consumers. When new measures are taken to foster creation, economic development and the distribution of musical works within a digital environment, it is essential to provide a concrete acknowledgement of the importance of the role and value of creation. In order to do that, creators have to be fully integrated into a sustainable ecosystem where they can continue to be drivers for our culture and our economy, just as they have always done.

Here are some suggestions for strengthening support for creators and entrepreneurs in the Canadian music industry.

The recognition of the value of the creative process and of authors must happen socially through educational measures that will help everyone understand how creators and rights holders are compensated.

In the digital environment, consumers and the general public have greater and greater access and instant access to creative works. We must remind everyone, through repeated information campaigns, that the vitality of our culture depends first and foremost on creators and that access to their works is a privilege that must be sustainable.

It is also important to better understand who profits and how from the value that is generated by access to these works. Specific funding should be set aside for studies that will give us a better understanding of how economic models have evolved and how the value of creative works is shared.

We have to increase the awareness of the various participants in the digital economy who provide Canadian consumers with easy access to musical works so that there is a fairer sharing of the value generated by their activities.

It is important to review regulations dealing with digital services intermediaries in order to ensure that their activities take place under conditions that are comparable to other sectors of the economy.

We need to positively rethink and update the private copying regime under the Copyright Act.

It is also important to create new incentives, tax incentives or other—

[The Chair, Conservative, Gord Brown]

Thank you Mr. Lauzon.

We'll move to Victoria Shepherd, for eight minutes.

[Victoria Shepherd, Executive Director, Connect Music Licensing]

Thank you for the opportunity to appear before you today. My name is Victoria Shepherd. I am here on behalf of Connect Music Licensing, which represents over 1,800 rights holder members. Our members own the vast majority of sound recordings and music videos listened to and watched in Canada. Our members include major and independent record companies and many independent artists.

The Copyright Act provides that no one may copy sound recordings or copy and broadcast music videos without the rights holder's permission. These are referred to as exclusive rights. Directly negotiating licences to use each individual sound recording and music video can be complicated and time consuming for both rights holders and music users. For example, if I wish to broadcast a single video on my television station, such as Hedley's Invincible, I need to approach the label to obtain permission and negotiate an appropriate fee. If a broadcaster wishes to broadcast many videos, this process of licensing on a case-by-case basis would place an onerous administrative burden on both rights holders and music users.

Connect Music Licensing was founded 30 years ago, as the AVLA Audio-Video Licensing Agency, as a group of rights holders banding together to help the marketplace to work more efficiently. If a broadcaster wishes to broadcast many music videos, a single licence from Connect Music Licensing grants access to all of the repertoire owned by our members. A single payment and report of use is provided to Connect Music Licensing, and funds are distributed to our members. There's no cost to join. We only deduct the cost of doing business, and our cost is among the lowest in the world.

We think it is vitally important to ensure that rights holders generate revenue from their work. We have identified three areas where we think the government can help: educate the marketplace, provide additional resources to the Copyright Board, and ensure that every government institution that uses music is licensed.

The Government of Canada has created important rights for creators that puts money in the pockets of recording artists and record companies. We need to make sure the marketplace is informed of its obligation in regard to these rights.

MusicWorks in the United Kingdom has conducted studies showing the positive effect of music on branding, sales, and productivity. Some of the findings from their 2012 study include the following: 80% of pubs and bars believe that customers and staff would complain if music was shut off; 86% think music increases the anticipation of the crowd when played before an event; 83% say silence makes a place feel unfriendly and unwelcoming.

The Service Canada website provides helpful information about starting a business. It would seem to be consistent with government objectives to also provide information as it relates to the use of music in businesses in Canada. Noting the positive contribution music can make to business success, Service Canada could provide the information businesses need in order to ensure they are compensating rights holders for that contribution.

The Canada Music Fund offers an opportunity to ensure that rights holders are aware of the various revenue streams associated with their music. One method of doing this would be to introduce, on each application for funding, a section about the various revenue streams available to creators. A component of the application could include the applicant's confirmation of understanding of the various revenue streams available, and confirming either membership in, or anticipated membership in the organizations that can help them access this revenue should the funding application be approved. Even in cases where funding applications are unsuccessful, rights holders will have had the benefit of this information. We must ensure that no rights holder revenue is untapped simply due to a lack of awareness.

In addition to the exclusive rights administered by Connect Music Licensing, the Copyright Act provides that there are also rights that bind the music user to pay for use, but that do not entitle the rights holder to authorize or prohibit use. These are referred to as remunerative rights, such as the right to perform or communicate sound recordings to the public. The Copyright Board is the tribunal that sets rates and terms with respect to remunerative rights.

The Copyright Board provides an invaluable service to rights holders and music users. It ensures payment for use and offers marketplace certainty. However, due to lack of resources, the process is very time consuming. It can take two years for the board to reach a decision for a given licence. This can leave rights holders in a position where they are not receiving compensation for new uses of their music, and it leaves music users without any certainty regarding payment obligations for the use of music.

The Government of Canada has committed itself to the development of an efficient digital marketplace. The Copyright Board of Canada should not be seen as a barrier to business or as an impediment. Rather, it should be considered a business development office. It needs resources to ensure it can render decisions at the pace of technological development. In order to attract new digital services to Canada, it is imperative that these services know what their payment obligations will be.

The Recording Industry Association of America reported that in 2013, streaming revenue contributed 21% to total industry revenue. In Canada that number is under 7%. Imagine if you were an investor who wanted to open a new music service in Canada but were told you would not know your costs for two years. A well-resourced efficient Copyright Board will help attract new digital businesses to Canada.

The third way the government can help is to ensure that any government institution that uses music is licensed. This example will reiterate the importance of licensing music use to music users. Connect Music Licensing would be delighted to work with you to facilitate this.

We believe marketplace education will generate increased revenue for rights holders and help music users comply with their legal obligations. Allocating additional resources at the Copyright Board will permit it to function effectively as a business development office, attracting new revenue for rights holders. Ensuring all music uses are licensed in government institutions will serve as a benchmark to other music users.

Thank you.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We'll now move to the Alliance of Canadian Cinema, Television and Radio Artists. We have with us today the executive director, Brad Keenan, along with Canadian musician David Faber.

You have eight minutes between you.

[Brad Keenan, Director, Recording Artists’ Collecting Society, Alliance of Canadian Cinema, Television and Radio Artists]

Good morning to everyone.

Thank you, Mr. Chair and committee members.

I am the director of ACTRA's Performers' Rights Society and its division, the ACTRA Recording Artists' Collecting Society, or what we call RACS for short.

I want to thank the committee for inviting us to participate in these important discussions. l'm pleased that we were able to bring with us one of Canada's most celebrated recording artists, Dave Faber, of the band Faber Drive. Dave will be speaking about some of the realities of working in Canada as a professional recording artist.

First, I want to give you some background and perspective on what RACS does. RACS collects and distributes public performance and private copying royalties to recording artists who have earned that money. We represent over 3,500 recording artists domestically and thousands of others throughout the world through reciprocal agreements with other collective management organizations like RACS.

Since 1998, RACS has distributed over $35 million to recording artists, which represents a significant income stream for thousands of Canadian musicians. It's important to note that our presentation and comments today are supported by the Canadian Federation of Musicians and its 15,000 members.

Despite the various statures of our artists, our members share the common circumstance of being dependent on a number of different copyright royalty streams to make a living from their art. The overwhelming majority of people we represent are small business owners who don't live on a single paycheque from a single employer, but who instead rely on exploiting their copyrights for royalties domestically and abroad, which in many cases are the cornerstones of building their professional careers.

We are concerned about recent changes to the Copyright Act that have served in many cases to weaken those rights, and consequently, the Canadian music industry. As this committee studies the Canadian music industry, we'd like you to consider a couple of major issues that impact our members' ability to earn a sustainable income and thus their ability to make and distribute Canadian music.

The first is the harm that has come to performers from Canada's failure to modernize its private copying regime. The second issue, which my friend Dave will talk to you about, is the income volatility performers experience from year to year in their careers.

The private copying levy has long served as an effective balanced mechanism supporting the Canadian music industry. On the one hand, consumers are able to make copies for personal use, and on the other hand, creators are fairly compensated for those private copies.

Ten years ago, $35.6 million per year was available for distribution to rights holders in the Canadian music industry for the private copying of their works onto blank CDs. Today that amount has dropped to significantly less than $10 million per year, as the nature of private copying has shifted away from increasingly obsolete audio recording media to digital audio recorders.

It is not fair that the artists who have created the recorded music are not compensated for the use of their music on these devices. We note that the Canadian government's decision to not extend the private copying levy to digital audio recorders runs counter to the direction of one of Canada's largest trading partners and the position they have taken with respect to their music industries.

Just last month the European Parliament adopted a resolution on the preservation of private copying levies in the European Union. The main principles upon which the resolution was passed by the European Parliament are worth reading and are referenced in the document that was circulated to the committee clerk this morning. I would note that at the heart of the resolution and its plan for action is a fundamental understanding of the harm that would result to their music industries if private copying levies were simply abandoned in Europe. We're afraid that such simple abandonment is exactly what has recently occurred in Canada. We believe the ill effects of this decision will continue to unfold in the coming years.

Accordingly, we encourage the Canadian government and all parties to revisit how the private copying regime may be modernized to reflect the way in which consumers currently make digital private copies. Our European trading partner is taking a leadership role in looking for solutions, and so should we. We strongly recommend that the Canadian government modernize the private copying part of the Copyright Act as part of its next section 92 review.

At this point, I'm going to turn it over to Dave for some perspective on the impact on recording artists. By way of introduction, Dave's band, Faber Drive, has had two gold and two platinum singles. They're the recipients of a SOCAN number one song award and a Canadian Radio Music Award, and were nominated for a Juno for best new group. They're currently signed to 604 Records, owned by Chad Kroeger of Nickelback fame. Dave is one of Canada's most successful recording artists.

[David Faber, Canadian Musician, Faber Drive, Alliance of Canadian Cinema, Television and Radio Artists]

Thanks, Brad.

Like other self-employed people working in Canada's cultural industries, recording artists like me tend to experience sharp swings in our annual income. Our earnings spike when we release an album and tour in support of it, but between recording projects, revenue drops significantly. Unlike people who are employees, as self-employed people we don't have access to many of the supports, such as employment insurance, that other Canadians can count on to help them make it through the transition between jobs.

My band has worked hard and has been blessed by God to see some success, but it's been a tough road to get here. The reality is that even today, like many career musicians, I have to pick up other work to pay the bills. When we first started out, I quit my day job to focus on this opportunity, but that meant going to the food bank and borrowing money from friends and family, which is not uncommon for many musicians trying to make it in a competitive and demanding industry.

That was when we started eight years ago. Fast-forward to today and three albums later, and I still receive support from family to allow me the ability to be a professional musician in this country. Now with a family to support, including a beautiful wife and four amazing children, I have a job pouring concrete to keep us going while working on our fourth album. As well, two of my three band members are working full-time day jobs too, which in turn means that our next album will take a lot longer than expected to get finished.

Our profession is really not that different from any other profession. It takes years of practice, dedication, and risk to make music.

I'm not alone. I've seen countless bands come and go over the years because they just didn't have proper support. I have many friends currently on radio here in Canada who depend on RACS cheques and every single revenue stream to pay the basics such as rent, gas, and food.

Receiving fair compensation for the use of our work is essential. The royalty cheques we receive from RACS help to pay basic bills, knowing that when your song is played on the radio there will be a small payment back to the artist. Like I just said, those little payments are often the difference that help to pay rent, buy food, and get gas.

But there is more that could be done. Right now artists have to pay high marginal tax rates for one-off successful years. To address this issue, ACTRA RACS and other creator organizations have asked the government to support the reintroduction of income averaging for artists under Canadian tax law. Under such a tax measure, the performer's fluctuating earnings are averaged over a period of years to permit a preferential taxation rate in an occasional year where income is higher.

Several European Union countries, including the United Kingdom, have introduced this approach. It works. It smooths out those income peaks and valleys. In so doing it lends a measure of tax predictability to performers' creative endeavours, which in turn makes it easier for our cultural industries to thrive and for our overall economy to benefit.

RACS also supports the creation of a federal tax exemption on the first $10,000 of royalty income that performers earn on their artistic work. Such an exemption would be in keeping with the royalty income deduction that Quebec has had in place since 1995.

[Brad Keenan]

Thanks, David.

Just to wrap up, thank you to the committee again for inviting us to appear. Thank you to the clerks, the staff, and certainly the interpreters, because I'm quite a quick speaker.

With these ideas, we hope we can work together to improve the Canadian music industry as a whole.

Thank you.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We are now going to move to the first round of questioning. It will be a seven-minute round. We're going to start with Mr. Weston.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you Mr. Chair.

I would like to begin by thanking our guests. Their remarks have been very interesting.

First, as a point of clarification, I'd like to make sure that the society for reproduction rights has nothing to do with the one-child policy. Sorry, that was a joke.

[Voices]

Oh, oh!

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

This is serious business. You've taken us into a really interesting set of areas.

I'm most intrigued by this private copying question. I have this conversation with my teenage kids all the time: what can you copy; what can't you copy? I was an international lawyer, so I take intellectual rights really seriously, but among teenagers, they don't have that culture.

Do you see a role for starting to educate young people in schools about the importance of what you're doing, David, to get that sense of the value? You talked about the value and the importance of creation, of creators. Should we be starting early? We're here talking to legislators about trying to create different approaches in taxation, which is really useful, but may I just ask, do any of you have an opinion on where the education starts?

[Brad Keenan]

I can start off.

I know Victoria talked about education.

I have a 25-year-old. She has grown up around the music industry because I've been in it for over 20 years. As a result, she knows the difference between what helps these individuals make a living and what doesn't, so she started very early. For all of us, it's education, the sooner the better, and more of it.

I won't say that this is a grey area, but it's not an easy area to understand as far as where to stop and start with respect to what's acceptable and what's not acceptable. Because this is content that can be moved across a line through technology, it's not like shoplifting in a convenience store. It's not seen. But there is a difference between what's acceptable and what's not, and the sooner we start educating, the better.

[Alain Lauzon]

With your permission I would like to add something.

There have been several discussions in universities in Quebec about student work and plagiarism. You are a lawyer. When I was young, we were told in grade school that copying from a book was plagiarism. Plagiarism, intellectual property and music are all related. I think that young people need to be educated about this from a very young age. This value seems to have been lost over the past 10 to 15 years with the freedom that the Internet has given us.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you very much.

Mr. Lauzon, you spoke about the access to music that consumers have and the increase in that access.

Does that mean, from a government perspective, that we have succeeded in increasing the market for consumers? Is this a success, not only for creators but also for consumers?

[Alain Lauzon]

It seems these days that consumers have increasing access to legal services. What has transpired over the last 10 years has been at the expense of the recorded music market, by which I mean producers, artists, performers and creators. Consumers are the ones who have benefited. This is a major phenomenon.

In the digital world, a society like ours can grant licences to users and to intermediaries. The problem is that many people who use the music have a management model that was designed around music, without the law creating a balance between revenues for those who created the music and access to that same music for consumers.

When we were young, we had access to music through radio, live recordings and purchases. It was controlled. These days, it is much less so. The ability to benefit from this access is a major advantage for the consumer. Consumers should be aware of this. It is not without cost.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

In your opinion, the challenge mainly concerns creators.

Victoria, I thought you were very clear. You gave us three very specific suggestions.

You talked about information, so implicitly you were talking about education, right?

[Victoria Shepherd]

Absolutely.

[John Weston, Conservative, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

I wonder if you want to elaborate on that a little bit, because the government is also very concerned about improving the strength of our creators, of our wonderful musicians and artists.

David, we have an incredible tradition in Canada. The world is proud of us.

Do you want to elaborate on the information and education part?

[Victoria Shepherd]

Certainly. Actually, one of the things I'd like to draw to the committee's attention is that Music Canada published a report called, “The Next Big Bang”. It identified several pillars that could lead to improved and future success of the industry.

One of those pillars was education. In their report they talk about the importance of music education in school. I think hand in hand what comes with that, in addition to the more immediate solutions we proposed, such as information from the Canada Music Fund and information on the Service Canada website, is that we teach our youth, our children from the beginning that everyone loves music, and everyone knows that, and that the value of the music isn't just how it makes us feel, that there is value in terms of being a creator, and there is value in terms of appreciating music.

When you have organizations that do these kinds of studies that show how important music is to business, how much it improves customer experience and brings more money in the door, and the folks who've made that music should be benefiting as well, that's what Connect Music Licensing does.

I think it's crucial to have a culture of understanding. I firmly believe that Canadians are not intending to go out and not pay creators. I don't think that's our mental process at all. I think it's a matter of their just not knowing.

Organizations like Connect Music Licensing are out there all the time. We're approaching rights holders; we're approaching users. I think we do a very good job, but I think that if we had something national in place, that would be immensely helpful.

[The Chair, Conservative, Gord Brown]

Okay, thank you very much.

We're going to move to Ms. Mathyssen andMonsieur Nantel pour sept minutes.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Thank you very much, Mr. Chairman.

I want to say thank you to all of you. I learned something important today and I appreciate the clarity of your presentation.

I wish I could ask a question of all of you, but Monsieur Nantel is very jealous and I must share the time.

I'll start with you, Mr. Lauzon.

When your time ended, you had just begun to talk about Bill C-11. I'd like to give you the opportunity to finish those remarks and talk about the challenges your industry is facing in regard to Bill C-11.

[Alain Lauzon]

I think Brad spoke in detail a little bit more about the private copying that we're involved in. Brad and I are both on the Copyright Board as members of the board.

As I mentioned, private copying is one issue that is really being looked at in Europe, not being weakened but being stronger for the Europeans that we work with, and the value of the private copying for the creators, performers, songwriters, and record labels as well, because it brings money directly into the hands of those who have created the works. That part is very important. That's the first thing about Bill C-11.

The second thing is the law has to pass, obviously, the one that came into force in 2012. It's sad that in the last 15 years we had minority governments and all that and it didn't go. I has to pass. Is it 100% good? No. But the problem that we're facing right now with Bill C-11 is the fact that we're facing a lot of cases in front of the court in the next coming years. I'm involved in two or three of the decisions of the Copyright Board. We will have to go in front of the Supreme Court as well because new concepts are coming with Bill C-11, and we will face that obviously.

Some of the exemptions that were brought up in Bill C-11 did not facilitate our work. Especially with the broadcasters, it brought out a situation where the revenues can decrease in the future. This is something we have to face. In the next five years it's supposed to be reviewed. I hope the decision will be there and that the target will be looked at within those next five years. I think we will have to adjust a lot of things. Especially, as I said, we have to put back in the equation the value of the music and have an équilibre with the revenues that are coming from the...in the pockets of the performers and the creators. That's mainly the problem we have right now.

I have 6,000 members who are creators and who are publishers and they have exactly the same thing. The first question I ask them is whether they are living off their music. There aren't that many people living off their music nowadays. Back then they could live because their market was larger. As I explained, the problem is with the development of technology. We can't go in the past. We have to go in the future, except that the revenues that are coming from new services, the business model that is related to creators—and when I say “creators”, it's all of us—even though there will be more income coming from digital in the future with streaming services and all that, the level of revenue that will end up in the pockets of the songwriters or the performers is not high enough in that kind of business model.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Okay. Merci.

I am going to turn it over to Monsieur Nantel, but we will be making recommendations. Should the first recommendation be that whatever we do, we have to ensure the survival of those wonderful creators?

[Alain Lauzon]

Absolutely.