Canadian Heritage Committee on April 1st, 2014

[Ted Falk, Conservative, Provencher, MB]

For you as a songwriter, is there an industry standard that sets how much you get for writing a song when it's sold or when it's played? Or is that something you negotiate? How does that work?

[Greg Johnston]

Yes, in every country there's a—they're called mechanical rates, and those are based on units sold. It's formulated to the country, and they're all within a relative range. We've worked with those rates for many years. It's not an issue we're talking about on a physical unit sold, like a disc. We've all been happy with that. It's worked for us for years. We've been happy with the rates we get from performance rates for radio play and for TV play.

People stopped buying CDs, so then we have nothing left, and then they went to streaming, and they decided to make up one of the worst rates that we just can't...it's not a tolerable rate. It's not a business model.

[The Chair, Conservative, Gord Brown]

Thank you.

Mr. Nantel, you have the floor for three minutes.

[Pierre Nantel, NDP, Longueuil—Pierre-Boucher, QC]

Thank you, Mr. Chair.

First of all, I want to thank our witnesses for coming to meet with us today. I believe all committee members appreciate the information you are giving them. These are, in many cases, complex issues that we do not know very much about. Your contribution is of enormous help to us.

You all talked about issues regarding the visibility of Canadian music, but especially you, Mr. Bisaillon. Like some of you, I attended the Juno Awards ceremony last weekend. It is always stimulating to see our culture doing well and being enthusiastically received. As you said so well, Mr. Smith, things are going well at the top, but not so well in the middle or at the bottom.

I met some people from the Centre culturel franco-manitobain, in particular Ms. Molin, who told me how important events such as Coup de coeur francophone and programs like “Pour un soir seulement” are and how they help create a critical mass. These are issues that must be considered.

Earlier we tried to determine whether it was possible to take specific action. I believe you are recommending that we conduct studies soon to find a solution and draw international comparisons. This is not a simple matter, even on that scale. Creators are fighting the same battle virtually everywhere.

I was at the Governor General's residence yesterday when the Glenn Gould prize was awarded to Robert Lepage. His only message was a request that the government once again support the international visibility of our creators.

I want to tell you that I find this concept of fair trade certification very exciting. Fair trade coffee is now part of our lives, somewhat like recycling paper. No one thought about it 20 years ago. Today the word "fair" is an additional factor in our purchasing decisions. A month ago, Deezer announced a kind of Canadian subscription. We are pleased to have achieved that visibility.

You are right to ask what measures can be taken to assist you in responding to this monopoly that has been established. This is a bit of a throwback to the 1950s. At that time, big companies had set rates that were viable for them over the long term based on volume and shareholder deals. However, it is totally inapplicable to independent businesses.

What can we do to help you in this regard?

[Jean-Robert Bisaillon]

There is no simple answer to that. Digital is shaking up and completely transforming relationships between creators and the entire economic chain, which ends with the consumer. We won't be able to put our finger directly on the solution today. We would like to do so, but that will not be possible.

However, there are a lot of potential solutions, and we must have the intellectual discipline to examine them. I can cite a number of them. Consider, for example, the entire metadata problem. Accounting has been a crucial problem from the beginning of the history of music. Reports have always been complex and hard to understand. Today, with the number of micro-transactions that take place, the players' financial statements are absolutely impossible to understand.

Measures can be implemented, particularly based on the ISO standards of the International Standards Organization. Some ISO standards could help us identify and more accurately describe content circulating on networks and record their value more accurately. That is one of the options that should be explored. There are many others.

[The Chair, Conservative, Gord Brown]

All right, thank you very much. That's going to have to be it.

I want to thank our panellists for your contribution to our study. If you have any further contributions, please send them to us in writing, and I know that there were some questions for follow-up, so thank you very much.

We're going to briefly suspend to bring in our new panel.

[The Chair, Conservative, Gord Brown]

Good afternoon, everyone. We'll call the meeting back to order. We have a new panel who has joined us.

We have from Volu.me, Shawn Cooper, president and co-founder; from SiriusXM Canada, Andréanne Sasseville, director, Canadian content development and industry relations, as well as Paul Cunningham, vice-president; and by video conference from Toronto, Ontario, from Songza, we have Vanessa Thomas, who is the managing director.

We will start with Shawn Cooper from Volu.me for eight minutes.

You have the floor.

[Shawn Cooper, President and Co-Founder, Volu.me]

Thank you, Mr. Chair, for inviting me to meet with your committee.

First off, my name is Shawn Cooper, and I'm the president and co-founder of a company called Volu.me. We work with artists, and Canadian artists specifically, such as Hedley, Tegan and Sara, The Sheepdogs, and Sloan. We power their mobile applications, so we build native iPhone, Android, and BlackBerry apps that pull in all of their content from their various sources online and make sure that everything is live in the artist's app all the time.

I welcome this opportunity to help explain some of the ways in which technology is playing a pivotal role in the creation, distribution, and consumption of Canadian music content, while equally offering two suggestions on how the federal government could better aid in the funding of a music technology platform such as Volu.me.

The typical consumer of Canadian music content in 2014 carries an always-connected smartphone with them from the moment they wake up in the morning until the moment they go to bed at night. As a people, we've never been more connected or up to date in history.

With this new always-connected mindset have come greater expectations for intimacy with the musicians we listen to. It's no longer enough for an artist to simply write and release music for a fan to listen to. A fan wants a much deeper connection with an artist, expecting a window into their day-to-day lives and engagement on a level that is unprecedented.

Being a successful and bill-paying musician today requires fan development—the concept that you have to work to acquire your fans initially, followed by keeping the relationship with them alive and strong between album releases. An artist who fails to engage in fan development between album release cycles has little chance of being successful in the next album release cycle, because everyone who cared is no longer listening.

Without technology platforms, which enable these talented musicians to connect direct to fans on a scalable level, they would have little hope of successfully developing or monetizing their fan bases today. Building the technology platforms that help enable these musicians can often be much more complicated and expensive to develop and support than one might imagine. Today's platforms such as Volu.me are dynamic and ever-changing due to the way that they interconnect with other platforms, operating systems, or content distribution channels.

Unfortunately, this means that you can't just build, launch, and forget them, expecting them to just keep functioning. Even after initial development and launch, their operations often remain resource intensive, with developers required in an ongoing manner to keep up with changes in the other ecosystems the platform is connected to.

Easily the most expensive cost in creating and operating a music platform is that of development staff payroll. Your development team is going to make or break your ability to successfully solve and execute on a market problem. Unfortunately, with developers in high demand, often at very high salaries, it can be difficult for the Canadian music technology start-ups to attract or keep skilled developers, especially when competing against U.S.-based companies for Canadian talent.

Being able to get a platform like Volu.me to market can often include upfront costs in the hundreds of thousands to millions of dollars. Further to this, in the case of music platforms specifically, a projected break-even point on operating revenues is typically not possible or probable until you scale your users to a pretty massive level.

This makes music platforms, while very much required and leveraged by the Canadian music industry, a rather risky and often initially money-losing venture to create. Because of this, building out a music platform typically requires raising investment capital. This usually leaves entrepreneurs with two options: raise money in Canada or raise money in the U.S. Raising money in Canada typically means a smaller overall deal evaluation, as well as a reduced possible investor pool due to the limited number of venture capital institutions in Canada versus the U.S. Unfortunately, this often sees Canadian music platforms move south of the border just as they start to get momentum, due to a lack—again—of institutional funding in Canada as it relates to music technology ventures.

In leveraging programs made possible by Canadian Heritage, such as the collective initiatives program administered by FACTOR, along with having raised private investment capital from Canadian angel investors and music industry veterans, we've been fortunate enough to be able to fund the ongoing development of Volu.me based out of Toronto.

It is our recommendation that the collective initiatives program administered by FACTOR and Musicaction see their project timelines and budgets for technology-based projects increased to better reflect the actual budgets and timelines required to build music technology platforms that matter. Seeing an increase in project funding levels that could support several full-time developers on a project for a 12-month project timeline would enable Canadians to build the music platforms that our musicians need and could leverage worldwide.

Further to this, it is our recommendation that a grant program be set up to investment-match in Canadian music technology companies who manage to raise institutional funding. By this, what I mean is that if a Canadian tech start-up can go out and convince an institutional investor, such as a venture capital firm, to invest their own funds into a music platform, the federal government should use this vote of confidence on the investor's part as a barometer to the calibre of the project team and idea. Such investment-matching on the part of the federal government would make keeping music platforms and the jobs they create in Canada a much more viable long-term option, while equally ensuring that Canadian musicians are at the forefront of leveraging technology to further their musical careers.

I thank the committee for its time and look forward to answering any questions.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We'll now move to SiriusXM. We have Andréanne Sasseville and Paul Cunningham for eight minutes.

[Andréanne Sasseville, Director, Canadian Content Development and Industry Relations, SiriusXM Canada]

Thank you, Mr. Chair.

It is really a pleasure to be here with you today and to speak with the committee.

I listened attentively to the remarks by Mr. Cooper and Mr. Bisaillon and those of all the speakers. Everyone should hear what these people have to say. I think we could learn a great deal from it.

My name is Andréanne Sasseville and I am director of Canadian Content Development and Industry Relations at SiriusXM Canada.

Joining me today is Paul Cunningham, senior vice-president of marketing and sales for SiriusXM Canada.

Since the launch of satellite radio in Canada back in 2005, SiriusXM Canada and the satellite radio category have matured to a viable and sustainable business while offering Canadians more choice and diversity in their daily audio entertainment. Prior to and since the merger of both Sirius Canada and XM Canada in 2011, our efforts to consistently deliver the best in music and entertainment brands and exclusive content to our customers has resonated with the Canadian consumer. This is evidenced by a 90-plus per cent customer satisfaction rate and our subscriber growth is now up to 2.4 million Canadians.

We have clearly helped to fill a gap in providing Canadians the content they want and are looking for. This is especially true when it comes to generating and providing Canadian content to our customers. We are developing over 120,000 hours of Canadian programming every year and provide access to this programming not only to major Canadian regions but equal access to rural and remote areas with limited radio operations. We are providing increased diversity and a wide variety of programming choices, 11 genres, available to all Canadians and exposure to homegrown talent across North America.

SiriusXM is committed to being one of the top broadcasters of independent music in Canada, and since our launch in 2005 we've played a leading role in helping emerging English and French Canadian artists grow their audiences both in Canada and in the U.S. Outside of our broadcasts SiriusXM Canada is also at the forefront in providing increased exposure and financial support for Canadian musicians and spoken word artists, particularly where new and emerging artists are concerned.

SiriusXM Canada, through its subscription business model, has contributed more than $75 million directly to artists through copyright and royalty fees as a result of our continued commitment to leverage the platform for the airplay of Canadian content. As well, our contributions to developing and promoting Canadian artists and our investment in music education and the cultural infrastructure required to provide this promotion are very strong. Canadian content development contributions are approaching this year $70 million since we began operating in Canada. This year only, we're talking about $11 million that will have been invested in CCD funding with a large portion of that investment going to institutions like FACTOR and Musicaction.

These institutional contributions, however, do not necessarily provide the best opportunity for artists, and that is our view. Where we are seeing greater success is in the development of programs that provide targeted and direct impact to artists' careers, impact where we can actually build a direct relationship with the artists. The proportion of institutional investments we support limit our opportunities to develop more grassroots initiatives that provide direct impact to Canadian artists. We could be doing much more together as an industry.

Whether it's providing exposure to emerging bands on movie screens across the country, showcasing emerging artists at events and festivals year round, all genres, or giving bands a chance to shine in front of one of our largest TV audiences at the Grey Cup halftime show, SiriusXM's innovation in funding these initiatives and others like them are providing direct results.

For those more used to Quebec television, a program is available to new artists who are exposed to a French audience across Canada. New artists are thus being given the opportunity to be seen and known.

There is definitely no shortage to promotions and initiatives that we can develop that impact artists directly, vastly enhancing and building a measurable trajectory for their careers. I recently had the pleasure of joining Minister Glover in Winnipeg during the Juno Awards week last Friday. We were at a local school and helped to present a music education grant through MusiCounts, an organization that we have supported for many years now and have contributed over $1 million to. We presented to over 1,600 students and shared the news of this important grant alongside Canadian band The Trews.

This is just one of hundreds of initiatives we take part in to support our industry, and one example out of many that provide music into classrooms to help get today's young and talented musicians and aspiring Canadian artists onto the airwaves and our playlists of tomorrow.

Part of the maturing business has been to adapt to a radical change in the industry landscape. The many different ways in which Canadians are now consuming content today continues to shift and is complex. In order to continue to provide a sustainable platform for Canadian voices, we must introduce continued innovation and a level playing field from which listeners and artists alike would benefit. This is an important and vital step in ensuring that the opportunities for Canadian artists are abundant in the midst of this radical change in the ways Canadians consume music.

Broadcasters must adapt to this ever-changing environment to succeed. This is a given, but adapting within an unfair competitive environment is rife with implications affecting both the artist and the consumer. I did mention earlier a continued investment to the industry. The $11 million SiriusXM Canada invests annually is sharply contrasted with the less than $7.3 million investment from all commercial radio licensees combined per year.

We also must remain competitive with respect to unregulated music streaming services entering the Canadian market. Internet and mobile streaming companies currently pay nothing toward the Canadian industry related to artist awareness and growth, nor do they currently have any requirements to feature Canadian content or any other means that would aid the discovery of new music.

SiriusXM Canada dedicates millions of dollars and commits its platform every year to programs and initiatives designed to provide support and exposure to up-and-coming Canadian artists and especially to music education. There is clearly an opportunity for shared responsibility here. Without federal regulation and parity throughout commercial radio, satellite radio, streaming services, and other content-delivery methods, the Canadian consumer will begin to see a reduction in choice and talent, and the exposure potential of a vibrant industry will not be realized.

This is an exciting time for the music industry. There is great opportunity amidst the changing music landscape, and we do remain very hopeful that we can continue to support everything we're discussing here today. We welcome the opportunity to further work with the committee to explore these areas and to help develop with our industry colleagues an immediate strategy related to all our concerns.

Thank you very much for the time you have allotted me.

Once again, I will be pleased to answer your questions and to speak with you.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We will now go to Toronto, to Vanessa Thomas from Songza.

Welcome. You have eight minutes.

[Vanessa Thomas, Managing Director, Canada, Songza]

Thank you very much.

I'm so sorry I can't be there in person. I had a CTV appearance this morning and couldn't get a flight out.

I'm Vanessa Thomas, managing director of Songza Canada. I'm very happy to be asked to speak today about the ever-increasing world of digital music in Canada.

Songza came to Canada in August 2012. We actually opened our physical offices in October 2013. Prior to opening the offices we grew organically to 2.4 million monthly unique users. We are presently at 2.7 million monthly active uniques. We are a music streaming service. We consider ourselves a lifestyle enhancement company where we provide playlists to the user based on their activity or their mood at that time of the day.

It's wonderful to live in a country where the government supports music. I welcome this opportunity to discuss how the money is spent and how digital services are going to become even bigger players in years to come. As radio becomes more narrow in their formats, which is happening, and the record labels reduce their marketing and promotion budgets, the digital platforms will become increasingly important to showcase emerging Canadian talent on a North American platform. We are not restricted by formats and can seed good emerging talent into 1,800 different playlists within Songza.

We have good infrastructure in this country with our broadband services, yet we lag in our services in this space. The growth of streaming music content is far behind the U.S. Our revenues for streaming were only 7% of the market last year whereas the U.S. reported recently that 21% of their revenues were from digital and streaming.

Why is Canada behind the U.S. and other countries in the development of music streaming services? One reason is that the regulatory framework in Canada doesn't foster innovation. The rate-setting process through the Copyright Board takes far too long, up to four to five years for an industry where business models are changing rapidly.

It's hard to build a business model without certainty as to how much you have to pay for the main inputs to your business. This certainly holds true for investors investing in these businesses. That's why Songza came to an agreement with Re:Sound—the organization that represents recording musicians and record companies—that allowed Songza to launch in Canada with certainty on those rates without having to wait years for a decision from the Copyright Board.

Services like Songza want to be able to use our platform for years to come, as we are now, to showcase emerging Canadian talent to North America that may not get exposure on regular terrestrial radio. However, the environment is not built to let digital companies thrive and succeed. The streaming services in countries with the most equitable streaming rights are challenged with building a business due to the cost of content. Canada continues to be among the most challenging countries in which to strike digital rights agreements with the publishers. This challenge has dissuaded many entities from actually operating in Canada, and in the end, it is the artists who suffer from that lack of exposure.

Digital companies cannot receive funding from the Canada Music Fund or FACTOR to help grow their businesses. There are no funds available within this space. Streaming music companies are paying more per stream in royalties than we are actually making in revenue, even with dedicated sales teams, at this early stage of our development.

Governmental incentives are often rooted in tax credits. Start-ups typically run large losses in the early years, which makes the tax credit of little or no value. However, digital music services' most significant cost is artist, label, and publisher royalties. If Canada were to develop a structure to provide subsidies for the payment of these royalties, it could both fuel technical advancement in new digital music services and distribution models, and also provide needed financial support for the creators and the performers. A subsidy approach is really a win-win for all interested parties.

Additional subsidies or incentives could be helpful to start-ups who create offices on the ground in Canada for purposes of localizing their services, both in regard to Canadian music repertoire in supporting the artist and Internet radio advertising of local Canadian businesses. Canadian ownership of the service as a whole shouldn't be the sole criteria in determining eligibility for grants, subsidies, and awards, to the extent the business operations in Canada are indeed focused on developing the domestic market, creating local employment, and breaking Canadian artists within their platform.

In summary, the government could help with marketing efforts for the pure music services to expand our reach, help with start-up funding grants for those new business models and change the criteria for those qualifications, provide tax breaks on the business costs of running a dedicated Canadian office, learn and understand the digital growth in Canada and support this digital innovation, and look outside of our boundaries to see what's happening in other countries. Accelerating the rate-setting process through the Copyright Board is essential.

Songza is a pure music service that is truly interested in music as an endeavour. We opened a Canadian office to further integrate into the fabric of the Canadian culture and promote Canadian artists. We hired a well-known industry veteran, Alan Cross, to head up our Canadian curation, and hired Canadian creators to create situations involving Canadian culture and artists.

Many streaming services are only having success as they are tied to a multinational, where the focus is not necessarily on music but other ventures. We are focused on local repertoire and are committed to supporting Canadian culture and artists. One example of this is the band Hey Ocean!, a Canadian band that we actually broke within our platform on Songza. The social media that came from that really propelled them to their first success.

I'm very excited to answer any questions. Thank you very much.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We'll now move to questions and we'll start with Mr. Weston.

Please do not forget our panellist who is here by video conference.

Mr. Weston, you have the floor.

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

Thank you, Mr. Chair.

Ms. Sasseville, I may soon be tuning in to SiriusXM to listen to music at home when I have a lot of guests. I like what you offer.

I want to respond to Mr. Cooper.

You described a situation where the customer in your business, the client, is attached to the performer in ways unprecedented, that the supporters have digital access from morning till night and expect incredible access and good communication from the performer. I'm trying to think of some other profession that is analogous to that. Oh, that's us.

[Shawn Cooper]

Absolutely.

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

We recognize what you're talking about, but it's a very interesting description.

I would appreciate it if I could ask all of you—Ms. Thomas and the ones who are here today—to think of two or three ways that government can improve support of the Canadian artist that don't involve subsidies. That's an obvious one.

It's clear when you come before us that would be top of mind, but maybe there are lower-hanging fruit. What are things we might not think about, or that our minister might not think about, that you can suggest that isn't purely fiscal?

Why don't we start with you, Mr. Cooper, and try to be brief.

[Shawn Cooper]

One of the most valuable things that I've had starting companies or working in the music industry has really been the mentors and the people who have sort of done that business before.

If the government was to try to work with a lot of these senior music industry people, senior technology people in this country, a lot of them are very open to helping out on mentoring, open to getting involved in that type of stuff. The knowledge that we have in some of those people is invaluable. We should be trying to get some of that out of them before they leave the industry as they retire and get older.

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

What would the government's role be in that?

[Shawn Cooper]

I would guess more the matchmaking part of it. It's hard, obviously. I've been lucky to the point where I've been able to call and email people who should never accept my email in any way, and they've taken 30 minutes out to sit down with me.

I can honestly say that's probably done more for my companies and the artists who we work with than going to college, or any of that. Just getting to talk to the right people. Unfortunately, they don't always answer emails and stuff, so if the government could help play matchmaker a little bit, I could see very much benefit in that.

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

Ms. Sasseville.

[Andréanne Sasseville]

In French or in English...?

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

As you wish.

[Andréanne Sasseville]

I might go both ways.

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

You can do either really well.

[Andréanne Sasseville]

I love what Shawn is saying. I think the mentoring part is very important. If I may I'll give a few examples of how SiriusXM Canada has established that through our discretionary CCD funding over the past nine years. We've used those funds. We've tried to balance it three ways and that's in speaking with a lot of people in the music industry where the smaller festivals need support. Then we pretty much put together our own programs that we felt were also needed, and music education is another one.

If you want to nurture your culture, you have to start literally when they're six, seven, eight years old and through schools. So we've pretty much teared it up in those three themes within our investments. Within festivals, through our discretionary fund we've elected to sit down individually with every one of them when we sponsor or when we help and ask what their needs are. What have they realized within their community, their region?

I'll give you a perfect example, le Festival en chanson de Petite-Vallée, which is in Gaspésie, came to the table and said what they needed were bursaries for the participants who come here to have a singer-songwriter atelier for 10 days. They can't pay to get here. We need bursaries for that. Then we need a bursary to send them into a studio and work with a renowned producer, someone who has experience, to mentor them through the process. We said, “Fantastic. We'll put half our funding to your festival for that and the other half for all the production needs of the festival.”

So I think entities and broadcasters who are licensed in this country need to have the autonomy, the ability, and take the time to sit down with every party they're working with and establish the specific needs.