Canadian Heritage Committee on May 8th, 2014

[Nina Grewal, Conservative, Fleetwood—Port Kells, BC]

Mr. Chair, please could you be clear. What are we doing here?

[The Chair, Conservative, Gord Brown]

Okay, I'm sorry. The motion to go in camera was withdrawn by Mr. Clarke. He then moved that we vote on Mr. Nantel's motion, so that's what we're doing now. Also, Mr. Nantel requested that we have a recorded vote.

So, we are now moving to that recorded vote. There was no further discussion.

[The Clerk]

It's a tie.

[The Chair, Conservative, Gord Brown]

If it's a tie, the motion fails

[The Clerk]

It's up to you. It's at your discretion, Chair.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Excuse me, on a point of order—

[The Chair, Conservative, Gord Brown]

Mr. Stewart.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

I'm just wondering, when it's a tie vote, does chair votes to...?

[A voice]

Yes.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

You voted no to this motion.

[The Chair, Conservative, Gord Brown]

Yes. The motion failed.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Okay, thank you.

[The Chair, Conservative, Gord Brown]

We will now move to our witnesses. Hopefully we can get you in. We have about 12 minutes, so if both of you could try to get six minutes each. Does that work for our two witnesses? Then you're going to have some questions. I'm sorry about the voting time, but if you'd like to proceed, we'll go from there.

Okay, you have the floor. Thank you.

Mr. Vallance.

[Jim Vallance, As an Individual]

Thank you very much.

My first paying job as a musician was nearly 50 years ago, in 1965. Since then, I've worked in many sectors of the music industry. Most of my success has been as a songwriter, but I've also been a studio musician, a band member, a producer, an arranger, an audio engineer, a publisher, and a recording studio owner. For my entire life, 100% of my income has come from music industry sources. I've never had a job other than music.

For 100 years, the music industry remained virtually unchanged. It wasn't a perfect business model, but it worked. There was enough money for everyone—songwriters, recording artists, record companies, publishers, plus those who work in the recording studios, pressing plants, and retail record stores. It was a thriving, multi-billion industry and, don't forget, it also produced significant tax dollars for the government.

You'll remember the testimony of David Faber, who works a construction job while living in his in-laws' basement. If David's career had happened 15 to 20 years ago, he'd likely have sold enough albums to comfortably live on his music industry earnings. So what changed?

In 1999, there was a perfect storm; the confluence of the Internet and MP3 technology allowed for the advent of Napster and similar online services, bypassing the record companies and facilitating the free distribution of music online. Technically, music fans were stealing, but as Pierre-Daniel Rheault told this committee, digital content has an anonymous, non-tangible aspect to it. People think they're just moving content across an invisible line.

The record companies were quick to react but slow to predict the future. They saw the online distribution of music as a threat, rather than an opportunity, so they went after the so-called pirates. They spent a decade doing that and eventually realized they'd lost the battle; but by then, the old business model was dead, and a whole generation of fans had grown up thinking that music is free.

But there's an upside. Never in history has music been more popular or more accessible. Look around you; everyone's plugged in, on the bus and on the street. Everyone's listening to music, all the time.

So far, witness testimony has been surprisingly consistent. I've listened to all of it. The main themes have been education, regulation, and funding. Regarding education, I fully support the funding of music education in schools, by which I mean access to musical instruments and musical instruction. I'm not so sure about using schools to promote respect for copyright, as several witnesses have suggested. It's a noble idea, but in my view it's a non-starter. The genie has been out of the bottle for more than a decade. As I said, most people today see music as free, or nearly free, and I believe it's too late to change that mindset. Perhaps if schools had daily lessons on copyright, and I mean an hour every day, like math or science, then indoctrination might be possible, but let's be honest; that's never going to happen.

Regarding funding, funding is life support. It keeps the patient alive, but it doesn't cure the illness. Gilles Daigle from SOCAN said that funding may be important, but first and foremost, we want to receive remuneration for the creative work done by our members.

Mr. Dykstra asked recording artist Brett Kissel at what point in Brett's career did government assistance begin? My question would be, at what point does government end? Why are established artists like Nickelback, Sarah McLachlan, Rush, Blue Rodeo, Arcade Fire, and the Tragically Hip accessing FACTOR funding? Ideally, FACTOR should be building new careers, not supporting old ones.

As Zachary Leighton told the committee earlier this week, 93% of FACTOR funding goes to signed, established artists. Again, at what point do you cut the umbilical cord, and at what point do you end life support?

As this committee has discovered and will discover, music industry revenues haven't completely disappeared. The record labels, the streaming services, and the ISPs are harvesting whatever revenues are available in a digital age, but those revenues are not being shared with the content creators. As you probably heard, Lady Gaga reportedly received $167 for a million streams of one of her songs. In other words, a piece of chewing gum is worth 500 to 1,000 times more than a Spotify royalty.

I'm going to skip ahead here.

Mr. Kee from Google said that the royalty rate is not the problem; it's the skill set of the artist that's the problem. I don't agree with that at all. Mr. Erdman from Deezer said that it's the vocal minority, the amateur musicians, who are complaining, and he went on to say that Deezer pays the majority of its revenue to rights holders—which is true—and he said that he finds it difficult to build a business, given that burden.

I say it's difficult for creators to build a business when royalties are .0005¢ per stream.

If the government is looking for a meaningful way to help the music industry, I believe it's through regulation and legislation. We need a modern and transparent business model for the digital age.

I've got some more here, but I think I'll leave it for the questions and give Mr. Hoffert some time.

Thank you.

[The Chair, Conservative, Gord Brown]

Thank you very much.

Mr. Hoffert, you have the floor.

[Paul Hoffert, As an Individual]

Thank you, my name is Paul Hoffert, I perform as a musician with my rock band Lighthouse and as a jazz pianist. In addition, I compose music songs and music scores for television programs and movies. I'm chair of the Screen Composers Guild of Canada, a founder of the Canadian Independent Music Association, chair of the Bell Fund, and a professor in the faculties of music, law, and information science at the University of Toronto. I was awarded the Order of Canada for my contributions to music, media, and society.

The music content business in my view is thriving. Consumers are listening to much more music than ever before, and music consumption is being well-monetized. But, the problem is that the entities that monetize music today are Internet companies and ISPs, as opposed to the old record business: record companies, music publishers, artists, and composers who formally comprised the music business.

Internet companies that pay music owners, such as Apple, Amazon, Google, Pandora, and Spotify, spend billions of dollars on infrastructure and earn billions of dollars by retailing music to consumers. ISPs also earn billions from distributing music from these licensed Internet companies, but also from unlicensed music on pirate sites and music files shared among their subscribers.

In my view it's very likely that the ISPs will decide to go legit and begin licensing music from owners so that they can get into the legal content business, and dis-intermediate the Internet companies who pose a threat to their dominant relationship with the ISP subscribers. That would make them a big part of the new music business. So, although no one knows how the new music business endgame will play out, or if the old-style music companies will have a place at all in tomorrow's music business, one thing remains clear: there will be no music business at all without artists and composers to create the music.

Consequently, my first point to Canadian Heritage is that you must support music creators if you wish to ensure that Canada has a vibrant music industry. No matter which entity ultimately supplies consumers with music, Canada must have a thriving community of music creators to make music, to earn a living from it, to pay taxes to the government, and to enable the rest of the music business ecosystem to keep Canada as a major centre for content innovation and production.

My second point is that you should try to understand the diversity of music creators and our needs. As a performer and a composer, I support others who are making presentations on behalf of the other creators, but I'm here today to focus on music composers, a particular group that does not have the ability to earn income from touring or other live events. It's critical that songwriters and screen composers be strongly supported by Canadian Heritage. In particular, screen composers should not be omitted from any supports by Canadian Heritage for creators.

Most music today is consumed on screen-based devices, such as mobile phones, e-pads, computer screens, video games, and TVs connected to the Internet. The primary distributor of music throughout the world, and some say more than three quarters of all the music that's consumed, is YouTube. Ironically, it does not accept music files for distribution. The music has to be embedded in videos, and they do this for copyright purposes.

Record retailers no longer allocate the majority of their floor space to CDs but to DVDs, that is, audiovisual content. Consumer electronic stores now only sell audiovisual systems. It's tough, as I've tried to go in and buy a hi-fi system—those around the table, I'm looking at you and I'm guessing that you remember what a hi-fi system was—it no longer exists. You buy something that's a video A/V system. Songwriters and music publishers, in fact, have turned to licensing their songs into television and movie properties as an alternative revenue source to the fading legacy music business. And the video game industry is producing many of the biggest music hits for recording artists.

So everywhere one looks, the music industry is really being transformed into an audiovisual industry, and screen music has been and is becoming a much more significant and growing economic engine for all music composers. The Screen Composers Guild of Canada represents songwriters and composers who create music for movies, television programs, video games, websites, and all sorts of other mobile content. In Quebec—in this case anyway—it's a simpler situation because composers for screen, and composers for songs that are not on the screens are represented by one organization called SPACQ.

In English Canada, the SCGC represents composers and songwriters for commissioned screen music—that means somebody pays you to compose it—while SAC represents songwriters who have music placed in films that is pre-existent. In other words, they just license it in. As the work of SAC, composers, and SCGC composers increasingly overlaps, the two English organizations have been increasingly cooperating with each other, and with SPACQ in Quebec, to upgrade all Canadian composers' skills and their ability to compete in international markets. These three organizations increasingly speak with a common voice, and we are supported by SOCAN and the SOCAN Foundation, which view us as central to a viable Canadian music creation and production industry.

The proposed guidelines for a new Canada Music Fund appear to exclude SCGC and our composer members from receiving support. Unless the Canada Music Fund includes SCGC and its members, it would leave the SCGC members orphaned and homeless because the film, television, video game, and Internet industries in Canada do not include any support for screen composers. Canadian Heritage would then be in the position of supporting screen composers in Quebec, through SPACQ, but not in English Canada. Worse, if the Canada Music Fund were to assist SAC and SPACQ members in marketing to music supervisors in the screen industries, it would be promoting those creators to the detriment of SCGC members, and divert revenue that SCGC members currently get from licensing their songs to the same music supervisors.

SCGC, SAC, and SPACQ have been working in close collaboration with SOCAN and the SOCAN Foundation in recent years, and have made excellent progress in agreeing on uniform objectives and initiatives, working together on common messages, and sharing the costs and implementation of many programs. It would be a blow to that unity, and a devastating hardship for SCGC, if the Canada Music Fund were to begin to preclude screen composers from its support, which it currently includes.

Finally, in support of my contention that the music business is thriving, I submit the following information that comes from SEC filings in the United States by Pandora, an Internet music company, as reported by Morningstar. Here's what Pandora paid some of its people in 2013: the CEO, $29 million; the CFO, $8.5 million; Thomas Conrad, the CTO, $5 million; Tim Westergren, the founder, $11.5 million.

That same year, Bette Midler, whose name is probably familiar to you, received royalties from Pandora of $456; David Lowery, of the band Cracker—a very well known and popular band—received $67; a hit songwriter, Ellen Shipley, received $158; and to put an exclamation point on it, Aretha Franklin's and Elvis Presley's estates each received no royalties whatsoever. The data that's available from other music services reflects similar gross underpayments to artists in the new regimes. We really need your help.

Thank you for the opportunity to make this presentation.

[The Chair, Conservative, Gord Brown]

Thank you very much, Mr. Hoffert.

Just for the record, I can remember back to the seventies when you had the big hit, “Sunny Days”, and I'm glad to see that you're here on a sunny day.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Gord Brown]

Thank you for your presentation.

That's a good segue into....

[Paul Hoffert]

Thank you very much.

[The Chair, Conservative, Gord Brown]

We probably have a few minutes before the bells go.... Oh, the bells are going now. We're going to have to suspend, and when we come back we will come up with some agreement to have some time for questioning of both of you. We'd appreciate your staying. We have to go. This is a half-hour bell and it will take about 10 minutes to vote. I ask members to quickly return after that to that we can try to get in as much of this as we can.

We are going to suspend.

[The Chair, Conservative, Gord Brown]

We are going to call this meeting back to order.

What we're going to do, with the agreement of the committee, is one five-minute round. We'll give each party five minutes to question Mr. Vallance and Mr. Hoffert.

We'll start with the government for five minutes.

Mr. Falk, you have the floor.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chairman

Thank you both, Mr. Vallance and Mr. Hoffert, for coming out and providing testimony to this committee. Sorry for interruption, but at least you got to eat out of the deal on the government's nickel. We'll send you a T4 or something. Just kidding.

First of all, I want to congratulate both of you on your careers and your achievements and accomplishments in the music industry. You both have very distinguished careers, and I want to acknowledge that and thank you for your involvement in the industry.

Mr. Vallance, you talked a little bit about the copyright, and you were providing a little bit of opinion. If you could, expand a little bit on that.

But I would also like you to comment on the funding that the Canadian government provides to the music industry through organizations like FACTOR, which puts that money into four different areas within the music industry. The four different components are the new musical works component, the collective initiatives component, music entrepreneur component, and the Canadian music memories component.

Are we putting money into the right places? Is it being administered properly? I think maybe I heard that perhaps it's not, and I wonder if you could give your comments on that.

[Jim Vallance]

You might be asking the wrong person.

I grew up in the 1960s and 1970s and there was no funding back then. I'm perfectly happy without funding. It wasn't easy then, and it's not easy now. But I'm biased on the topic. Paul would maybe have some further thoughts on that.

As I mentioned in my presentation, I think funding in most cases is life support. It's artificial. It creates a industry of dependence. Yes, it gives young musicians and young writers a head start, and I'm okay that far, but there's a point at which you have to either fish or cut bait, as they say. Either you're a professional and you're able to stand on your own and drive whatever income is still available in these trying times, but I'm not in favour of funding a career from A to Z.

I'm not qualified to comment on the funds that you mentioned because I don't have any personal interaction with them.

[Ted Falk, Conservative, Provencher, MB]

One of the comments you made in your testimony is that 93% of our funding goes to existing artists who are well established in their careers, and you were wondering about the usefulness of doing that.