Canadian Heritage Committee on May 13th, 2014

[Duncan McKie]

Well, you know, almost everything has been sold or bought recently, so....

[The Chair, Conservative, Gord Brown]

Thank you.

We'll move now to Monsieur Nantel, for seven minutes.

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

Thank you, Mr. Chair.

First of all I would like to thank the witnesses for being with us today. I am happy that Mr. Dykstra asked that question and that it was resolved. Indeed, there will not be many transactions like the one Bell was involved in recently every day. You have to make provisions if that kind of good news comes out of the blue.

I am happy that you are all here. I wouldn't want you to think otherwise. Since the beginning of this study, most witnesses have praised the programs that support production and creation. Most of the witnesses sang the praises of your two programs and your two subprograms. You are doing good work and we congratulate you. You certainly understand the industry.

And that is probably the secret. Naturally, the music industry is very balanced and it does not want to cut off its source. It's all well and good to replay Roger Whittaker, but young people want something different. So there is nothing to do but to seek out new material. From time to time, I listen to Roger Whittaker in my living room, but my children do not.

Your work has led to some wonderful successes. Lisa LeBlanc is the result of these funding programs. And this is not just the case in Canada. There is Pharrell Williams and his song Happy. That is an artist that we didn't know before.

Mr. Rodrigue, you mentioned four points, and the second point had to do with the flexibility of these programs. Were you referring to the variations in the inflow of funds to record producers?

[Pierre Rodrigue]

Yes and no.

Your question gives me the opportunity to demonstrate the fundamental difference between FACTOR's funding and that of Musicaction when it comes to the viability of the organization.

Duncan M. McKie told you about the three major transactions which occurred recently in Canadian broadcasting. You will remember that the transaction affecting Standard Radio did not concern any francophone stations, that the transaction involving CHUM did not involve any francophone stations and that the transaction involving Bell-Astral, if I remember correctly, concerned 23 francophone stations out of about 100.

If you do the math, you can see there have been significant investments which will lead to concrete benefits for FACTOR's long-term funding. Musicaction and even RadioStar do not benefit from the same level of investments. This does not change the government's investments, but, keeping the same proportions, there is no reserve fund of $30 million, even at Musicaction.

Why do I say that the outcome would be the same? Obviously, given the financial context and given that the music industry has been going through some tumultuous changes in recent years, programs cannot be set in stone and cannot remain unchanged for many years.

Our board wisely decided to set up a permanent review mechanism for our programs. We need to resist the temptation to jump on the bandwagon of the most popular model. Every year, new models emerge and while we may be tempted to adopt them, we do not. We were on the cutting edge when it came to digital.

Every year, we implement several new pilot projects, for example in the area of international management. For certain marketed products, we even invite industry to submit new projects. We ask which pilot projects might meet the latest needs. Obviously, we do not dedicate a significant percentage of our funding to this, but we invest enough to be able to test the market.

We need to be flexible, and we need to do so in collaboration with Heritage Canada. In theory, according to our agreements, Heritage Canada could tell us to keep our action plan and to review it in five years, but this is not the case. We often have discussions with our granting organization. Broadcasters also play a role. They could easily write a cheque at the beginning of the year and then disengage. But the board members who represent broadcasters listen to people in the music industry. They participate in these review committees and they adopt new programs from time to time.

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

Thank you, Mr. Rodrigue.

Mr. Bissoondoyal, earlier, you mentioned these programs. You have a multitude of projects. On the recommendation of your producers, you decided to explore different opportunities. One of the obvious conclusions of this comprehensive study is that we are doing well in terms of creativity and production, but we are having a hard time finding a place for ourselves on a competitive market where the rules have changed. Making sure our productions are visible and that our commercial model is viable are key.

Is that correct?

[François Bissoondoyal]

Yes, in a certain sense. It is good that you have asked me this question. This will allow me to come back to the practical guide and to the study that Fonds RadioStar conducted.

In Quebec, the predominant model is one of independent producers, which is not the case in many other places around the world. As a result, there are often small businesses that do not necessarily have the means to use focus groups for example. This practical guide allows them to do that and, as a result, to build a closer relationship with their clientele. In this way they can better allocate their spending in order to obtain greater visibility, which is of course what we are constantly seeking.

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

Thank you.

My next question is for Mr. McKie.

Regarding the Canadian music ecosystem and new and emerging talent, I would like to know to what extent international companies are eligible for your programs supporting this aspect of the creation process. I believe they have access to the products you provided support for, but only in terms of a licence.

Is that correct?

[Duncan McKie]

Yes. Let me explain to you briefly how a person might work with a major label if they have access to our programs initially. Is that consistent with your question?

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

Yes.

[Duncan McKie]

Anyone can access our programs, as I said. It's possible that an artist will create a sound recording and, having done so, instead of offering it to the market in general, might actually offer it to an international company. In our system at that point, if the international companies decide to license that product for Canada, our support is then refunded to the system.

In our system you cannot access the programs directly, nor can those international companies. Nor can artists who are licensed to those companies access the sound recording programs directly, although they can access the tour programs. As I said, if you've taken a loan or a grant from FACTOR and you then license the product to an international company, the loan or grant becomes immediately due to be repaid to FACTOR.

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

Is your logo visible?

[Duncan McKie]

Was that the question?

[The Chair, Conservative, Gord Brown]

I'm sorry, Mr. Nantel. We're going to have to move on.

We must have equitable time, so you'll get another chance to answer that, I'm sure.

Mr. Dion, you have the floor. You have seven minutes.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Thank you, Mr. Chair.

Thank you to each and every one of you for being with us today.

Mr. McKie, maybe I misunderstood, but it seems to me that you've said you expect the contributions from broadcasters to go up for the next two years and afterwards to fall.

[Duncan McKie]

It will remain more or less stable for the next year or so, because we're still under the regime of those original tangible benefits. On the 0.5% side, that may actually go down, because radio revenues are not trending upwards by any means.

So yes, the current state of affairs is exactly that, and then there's a very large fall-off into 2020, where the tangible benefit component goes from about $12 million to $3 million. It drops off this year, to about $3 million by 2020, so there is quite a substantial drop in the tangible benefits component, which is based on transactions.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

Is that a likelihood or...?

[Duncan McKie]

In the current schedule, that's exactly what's going to happen unless something should change in the business environment to make it different.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

What do you think we should do to adapt to this new reality?

[Duncan McKie]

Well, I know what I'm going to do. I'm going to take the reserve we have, live partly on the interest, and invest some of the capital. I think if we continue to do that, and the government continues to throw in at the level that they are, we'll be able to remain at some $16 million as an organization for some time to come.

There will, ultimately, be a point where those tangible benefits will diminish the reserves to the point where we can't sustain that. I don't really have the model out past 2020 at this point, because I'm sort of looking at the next five-year iteration of the Canada Music Fund as my base for estimating where we're going to be.

I think that's the reality. I think it's up to policy-makers to decide if they want to address it or not.

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

If they had to address it, what kind of address would you like to see?

[Duncan McKie]

Pardon me?

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

If they had to address that, what kind of a—

[Duncan McKie]

Well, it's not up to me. I'm the administrator. People give us the money. We do the best we can to make sure—

[Stéphane Dion, Liberal, Saint-Laurent—Cartierville, QC]

You have no recommendations to make on that?

[Duncan McKie]

Not on financing.