Canadian Heritage Committee on Oct. 28th, 2010

[Justin Trudeau, Liberal, Papineau, QC]

On the opt-out option, is it not a concern that if everyone can say that they don't really download music and choose to opt out, that would have to be enforced? Would the ISPs be monitoring that a person actually downloaded a song over the month and they didn't pay their $3, or is the faith that people will understand that “This is your $3, so you can feel good about yourself” going to be enough to make the business model work?

[Don Quarles]

Well, I'm not a lawyer. However, what I've been told is that if in fact they are opting out, and they choose to ignore what they've just opted out of, it's a different law. We're dealing with different legislation that already exists for that.

[Duncan McKie]

Could I make a comment?

We, and ADISQ in Quebec, represent most if not close to all of the domestic record production in Canada, so we own all the copyrights to the stuff that's going to be traded on these networks. I don't want to debate Don on the merits of the system, but I was for 25 years a researcher, and the last research I did was on this phenomenon, before I came into this association. Half of Canadians never purchased a CD in the year 2005. They didn't. Half of the country never purchased music. And the top quintile, the top 20% of purchasers, purchased 15 to 20 a year.

So the market for music in Canada has always been highly skewed: young men 18 to 34 buying lots of stuff on an ongoing basis. So when you talk about the opt-out provisions, the problem with that is, if it's true to history, half the people won't be in it. So it cuts your revenue in half immediately. That's problematic, from our perspective.

It's not that we don't appreciate SAC's determination to pay us. We love it, it's great, and I think it's an interesting idea to debate. But our companies, as I tried to illustrate in this document, are proceeding on a different assumption, that this won't happen and they're going to have to create new business models where the revenue streams are going to come from other areas to support their artists. That's where we're going today. That's the “Canadian cool kids”, like the Arts & Crafts, who have Broken Social Scene, and companies like that. They're not proceeding on the assumption that they're going to be paid this way.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. McKie.

Thank you, Mr. Trudeau.

Monsieur Pomerleau.

[Roger Pomerleau, Bloc, Drummond, QC]

Thank you, Mr. Chair.

Mr. Quarles, you said that the Union des consommateurs generally supports your idea. Is the type of support you have received theoretical, by which I mean only for the basic principle, or have you looked at specific monthly amounts with those people?

[Don Quarles]

We didn't actually talk about monthly amounts. They had our initial research, which included between $1 and $5 a month. They knew that we were talking about that range. We're not actually hung up on what the amount is. If in fact this was something we needed government support on, I would assume that someone like the Copyright Board would determine that based on discussions with consumers and based on discussions with the industry. But the reality is we're less concerned with the actual amount than we are about getting this going now. There's an urgency.

[Roger Pomerleau, Bloc, Drummond, QC]

You are not the only one to say so.

Mr. McKie, you referred to a 360 strategy. I did really get what that means. What did you mean by that?

[Duncan McKie]

If you think about the old model, a company in the record business would make a record, sell 50,000 to 100,000 copies of the record, somebody else would sell the publishing rights, someone else would manage the band, someone else would create merchandise and sell it. There might be five or six companies involved.

Today, new companies that are starting up—and I mentioned one a minute ago, Arts & Crafts in Toronto, which had Leslie Feist and some other great new acts—they are all of those things in one company. So they're a publisher, a management company, a merchandise company, a record label in one entertainment company. The artist then becomes the brand, and then all of these opportunities to create revenue are brought back into that company.

In their case, one of the artists is actually a partner, and this is unique in the entertainment business. Where the artist becomes a partner in the company, all these revenue streams are focused on the brand. The artist is a brand. For them, for example, Broken Social Scene is a brand, Leslie Feist is a brand for Canada, and they have these different business—

[Roger Pomerleau, Bloc, Drummond, QC]

It is part of the new strategies that you are thinking of implementing.

[Duncan McKie]

Yes, and that's a strategy based on building business. We expect and appreciate all our révérence. We're not going to give it back. But on the other hand, we think we need a positive business model that builds opportunity based on new approaches to structuring businesses.

Canadians are good at this because back in the seventies there were guys doing this already. My chairman, Bernie Finkelstein, tells me all the time that he was the first 360 company and has been so ever since. It's something that's interestingly unique to Canada, and well suited to the way we develop—

[Roger Pomerleau, Bloc, Drummond, QC]

Irving in New Brunswick is a bit like it.

[Duncan McKie]

And Donald K Donald in Montreal; Donald Tarleton is also an example.

[The Chair, Conservative, Michael Chong]

Thank you.

Mr. Richards.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you, Mr. Chair.

I would like to follow up a little further on this, and we'll call it a tax. I know the other side doesn't want to call it that. They're notorious, of course, for wanting new taxes on Canadians. Certainly on this side, I don't believe in that sort of method of doing things.

Rather than discuss the idea of a levy or a tax, or whatever you would want to call it, on Canadians and more money out of their pockets, if I were to say that wasn't something that I would support, what other methods would you see as ways we could deal with ensuring that there is recognition for the value that is provided by the work of our artists, but not unfairly punishing Canadians who may not necessarily subscribe to seeing money come off their monthly cable or Internet bills?

I would encourage you to give some thought to that, and if you have other suggestions you could throw out there, I'd be open to hearing what those are.

[Don Quarles]

Let me first of all clarify that it is a licence we're talking about, not a tax or a levy.

I think it's important to note that there are many songwriters out there who don't have the luxury of benefiting from touring or from selling CDs off the stage, selling T-shirts, or selling concert tickets. So it's as important to us to come up with a solution that is good for the songwriter as it is for the artist-songwriter, because these are people who have to put bread on their table.

If you had a consumer on one side of the table and an artist-songwriter on the other side of the table, and the consumer said, “Gee, I don't want to pay for music”, because that's really what we're talking about, the artist-songwriter would basically say, “Well, then, I don't eat this week”. I think there's a logical and very simplistic view and way we can present this proposal.

This is just one part of the industry. This isn't the be-all and end-all. It's like my buddy walking down the street and he breaks his leg. Am I going to put a band-aid on his shoulder, or am I going to focus on his leg, which is broken?

We need to focus on the biggest part that's really hurting. It's been ten years. I think we're due to focus on it now.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Quarles.

We'll finish this panel with Mr. McKie. Go ahead, Mr. McKie.

[Duncan McKie]

Mr. Richards, I'd like to take a crack at your question.

When you look at the annual returns in music industries around the world, some are actually positive. That's a lesson for Canada—which ones are, and why. Sweden is one, as is the U.K., Australia, and Korea. It isn't all bad news.

One of the things these countries have is very aggressive infrastructure development in the mobility sector and ISP sector. That's something we don't have here--seriously. That's a real problem for Canada. We were one of the most advanced nations in the world 10 years ago in terms of connectivity, but are now lagging behind and rated 27th or 28th on the OECD ratings, both in terms of cost per person and bandwidth speeds. So we're in a bad position that way.

What the Ontario government is contemplating—I know you don't like to take lessons from Mr. McGuinty, “Premier Dad”—is setting up things like venture capital funds to support infrastructure development. Governments get paid back for these investments in the end, which are not just grants or loans. In Ontario's case, these are of a substantial size—$100 million, $150 million, to which our companies would have access and others who want to develop the Canadian infrastructure for distribution.

So when you only have 20 download sites and the Germans have 50, it doesn't take much imagination to figure out why it is they have a positive upswing in their digital music sales. They just have better and more distribution. We just don't have it. So our ISPs have been really lazy, having these managed monopolies, of course, and really lazy in setting up these opportunities for our distribution system.

So we have to look at all of that. I agree with Don that it's not just one thing; it's all these other things, but that's a critical component right now of our ability to recover sales.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. McKie.

Thank you, Mr. Quarles.

We will suspend here for five minutes to allow our panel to switch over.

[The Chair, Conservative, Michael Chong]

I'd like to welcome our next panellist before our committee on Canadian heritage.

Representing Jumpwire Media, we have Mr. McGarry, president.

We'll begin with your opening statement, Mr. McGarry.

[Gavin McGarry, President, Jumpwire Media LLC]

Hi. I appreciate you inviting me down to speak. I read most of the reports that were created from the one that I believe you did back in April.

I should probably just give a bit of background about who I am. I am a proud Canadian, but I live and work in the United States. I left Canada in 2004 to go and work in the U.K., because I wanted to understand the mobile space and nothing was happening in North America. I had a TV production company and an advertising agency and, maybe wrongly, I tried to merge them. I thought there was a real opportunity, and it didn't work as well as I'd hoped. I left because the funding issues in trying to get TV shows off the ground were so difficult and so time-consuming that I just felt it would be better to go and look at something somewhere else.

I have a European passport and I went to Europe. I landed at Endemol, which is one of the world's biggest TV production companies. They do Deal or No Deal, Big Brother, lots of big TV shows, formats from around the world, a lot of reality.

I landed there, luckily, and at the same time Endemol was owned by Telefónica, which is giant Spanish conglomerate that also owned O2, which is the biggest mobile operator in the U.K. It was a very interesting experience to be inside a mobile operator, because I realized that nothing was going to happen for five or seven years; it was so archaic, so difficult to deal with, that we were dealing with the content people internally, and it really wasn't helping.

When I was at Endemol I saw an opportunity in 2005 to create a cross-media, or cross-platform, business development department. They managed to give me some money, I created it, and it was great for about a year. I left to come back to Canada for a few months, and then I went to work for a company in New York called Joost. This was probably one of the leading web video companies in the world, and they squandered $100 million in two years. They were the leaders. Unbelievable.

It was a great experience, I must say, but there was a lot of learning--a lot of learning. It was owned by the Skype guys, the guys who created Skype and Kazaa. So it was a peer-to-peer sharing network.

I just came in at 4 o'clock and heard you talking about BitTorrent and that sort of thing.

So when I was in New York I left Joost--I could see it was going downhill--and started Jumpwire, mostly because people kept asking me for strategy. Because of my background, because no one had the experience I had, I was becoming one of the leaders in the world at what I did. So I've gotten to work with Discovery, Indian companies, Australia, and Russia. We helped bring Hulu into Russia. It's been really exciting. We're only a year and a half old and it's been a real ride.

We just opened a Toronto office, because I am Canadian and I'm proud to be a Canadian. It's a really interesting time that's happening right now. I read through the study and some of the questions you asked. Unfortunately, I don't think I'll be able to address too many of them, because I haven't been in Canada long enough. But what I would like to say is that when I came back, I sat on a jury, just recently, for the CMF, because I wanted to understand where the funding had gone in the last five years. So I sat on the experimental jury that recently gave out a whole bunch of money. It was a really great experience, because I think this is the future of what funding should be in Canada. It was such a relief to come back and work on the funding side and see, “Here's a great idea. We'll get some innovative ideas in and then, you know what? We're going to take equity in them.”

VC is a big problem. I have to deal with VCs all the time. I'm looking for investment currently. It's a nightmare. To have the government involved as a VC seems questionable, but since I went through the process, I was really encouraged, because the shows, the innovative ideas that came through the experimental stream, were not about Canada. They were just good ideas.

That's where I want to focus the last few minutes of my presentation. I think the real future, that we talk about with our clients, is that if you're doing a five-year plan, you're probably not in your right mind. We don't really plan for any of our clients around the world more than 18 months out. Why? Because things change so quickly, there's absolutely no way. And for you, trying to build legislation around that....

I had an interesting discussion yesterday about the role of government in what's happening. Are you guys leaders? Are we supposed to lead the world, or are we supposed to lead from the middle, as everybody says?

I think what I came down to is that Canada has always led. When I left to go to the U.K. in 2004, we had 75% broadband penetration. When I went to the U.K., they had 50%. So 50% of their entire populace was on dial-up.

When I was in meetings, it was like I was from the future. I'd say that we tried that in 1998; it didn't work then and it's probably not going to work now. We have ten megabit down, and we've had it for five to seven years.

We led there, and we now lead in the most per-capita online video or web video watching. Canadians absolutely are so much higher than anyone else in the world, and yet we're not capitalizing on it. We're still spending time trying to determine how we can link it in with broadcasters.

At Jumpwire, essentially coming back into Canada in the last...I've given up. We do a lot of work with broadcasters, but the key problem I'm hearing right now is from production companies coming to me and saying that the broadcasters want all the rights. They want the rights, but they're not willing to pay for them.

So we've come up with a strategy, which I'll happily tell you. It's to go and get the rights for mobile, for online, for merchandising before you go to the broadcasters, then force them to ask you how much they're worth. It's difficult—I've also been on the broadcast side. How much are these things worth? But there are people making a lot of money out there, and I think that's important to acknowledge.

From our company's standpoint, in New York, I use the three territories that I spend a lot of time in very specifically.

The creative comes out of the U.K.. It's probably the most creative stuff I've ever seen in the world. They've had Shakespeare. They've got great training. You know, they use 40,000 words, we use 20,000.

When I sat in those development team rooms at Endemol, I saw probably the most innovative ideas ever. They cannot sell their way out of a paper box. There's just absolutely no way. But the Americans can. They're the best at it.

Here's what we started doing. When I built the cross-platform department, I said we're testing everything in Canada. Why? It's because it's the most diverse country in the world. If we want to do something for Korea, I can go to Koreatown in Toronto, I can buy up the billboards around it, I can test something in a very small market very quickly on a savvy audience. That's the way we work it, and it works quite well.

The three things I want to focus on, and we tell all our clients this, are data, web video, and mobile. For data, I have two key areas. I don't know whether you're focusing on these. Privacy is obviously is a big one, but there's also access. I want access to all the ISP data. I think I should have it. Can I get it under the freedom of information act? I don't know. Will they ever give it to me? Probably not.

But we built--we use BitTorrent--a $250,000 tracking machine. We're the leaders in the world in what we do. It's a filtering system. I have a Ph.D. on staff who tracks every TV show, every movie, all music in the world on BitTorrent, and we sell that information back to the content companies. And it is such a difficult sell: “I don't want to be associated with BitTorrent.” But I'm like, “This is what your people are doing; why don't you want to leverage that?”

So we have a long way to go, but there's a lot of opportunity here. I think that when you look at web video and how we lead the world, we need to capitalize on that. We need a fund specifically for that.

YouTube knows. We spend a lot of time with the guys at YouTube. Canada was the first place they opened a secondary office. Facebook, the secondary office was in Canada. Yelp, Twitter—you name it—they all come to Canada, because they cannot believe that this small country uses the Internet so much.

We're not the type of people to stand up and beat our chests and say we're number one. We just continually move ahead. But we are absolutely the laboratory for the world, and I don't think we're exploiting it. If you guys can help this, that would be helpful.

The final point for me--we can talk some more, and you can ask me some questions, if you want--comes down to the question of how do we leverage one of the most culturally diverse and digital-savvy countries in the world? That's what I want to do with my company, and I'm not really sure how to do it.

As we move forward, I'm not sure what my company is. Things are moving so quickly I can't get a handle on it. Anyone who says they can is definitely not being truthful, shall I say.

Thank you.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. McGarry.

We'll now have about 45 minutes of questions and comments from members, beginning with Mr. Simms.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Thank you, Chair.

Thank you, Mr. McGarry, for your words. You cut right to the chase; love it.

Earlier we had an individual talk about a new business model, per se, and how we get around the fact that people are using this music, through file-sharing, that sort of thing, peer to peer? You're seeing this in a bird's eye view of what's going on and the sheer bulk of money that's not being transferred back to artists.

What do you envision as a new business model for individual artists or distributors to get their money?

[Gavin McGarry]

Here is my vision. Artists are already being paid for their content. In fact, I met with a gentleman at Ericsson, over in Europe. Most people don't realize that usually, for the IP-blocking services for BitTorrent, most people are paying 10 Euros or $10 to block their IP so that they can use BitTorrent. That far outstrips the amount of money they would have made on the content that people are downloading.

People are already paying $10 a month for the content.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

That's the IP-what, again?

[Gavin McGarry]

It's an IP-blocker.