Canadian Heritage Committee on March 25th, 2014

[Solange Drouin]

Thank you, and I hope we'll have extra time to discuss after one o'clock.

[The Chair, Conservative, Gord Brown]

Your eight minutes are starting now.

[Solange Drouin]

Thank you.

My name is Solange Drouin and I am the Vice-President of Public Affairs and the Executive Director of ADISQ.

First of all, I would like to thank you for having invited us to participate in the review that you have begun of the Canadian music industry, including its funding.

To begin, I'd like to say a few words about our association. ADISQ is a professional association that represents disk, performance and video producers working mainly in Canada's French-language market.

Our association is over 35 years old, and we are active in every field that involves our members' interests: workforce training, labour relations, funding businesses, broadcasting and telecommunications, as well as collective promotion.

To truly understand the reality of both Canadian markets, francophone and anglophone, let us briefly review the organization of this sector at an international level.

Throughout the world, three companies share 80% of the market. These companies, you already know. They are Warner, Universal and Sony. The other 20% of the world's market is shared by a multitude of small, independent businesses whose proportion and weight in a given market vary significantly from one country to the next.

[The Chair, Conservative, Gord Brown]

One moment, please. Right now we have no English. Could you hold on for one moment, please. I'm sorry for this inconvenience.

[Solange Drouin]

Okay, so you don't understand me if I talk in French. That's great.

[The Chair, Conservative, Gord Brown]

Hold on a second. We hope we can fix our technical difficulties.

Ms. Drouin, do you mind starting over again?

[Drouin]

I don't mind at all.

[The Chair, Conservative, Gord Brown]

We're very sorry for this technical difficulty.

[Solange Drouin]

There's no problem. I understand.

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

I am going to do a test.

Is everything fine?

[The Chair, Conservative, Gord Brown]

It appears so, yes, on the English channel.

Okay, let's give this another go.

Thank you. Your time will start over again.

[Solange Drouin]

I'll start again.

My name is Solange Drouin and I am the Vice-President of Public Affairs and the Executive Director of ADISQ.

First of all, I would like to thank you for having invited us to participate in the review that you have begun of the Canadian music industry, including its funding.

To begin, I'd like to say a few words about our association. ADISQ is a professional association that represents disk, performance and video producers working mainly in Canada's French language market.

Our association is over 35 years old, and we are active in every field that involves our members' interests: workforce training, labour relations, funding businesses, broadcasting and telecommunications, as well as collective promotion.

To truly understand the reality of both Canadian markets, francophone and anglophone, let us briefly review the organization of this sector at an international level.

Throughout the world, three companies share 80% of the market. These companies, you already know. They are Warner, Universal and Sony. The other 20% of the world's market is shared by a multitude of small, independent businesses whose proportion and weight in a given market vary significantly from one country to the next.

There exists a significant distinction between the practices of these three large groups and those of independent companies. The majors focus their efforts on developing the career of a limited number of artists to cover as large a market as possible. For their part, the independents, represented by the CIMA and the ADISQ, focus mostly on developing the careers of local artists, first and foremost for local markets.

In Canada, this logic of development is used, with a very important nuance for Quebec. In 2011, when the majors were putting out only 13% of Canadian artists' albums, the independents, represented by the CIMA and the ADISQ, were responsible for putting out 87% of our artists' albums.

However, the majors grabbed about 70% of the Canadian industry's total revenue, mostly through the distribution of international artists. This means that distribution activities done by the majors for international artists are very important, which often leaves very little room for local artists on their own markets.

In the Canadian francophone market, the situation is not the same. The number of local artists associated with the majors is minimal, even trivial. Independent companies are responsible for more than 95% of local artists' albums, and those artists represent, in both good years and bad, between 40% and 50% of total sales in Quebec.

That being said, even though the market share results are very different for the Canadian anglophone and francophone markets, it is clear that those who are largely responsible for developing the careers of local artists are the independents, which we represent, and not multinational corporations.

I would therefore warn you about those who claim to represent the Canadian music sector as a whole, when the majority of their revenues come from distributing international artists.

When it comes to public funding of the Canada music sector, what does this all mean? The Canadian government's goal in terms of public funding of music is, and always has been, to ensure that the Canadian public has access to a sustainable reservoir of music from here, while promoting those who are largely responsible for these productions, which are businesses and Canadian artists. This funding has increased over the years, and is now at $25 million.

Furthermore, in the last federal budget, this entire amount was made permanent, and we were very pleased by that. This amount has been managed by a limited number of administrators, namely Musicaction, FACTOR and Canadian Heritage. These organizations and this department's programs have reached an admirable degree of maturity, developed with a logical theory of intervention that meets the needs expressed by the Canadian music scene.

That being said, does public funding meet all of the industry's needs? Of course not. However, at its current level, it still plays, though not as easily, its role as an essential lever to maintain a certain degree of national musical content production, resulting in an adequate level of outreach. But how long will this last?

I am sure you know that the music industry has undergone significant changes since the rapid development of digital technologies. I could mention—and I am sure you have heard of this—the dramatic drop in the number of disk sales. All of the markets in the world have seen drops of between 30% to 60%. In some cases, digital sales have mitigated the reduction, but they have not slowed it down.

In Quebec, for example—this is an important figure—while we sold 13 million albums in 2005, we sold only 6 million in 2013. However, that is not the only major change affecting our industry.

In a report published last week, the International Federation of Phonographic Industry, or IFPI, was very clear. Our industry is clearly headed toward a future where music is consumed through online music services that provide access to a very large music repertoire. These include services such as DEEZER, Spotify, rdio, Beatsmusic and Google play.

According to the IFPI, such services are currently providing the public with access to 38 million songs. This new reality is completely transforming the amount and type of income that all of the partners in the musical content creation process can receive. While selling a CD generates a certain number of dollars that can be divided between the partners, legal online music services generate a multitude of micro-incomes for every song transaction. This leads us to a paradox which is difficult to explain.

While music has never before been so widely available and consumed, the income it generates for content and production partners has never been so low. Of course, there is income and it is significant. However, it is other players outside of the music world who are able to seize and keep that income. It is strange to think that an important sector of our economy is largely using a product, in this case music, to sell its own service—I could mention Google or an Internet service provider—without compensating the owners of the product it is using to sell its service.

For example, could you imagine, in the agricultural world, if the wheat producers were not compensated because the distributors argued that they were making the wheat accessible to the public and that they had to support their distribution network? That would be unthinkable.

The Canadian government and some of its agencies have several tools at their disposal which they could use to correct this imbalance in the music industry. For example, they have skills in copyright law, broadcasting regulation, international taxation, funding, and so on. The longer the Canadian government waits to use these tools, the more it will become necessary to invest public money in the Canadian music industry to ensure that Canadians have access to their music.

In my opinion, it would be unfair for the government to place a larger burden on the shoulders of Canadian taxpayers to help our industry develop, when it would be possible instead to make the main consumers of our music, who in many cases are foreign companies, contribute.

This is why we are asking the committee to pay particular attention to identifying priorities and actions that can be taken quickly vis à vis these large music users. This will promote long-term access to our music, with all its richness and diversity, for the Canadian public.

[The Chair, Conservative, Gord Brown]

We'll have an opportunity in the questioning to expand. Thank you.

We're now going to move to the Canadian Independent Music Association, Stuart Johnston and Shauna de Cartier. You have a total of eight minutes.

[Stuart Johnston, President, Canadian Independent Music Association]

Good afternoon. I am president of the Canadian Independent Music Association. Joining me today is Shauna de Cartier, owner of Toronto-based record label and management company, Six Shooter Records, and the current chair of my organization's board of directors.

Thank you very much for the opportunity to speak to you today.

Each and every one of you plays an important role in the success of the Canadian music industry, and for that we sincerely thank you. We would be remiss if we did not also thank the federal government for not only renewing the Canada Music Fund but also renewing it essentially in perpetuity. It certainly sends a strong signal to the business community that such support will be there for the years to come, a particularly important point considering the three- to five-year planning window of our music companies.

It is important to understand that the Canadian music industry is not homogenous. It is a community of Canadian-owned small businesses, half of which are sole proprietors, in which the top 10% earn more than $500,000 annually. These are the entrepreneurs and artists who work hard every day earning a living doing what they are passionate about.

My organization is the not-for-profit national trade organization representing the English language Canadian-owned sector of the independent music industry, whose primary mandate is advocating for, supporting, and promoting the business of music, both domestically and around the world. We have over 220 members located in every province plus one territory. Together, our members directly employ almost 2,200 people and collectively represent more than 5,100 artists. CIMA's membership is involved in every aspect of the music and music-related industries, including record labels, producers, managers, and others professionally involved in the sound recording and music video industries.

In the aggregate, the domestic English language music sector truly punches above its weight, annually contributing at least $303 million to Canada's GDP and employing more than 13,000 people. An important economic indicator for any industry is the measure of its intensity ratio, or how much of its economic activity sticks to the Canadian economy. According to CIMA's research, for every $10 million of revenues earned the independent industry adds $8.2 million to the Canadian economy, an 82% return.

From a tax perspective alone, Canada's federal and provincial governments annually receive a healthy rate of return from the Canadian-owned music sector. In 2011, English language independents paid $93.2 million in taxes to the provincial and federal governments. On average, for every dollar of public support it received through programs like the Canada Music Fund the music industry generated $1.22 in taxes across Canada to the net benefit of our governments.

[The Chair, Conservative, Gord Brown]

Excuse me for one moment.

I think Mr. D'Eith is having some difficulty.

We think that if you just switch over from one to the other you may be able to get the English feed. Can you do that?

[Robert D'Eith, Executive Director, Music BC Industry Association]

Everything is done at your end.

[The Chair, Conservative, Gord Brown]

You can't switch it yourself?

[Robert D'Eith]

It's okay. It just went to English. Don't start again, it's all good.

[The Chair, Conservative, Gord Brown]

Sorry for the technical difficulties.

Go ahead.

[Stuart Johnston]

All right, no problem. Thanks.

However, our industry is not without its challenges. As small businesses that discover and develop Canadian artists, create and commercialize music, access to capital is our number one issue. Banks by and large do not lend money to the music industry. Our product is intellectual property. Our songs are ephemeral. That is why governments are important partners. You provide some of the seed capital that enables commercial success, economic benefits, and job creation in our industry.

Competition, both global and domestic, is an ongoing challenge. For example, as Solange mentioned, the multinational major record labels, Sony, Warner, Universal, are both our strong business partners as well as our competition. How can they be both? About 85% of the independents such as Shauna's company are distributed in Canada by one of the majors, or have marketing and promotion agreements with them. In many ways it is a symbiotic relationship and it works very well for all parties.

On a broader level, though, our small businesses still struggle for market share and shelf space, be it physical or digital, in the marketplace. For example, Universal, since its acquisition of Britain's EMI label, owns close to half of the overall market. Last year, over 76% of all album sales in Canada were by major label international artists like Beyoncé and Lady Gaga. Canadian artists owned 23% of the domestic market last year, over 14% of which was sold by independent artists in both English and French markets. The upside is that 60% of all Canadian artists' sales in Canada were from artists signed to CIMA's or ADISQ's members. Forty per cent of Canadian sales were by artists signed to the major labels.

Still, it is a struggle for individual Canadian companies like Shauna's to compete one on one with the relatively deep pockets and international marketing heft of the major labels. This is why continued support for production, marketing and promotion is so important to our domestic companies.

Technological changes over the past decade have significantly impacted the industry. While digital piracy and file sharing were rampant for most of the past decade, technology has also influenced consumer behaviour. Whereas before it was an album market, now consumers purchase singles or they stream music, which is otherwise known as renting music. This has dramatically impacted the revenue model of the industry. Unit sales and per unit revenues have dramatically declined. Therefore there is a stronger reliance on diversifying revenues from a multitude of sources, be they public, private, and broadcasting dollars through the CRTC-mandated CCD fund.

Digital technology advancements have both helped and hindered the industry. It has never been easier to record and distribute music globally. Communicating with fans is more direct and interactive. However, while relatively inexpensive on the lower end, professional recording is increasingly more expensive and there is a stratification of production costs. It is increasingly difficult to gain market attention, and it's hard to rise above the noise. Resources in this area are a priority.

Technology alone cannot ensure that an artist's work is heard or discovered. Music is also a global market. Music has no borders, which means we must be anywhere and everywhere to commercialize our music, engage with our fans, and showcase our artists. Therefore, exporting is a key component of our global strategy. Unlike many of Canada's major competitors, Canada does not have a formal music export office. In recent years, CIMA has acted as a de facto export office with the support and partnership of industry partners like ADISQ, Music BC, and other music industry associations. This is an area where government is and should continue to be a key partner as we collectively explore opportunities to commercially exploit foreign markets.

Shauna.

[Shauna de Cartier, Chair, Canadian Independent Music Association]

I am here to provide a real-life example of the Canada Music Fund in action. I moved to Toronto in the year 2000 with a $15,000 loan from my brother, and a couple of credit cards. After four years of building a track record, I was eligible to access funds from FACTOR. I have since leveraged that support to release more than 80 albums by dozens of Canadian artists, and coordinated thousands of concerts around the world. I've also started a festival attended by more than 10,000 people in Edmonton. Now, more than 50 people rely on Six Shooter for their livelihoods. Six Shooter is a typical example of how your support can go a long way to create a sustainable Canadian-based infrastructure for a vibrant cultural industry.

In closing, the business of music, the commercialization of music, is multi-dimensional, but it all starts with the song. The Canadian-owned independent community is leading the way on artist discovery and development, and commercially exploiting markets around the world.

The cornerstone of the industry is still production, marketing, and touring. It is a three-legged stool and it all starts with the music. Therefore, Canada Music Fund programs must continue to support these fundamentals. They are necessary to support industry. These programs help ensure that artists are fairly compensated, and businesses are successful both globally and at home, based on the execution of sound business strategies. Any new programs should be funded in addition to the Canada Music Fund's core funding.

Thank you for recognizing the value that Canadian music brings to our country, both culturally and financially.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We're now going to go to Vancouver, where we have Robert D'Eith, who is the executive director of Music BC Industry Association. Hopefully, our technological issues have been resolved.

You have the floor for eight minutes.

[Robert D'Eith]

Thank you very much, Mr. Chairman.

My name is Bob D'Eith, I'm the executive director of Music BC. I'm also the acting chair of the Canadian Council of Music Industry Associations.

To give you a bit of background, Music BC is a provincial music industry association. We provide advocacy, artist development, music business education programs, networking opportunities, export marketing initiatives, and funding resources. We have 1,000 paid members.

The CCMIA is a group of the provincial and territorial music industry associations that represent about 10,000 artists, labels, publishers, managers, studios, and producers from coast to coast to coast. The mandate of the CCMIA is to act as the national voice of the provincial and territorial music industry associations. The CCMIA membership consists of Music Newfoundland and Labrador, Music Nova Scotia, Music Prince Edward Island, Music NB, Music and Film in Motion Northern Ontario, Manitoba Music, SaskMusic, Alberta Music, Music Yukon, Music NWT, and Music BC. I'll refer to them as the MIAs. Please note that Music Ontario is run by CIMA and is not part of our organization.

That was background.

CCMIA and Music BC would like to thank the Canadian government and the Department of Canadian Heritage for renewing the Canada Music Fund. These funds, forming such private partnerships as FACTOR and Musicaction, have really helped to establish Canada as a leader in the world of music. We certainly deliver more than our fair share of internationally successful artists, and I believe this is to a great extent the result of public support of the music industry in Canada, so thank you.

In particular, the MIAs' memberships have benefited greatly from the Canadian Heritage collective initiative program administered by FACTOR. These programs help the MIAs to support their communities in many ways: education of artists and music industry personnel through career development programming on topics such as online and social media marketing, booking, touring, securing music placements for film and television; developing digital online initiatives such as as our tourhub national venue database; funding export marketing to key markets such as South by Southwest, The Great Escape in the U.K., and BIGSOUND in Australia, to name a few; bringing international buyers in with programs as Showcase PEI, BreakOut West, the ECMAs; developing and supporting music industry partnerships such as the Western Canadian Music Alliance, which produces BreakOut West; and of course, supporting amazing conferences and celebration of Canadian talent such as the Western Canadian Music Awards, ECMAs, CMW, North by Northeast, and many others. These are fantastic programs and essential to the health and vibrancy of the Canadian music industry. We really, really want to thank the Canadian government for continuing to support Canadian music in this way.

Now for the regional perspective, let me give you a bit of background.

Napster of course changed the entire landscape of the industry in 2000. Even though the original Napster is no longer with us, it really led the way to the erosion of the major label control of distribution worldwide. What resulted over the next 10 years was a paradigm shift in the distribution of recorded music globally. Physical sales, the foundation of record label financial stability, fell dramatically throughout the world. Unfortunately, legitimate online downloads such as iTunes did not bring up the gap. The result is a halving of worldwide record sale revenue and a massive downsizing of the major labels.

During the 1970s to the 1990s, record labels recognized that artists needed to be developed over a number of albums, but most major labels in that era often did not expect a return on their investment until the third album released. Today a lot of artists are lucky to get a single, it's so competitive. Artists are generally not signed nowadays without significant development from either themselves or an independent music company.

In Canada, 80% of the independent record labels and all of the major labels are located in Toronto; however, the new and emerging artists are located all over Canada. A concerted effort was made by Music Canada to consolidate and grow the Ontario-based industry. This has resulted in the Ontario government creating a $45 million fund for Ontario-based companies, including the foreign major labels.

This move is unprecedented in Canadian funding history. Luckily, with lobbying from CIMA, the independent sector in Ontario was also able to access that funding.

As it stands right now with annual reports, 59% of FACTOR funding goes to Ontario, and 50% of Radio Starmaker CCD goes to Ontario as well. In English Canada the majority of the music entrepreneurial component funding goes to Ontario companies. As 80% of the companies are in southern Ontario, that makes a bit of sense, but from the regional perspective there seems to be an imbalance.

The music industry has been redefined due to market pressures. As stated earlier, the new and emerging artists, to get the attention of the major labels or labels like Shauna's, often have to develop themselves. This artist development is happening right across the country in small and large communities. Nationally, artists and their teams are creating micro-entrepreneurial ventures to develop their careers. The role of provincial and territorial music industry associations in helping these artists and their teams has grown exponentially over the last 10 years.

While the CCMIA is the first to recognize and praise the amazing work of MEC, FACTOR, and Musicaction and Radio Starmaker, the CCMIA respectfully submits that the changes in the market should lead to more artist development at the grassroots level. We have some models that work. We developed a program in British Columbia called the Peak Performance Project. This marries education, marketing, and promotion, leverages every penny with sponsorship dollars, and also allows us to activate locally. It has been incredibly successful. We have had two Juno award winners, dozens of records released, international tours, and significant radio play.

The point is that the music industry associations provide locally activated artist development. What we would like the Department of Canadian Heritage to consider is that perhaps there needs to be some sort of balancing. In other words, we would like to see, from the music industry association point of view, more money spent in the regions for grassroots artist development.

In closing, I want to reiterate that certainly the music industry associations and the CCMIA completely support the positions of ADISQ and CIMA that were just made. There's absolutely no question that FACTOR, Radio Starmaker, and MEC, all these programs, are absolutely essential. We're just saying that perhaps there could be some balancing.

Thank you very much.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We are now going to move to some questioning.

We have Mr. Boughen for seven minutes.

[Ray Boughen, Conservative, Palliser, SK]

Thanks to you music folks for sharing part of your day with us. We appreciate your input. It's good to hear from you.

It seems to me there are a number of different organizations involved in the music industry. Is there any attempt by any of the groups to pull together to form a sizable voice, not only in terms of performers, but in terms of administrators, developers, and music artists? Is that something the industry has looked at, or hasn't that come to the fore?