Canadian Heritage Committee on April 29th, 2014

[The Chair (Mr. Gordon Brown (Leeds—Grenville, CPC)), Conservative, Gord Brown]

Good morning everyone. We're going to call this 19th meeting of the Standing Committee on Canadian Heritage to order.

We are currently carrying out a review of the Canadian music industry. Today, for the first hour, we have a number of witnesses with us. From Cerberus Management and Consulting, we have Brian Hetherman, president; from Quebecor Media, we have J. Serge Sasseville, vice-president of corporate and institutional affairs, and Christian Breton, vice-president, music sector, of Groupe Archambault; and from the Polaris Music Prize, we have Steve Jordan, founder and executive director.

For our three groups, we have eight minutes each for a statement. We're going to start with Mr. Hetherman.

You have the floor.

[Brian Hetherman, President, Cerberus Management and Consulting]

First, I want to thank you very much for allowing me the opportunity to speak to the committee today.

In my 28 years in the music industry I've been lucky enough to see the music business from many sides. I spent 12 years with the major record label Universal Music. Additionally, I spent 12 years of running my own independent record label, Curve Music, as well as my own artist management company, Cerberus Artist Management.

In addition, I was the inaugural executive director of the Radio Starmaker Fund in 2001. I was responsible for helping set up the fund as well as operate it in its first few years. More recently, I was the vice-president and general manager of FACTOR, the Foundation to Assist Canadian Talent on Recordings, but I have now returned once again to my companies.

I can certainly speak about the necessity for cultural funding for the arts at length, especially given the more difficult climate for artists and music companies. I am of course happy to answer any questions you have for me; however, I also thought it vital that I present some additional impacts that the music industry is facing, specifically related to the digital landscape.

While the onset of paid digital music streaming services seems to somewhat be eroding the illegal download Issue and of course making music accessible to many people on a more immediate basis, it is also creating a number of other issues, the main one being that it is driving the sale value of a single song and recorded songs' value down to micro-pennies.

When the major record labels opened up their catalogues and new releases to streaming companies such as Pandora and Spotify, it was done by negotiating massive advances from the said streaming companies to the major labels, in the millions of dollars. Although the majors still see the same net profit on a single stream that an independent company or as an independent artist does, neither the independent labels nor the artists have seen any type of advance from the streaming services and must solely rely on the very low per-stream payment.

As an example, an artist whom I previously worked with named Peter Katz,who was originally signed to both my record label and my artist management company from 2007 to 2011, recently provided me with his financials for the last six months of streaming of his most recent album release, Still Mind Still. Between September 2013 and February 2014, Peter Katz's album was streamed 7,794 times on various streaming services. He was paid the grand total of $47.96 for that. With 11 songs on the album, this means that Peter was paid 0.0006 cents for each song on an album or 0.006 cents for the entire album. Compare that, if you will, to the $9.99 for the album or the 0.99 cents you would get for a song on iTunes.

On the publishing side, since Peter Is a self-contained songwriter, he wrote all the songs on his album. Despite how bad these numbers are for Peter, if you were, say, a songwriter who wrote only one of the songs on his album, your mechanical licence for a song on that album from a streaming service would be 0.00006 cents. You can see that it's not only extremely difficult to make a living as a performer and songwriter selling your music, but virtually impossible as a songwriter only. At 0.006 cents per album, you would need to stream millions of albums to even make a decent living or, as is the case for most artists these days, simply not make a living in music.

We can also use the example of David Lowery of the American band Cracker, who has openly published on his Facebook page his songwriting royalties from streaming services that Pandora, the streaming service, paid him. He received $16.89 for more than one million plays of the band's 1991 hit song “Low” during the last three months of 2012. While Lowery only owns 40% of the song as a songwriter, when you add the other writers into the share, for a total of $42.23 that Pandora would have paid ail songwriters, it's embarrassingly low.

We need to investigate and to attempt to set up some legislation that ensures that artists, labels, and songwriters are paid fairly for the use of their music through digital services. Since these services may already be making millions or will eventually be making millions, it's even more imperative.

Since sales of music have been virtually eliminated as a way to make a living only for artists, then touring has become one of the few ways to both advance your career as an artist and make a living as an artist. Support for touring is crucial, both domestically and internationally. In fact, very few acts can make a living simply touring in Canada alone.

The plan for a touring artist must encompass all countries and territories around the world, as many as possible, in order to build a viable career of both touring and selling music. The international marketing and touring of an artist is extremely expensive. As well, while recording costs are decreasing, the cost of actually marketing and promoting albums is not decreasing. As any independent label or artist will tell you, they must view the world as their marketplace now and must plan to tour and promote themselves and their careers internationally.

We must ensure that there are further funding models in place to allow artists and record labels to properly market their products, both domestically and internationally. In addition, there need to be more funds directed to export-ready artists to help them tour internationally. It is also key to ensure that funding is available for cultural trade missions for both artists and companies to showcase their material in foreign territories.

Thank you.

[The Chair, Conservative, Gord Brown]

All right, thank you very much.

We'll now move to our friends from Quebecor.

You have eight minutes.

[J. Serge Sasseville, Vice-President, Corporate and Institutional Affairs, Quebecor Media Inc.]

Ladies and gentlemen parliamentarians, distinguished guests, Quebecor Media wishes to thank the members of the committee for giving us this opportunity to share our experience and take part in the discussion on the issues surrounding the funding of the Canadian music industry.

My name is Serge Sasseville and I am the senior vice-president of Corporate and Institutional Affairs at Quebecor Media. I also previously had the privilege of occupying the position of president of the music sector at Groupe Archambault, where it was my responsibility, among other things, to supervise of all of the activities of the music sector.

I am accompanied by my colleague Christian Breton who is the vice-president of the music sector of Groupe Archambault.

Whether we are talking about Quebecor or Archambault, our passion for music goes back a long way.

Quebecor began its first music-related operations in 1976 by purchasing Distribution Trans-Canada, one of the most important record distributors in Quebec, which began its activities in 1958. Then in 1986, Quebecor got involved in record production and retail sale by purchasing Kébec-Disque. In 1995, our presence in the musical field took on a new dimension with the acquisition of Archambault.

Founded in 1896, the Archambault company specialized originally in the sale of sheet music and musical instruments. Over the decades, it broadened its activities into the production, distribution and sale of records, among other cultural products.

All of this has made Québecor Média and Groupe Archambault the most important independent disk distributor in Canada today, via Distribution Select. This also has made it the largest music retailer in eastern Canada, through the Archambault stores and their online sales sites. This has also meant that we operate the largest disk store in Quebec, Musicor, which houses artists such as Marie-Mai, Kaïn, Bruno Pelletier, Marie-Élaine Thibert and Francis Cabrel. We are also an important player in the production of all types of musical shows through Musicor Spectacles.

Finally, I should also mention the role our broadcaster TVA plays in getting the public to know new artists and Quebec musical heritage by broadcasting programs such as Star Académie and La Voix, whose final show earlier this month drew over 2.7 million spectators and a market share of over 60%.

In short, Quebecor Media is today an important player in the musical sector in Canada.

Despite all of the success our artists have had, the fact remains that the music industry in Quebec or in Canada is largely dependent on public funding.

And that said, we wish to thank the current government for its decision to make the sums allocated to the Canada Music Fund permanent. As I was saying, these public funds are unfortunately still essential to maintaining the Canadian musical industry. I say “unfortunately”, because Quebecor would like the Canadian music industry to be able to get along someday without public subsidies and create players that would be solid enough to fly on their own and compete with foreign players. Unfortunately, it seems that day has not yet come.

On the contrary, Canadian players must now face world players who are more powerful than ever. Of course I mean Apple and other international digital sales platforms that take up more and more room in the Canadian musical landscape, creating new issues for local actors.

The most urgent issue, we feel, is the price discrimination Canadian music retailers face in competing with retailers such as iTunes, because they do not have to charge sales tax. If you take the example of an artist such as Marie-Mai, her albums are produced by our company Musicor, distributed by our firm Distribution Select, and sold among other places in our Archambault stores, the brick and mortar stores. If a Canadian wants to purchase a Marie-Mai song he has the choice of buying it from iTunes for $1.29 tax free, or on a Canadian site, for instance our site archambault.ca, for $1.29 plus taxes, that is to say $1.48. We are talking about 19¢ more. Clearly this is bad, artificial competition that works to the detriment of Canadian retailers, both digital and physical ones.

Ultimately, in a highly competitive market where margins are very small, such a disadvantage will inevitably lead to the disappearance of Canadian retailers, and to the consolidation of the industry around foreign players. with all of the job losses and loss of tax revenues that that will entail.

Beyond the financial repercussions, it is unthinkable that Quebecor Media let the sale of music go into foreign hands alone, for the plain and simple reason that in our opinion Canadian and Quebec retailers will always be in a better position to showcase our artists than the retailers from other countries. Indeed, they do not necessarily have the same priorities or the same interests.

When Canada completely loses control of the platforms that broadcast Canadian music, our country will also lose control of the positioning of its music and of its artists. You do not have to be a rocket scientist to understand the catastrophic consequences this will have on our artists and on an industry that according to a PricewaterhouseCoopers study commissioned by Music Canada, provides a livelihood for about 4,000 people and generates annual revenue of close to $400 million.

In addition, it is one thing for a Canadian artist to see his or her works available on iTunes or any other digital platform, but his albums also have to be promoted on the home pages for consumers to buy them.

Access to promotional space on digital platforms is very difficult to obtain. Unfortunately, there are no subsidies at this time for promotion on those platforms. And so we feel the time is more than ripe for public funding programs to be adapted to that reality in the promotion of music in the digital era.

Also, we would like to see some funds allocated to the digitization of the older recordings of our musical heritage, as is currently being done for literature and cinema, so as to make those works accessible on new digital platforms, thus ensuring their availability for future generations.

In closing, please allow me to make one last, more specific comment, this time about the Canadian Heritage MEC program.

On behalf of several artists and producers who shared this with us, we deplore the fact that artists whose record companies receive funding from the MEC are not eligible for touring assistance from Musicaction, even when their shows are not produced by their recording companies.

For several artists, whether they are already well-established or are newcomers, this is a terrible choice to make; they have to choose between receiving funding to tour, and signing with a larger record company that may invest more resources in their albums. That situation has a perverse effect on newcomers especially, who see themselves relegated to smaller record companies while they should be allowed to join the big leagues.

In conclusion, we believe that the main question the committee must answer is the following: How should government assistance be structured in order to allow music industry actors to compete in the digital arena, which is increasingly controlled by international giants?

The suggestions we humbly submitted today had to do with that.

Thank you for your attention. We are available for your questions.

[The Chair, Conservative, Gord Brown]

Thank you.

We'll now go to Mr. Jordan from Polaris Music Prize for eight minutes.

You have the floor.

[Steve Jordan, Founder and Executive Director, Polaris Music Prize]

Thank you very much for inviting me to speak on behalf of the Polaris Music Prize.

I realize in the preparatory material that I read, it said not to describe what you do too much but to get to the matters at hand, but if you'll just permit me I'll mention the following.

We are a not-for-profit organization that annually honours, celebrates, and rewards creativity and diversity in Canadian recorded music by recognizing, then marketing, the albums judged to have the highest artistic integrity, without regard to musical genre, professional affiliation, or sales history, as judged by a panel of over 200 select music critics from across the country. Previous winners have been Arcade Fire, Feist, Caribou, Karkwa, Patrick Watson, Godspeed You! Black Emperor, and Owen Pallett. Nominees have included Metric, Neil Young, Ron Sexsmith, Tegan and Sara, K'naan, Sarah Harmer, and Kathleen Edwards. I wanted to throw a few more artists names into the mix, just as the other two witnesses have been doing here.

Our jury includes media from coast to coast in Canada and excludes anyone who makes a living from musicians, or as a musician. It was inspired by both the Giller Prize for fiction in Canada and the Barclaycard Mercury Prize in the U.K. for album of the year. It is an award strictly for the quality of the main artistic work in a recording artists canon: the album. This is our ninth year.

We are based in Toronto where our annual gala is held each September. Polaris season starts in June with the release of our 40-title long list. The ten-album short list is announced in July. We select 11 critics from our larger panel to pick the winner the night of our September gala. This year it's September 22, and you're all invited.

We've been called “prestigious” by The New York Times and the BBC. The Chicago Tribune calls us "Canada's top music honour". The Globe and Mail has said that Polaris is "something that matters on the international stage". But any credit that Polaris takes from this must really be given to the artists themselves. They are making world-class artistic statements.

A lot has been said and during this review l'm sure you will hear from others a lot about how well our artists perform commercially around the world. What Polaris has done, if anything, is to celebrate the quality of our musical works in a way that the world notices. Canadians are known as innovators and explorers in music in almost every genre, from Polaris nominated Drake and his producer, Noah “40” Shebib, in hip hop, to Cirkut in pop, to inaugural Polaris winner Owen Pallett, who along with another Polaris winner, Will Butler of Arcade Fire, was nominated for an Oscar for best original score recently. We're known for our natural beauty and resources, our comedians, our authors, our politeness and now, more than ever, around the world for our great musicians.

We believe that part of that credit can be given to a history of policy that supports music culture and musicians both directly and indirectly, from FACTOR, to the Canada Council to the Radio Starmaker Fund, and various talent support initiatives required of broadcasters through the CRTC, not to mention Canadian content requirements, our artists can survive next to the cultural behemoth that lies to our south, and often with work that inspires, challenges, and stands the test of time.

It's no secret, and it's been mentioned here before, that sales for albums have been declining. Yet album recordings are still the cornerstone of most artists' commercial and public presence. Albums are the nucleus for all the other activities that allow our musicians to make a living: touring, merchandise, grants, publishing, and master royalties licences. This is why Polaris chooses to celebrate the album above all else. It's the pinnacle of a recording artist's creativity and the thing they generally spend the most of themselves on.

Making the long or short list, or winning Polaris, has many positive effects, the most obvious one being a dramatic uptick in sales and digital streams, often months after the record has exhausted its initial-release promotional activity. It also results in increased international media coverage, better paying gigs, and more promotional opportunities. But it's not just for these benefits that we believe music celebrations like ours are an important part of the music ecosystem. Celebrations and awards give artists something to strive for, in our case for their actual work. To our surprise and delight over the years, we've heard from a few talent managers or artists that they have driven themselves to make better recordings in hope of a Polaris nomination. In an age of dramatically declining sales, we're giving artists something to strive for with these recordings. We're encouraging innovation and excellence.

We believe that existing government policy and programs as they pertain to the Canadian music industry are effective in allowing our artists to excel at being themselves and telling Canadian stories that they then share successfully around the world. There have been many positive articles in U.K. and U.S. media outlets written about Polaris. l'd like to summarize two thoughts that appear to be common to a lot of them: (1) Canada is making amazing music; (2) Their government support for music is incredible. To us the correlation is real: accessible funding that takes chances on more challenging artists results in music that leads the world. This results in the very real perception that Canada is a world leader in music.

If there's anything we might suggest, it's that we, along with other music celebrations and awards, are considered under slightly different criteria when it comes to funding, as we tend to get either wedged into other development categories like conferences and festivals, or at times don't qualify for other funds because we are not rights holders. Refinement of the criteria to consider music awards and celebration under different and more pertinent criteria could make things more efficient for our category.

Also, a word about music education. Any charity efforts we undertake are aligned with MusiCounts, which provides instruments to schools that can no longer afford to provide them for their students. We believe the excellence we have just outlined starts with music education from the very early years. The benefits to child development have been well documented, but we believe the development to Canadian music cannot be overlooked. We fully support any effort for a national music strategy that includes music education as an important part of that strategy.

Once again thank you very much for inviting Polaris to this discussion, and as everyone else here, l'm happy to answer any questions.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We're now going to move to the questions. We have Mr. Boughen for seven minutes.

[Ray Boughen, Conservative, Palliser, SK]

Thank you, Chair.

Thanks to the panel for taking time out of your busy day to meet with us. We appreciate your input.

I have a question of clarification in my mind. Brian, I heard you and Steve say two different things. One, that you couldn't make a living out of the music industry, and yet Steve says there's a living to be made out of the music industry.

Which way is it?

[Brian Hetherman]

There's certainly a higher echelon of artists who are making a living out of the music industry, but the reality is that probably 80% or more of artists are not making a living solely based on the music industry. They might have a cottage industry business on the side that's not related to music. They may even work part-time. In fact, most of the artists I know—and perhaps you can jump in here at any point, Steve—have some type of part-time job that takes them away from properly building their career.

[Steve Jordan]

Perhaps I may attempt to clarify. I think it's next to impossible to make a living from your recordings. The point I was trying to make is that those recordings are still the centrepiece of what an artist does. It's just that balance has shifted.

Let's give the best example. The Beatles quit touring and just made records. Obviously, this may be a bad example because it is the most popular band ever, but they could afford to do that. You could not afford to do that now. You could not afford to quit touring and just make records because the money you make from your recordings has shrunk to almost nothing.

[Ray Boughen, Conservative, Palliser, SK]

So who makes the money from the recordings? People pay dollars for recordings. Where does that money go if it doesn't go to the artists?

[Steve Jordan]

It's not that the money is not going to the artist. It's that the actual sales of recordings have declined to such a point, and people have been steadily shifting toward streaming services that are paying the micropennies that Brian was just talking about.

I should point out there are services that are available in Canada like Rdio and Deezer. I'm not aware of the intimate details of their deals, but I'm going to assume—and perhaps this is worth some further study—that their payments are in that neighbourhood.

The royalty statements you would get from a record company for a sale or track on iTunes or CDs, which are still part of the industry, we should point out, are going to be way more than what you would get from a streaming service, but as the consumer moves towards this “all you can eat” streaming service model, the payments do not reflect what someone would get if they bought a recording as opposed to the streaming services.

[Brian Hetherman]

If you want me to break down the payment, you have two streams of thought. One would be an artist signs to a major label. Without getting into the finances of how that deal is initially instigated, how the payment breaks down is rather simple.

Once the artist recoups their money, perhaps their deal is at 25% royalty rates. So, perhaps you look at a dollar download on iTunes for the best example, because if we try to break down the micropennies on the streaming side it would be almost next to impossible to do. But if you're looking at, say, just simply a dollar for a single download on iTunes, under a traditional deal, if the artist has recouped their expenditures on the recording, they would get, say, 25¢ of that dollar.

What happens is iTunes sells it for a dollar. Seventy-two cents goes back to the label, whether it's a major or an independent. From that, 72¢ is broken out 25:75—75% to the label and 25% to the artist.

So you can see, even on an album, if an artist was to get, say, two dollars, at best, and that's a really extremely high royalty rate, you would have to sell literally hundreds of thousands of records to make a living off just solely your album sales. And it's virtually impossible to sell hundreds of thousands of records.

[Ray Boughen, Conservative, Palliser, SK]

So this change has come about gradually because years ago, albums and single record sales kept artists busy. Is that not true? I can remember as a kid going to listen to records and albums in a music booth in a music store and it was filled with people buying records, buying albums. That's all gone now, you're saying.

[J. Serge Sasseville]

It was in the nineties, 20 years ago. But since 2000, sales have been declining at a very rapid pace and now it's very difficult for an artist to make a living from recordings.

[Ray Boughen, Conservative, Palliser, SK]

Thanks, Chair.

[The Chair, Conservative, Gord Brown]

Thank you very much. You still have a couple of minutes left, Mr. Boughen.

[Ray Boughen, Conservative, Palliser, SK]

Oh, okay.

[The Chair, Conservative, Gord Brown]

Do you want to continue?

[Ray Boughen, Conservative, Palliser, SK]

Maybe you could share with us what's happening in Quebec because it seems like Quebec is making it work in terms of sales and generating some money for the artists and for the producers and all the other people attached to music. No? Yes?

[J. Serge Sasseville]

We sell more records in Quebec than in the rest of Canada but the situation is not a good one right now. I'll ask Christian Bretton to give you more details on this.

[Christian Breton, Vice-President, Music sector, Groupe Archambault, Quebecor Media Inc.]

Yes, physical sales have been down a lot the last few years. They have been going down a lot.

Last year we had a better year. However, the problem with falling physical sales in the last few years is that they are falling faster than digital sales are rising. The digital sales would only compensate a bit. The problem we had last year and that we are experiencing this year is that both digital downloads and physical sales are down, not only in Quebec but in Canada in general.

So that is a problem, and it's probably the impact of streaming services. And I think the problem with streaming services, when we talk about royalties, is most of these big streaming services coming to Canada right now are giving a lot of free trial periods, really long trial periods, not just six weeks or two months. They're giving six months, a year, and people can actually go on and go out and go back on. That's the problem we're having with streaming services. So yes, you can get 7,000 streamings of your song but if most of them are free, you get that small return. That's the big problem with streaming services.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We'll move to Monsieur Nantel.

You have seven minutes.

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

Good morning, everyone. Thank you very much for being here.

This is a study that everyone is undertaking with a lot of good will. It is wonderful to hear testimony from so many people in such an important industry. To my mind and that of many of us here, this industry has a heritage dimension. I think that today's group of witnesses reflect that very well. Their experiences are at both extremes.

There are people who lived through the good years Mr. Boughen talked about when there were vinyl record stores everywhere. The display cases were incredible and showcased Bee Gees albums, for instance. At that time people purchased music because that was the only leisure source they controlled.

Then the VCR appeared, and people began to control what they wanted to listen to in a way, because they no longer needed to have a turntable to play their vinyl records.

I am referring to the two bookends of the issue: the cultural aspect and the business aspect.

Mr. Hetherman, in your testimony you mentioned the fact that it has become extremely difficult for artists to try to live from their art.

Mr. Jordan, you are among those who took part in the creation of the “Canadian sound”. All of the artists who received awards from your organization were very relevant creators. They really broke through artistic frontiers and that was excellent.

We also have here representatives from the industry that decided to focus on finding talent, fostering it, growing it and showing it off internationally. Those people often refer to Marie-Mai, and quite rightly so. She is certainly the best example of the success of Star Académie. Last Sunday, we saw her once again and that was fantastic. We were able to see the conjunction of English-language music from Montreal, with Adam Cohen, and that of Marie-Mai.

I congratulate all of you on what you do. You do good work and it is absolutely crucial. And that is why we wanted to hear your comments.

This morning I am concerned by what Mr. Sasseville said concerning taxes that are not collected by services like iTunes. We are going to have to find some way of building a legal framework around that type of service.

In fact, as Mr. Jordan and Mr. Hetherman said, services like Deezer are used more and more. The day before yesterday, I was cruising through my Deezer account and received a half-price subscription offer, for $5 a month. At that price, there is not a soul who will purchase a disk. You can listen to your music as often and as long as you like and it is even available for mobile devices.

My question is for Mr. Sasseville.

You referred to the issues surrounding the MEC program. I would like you to outline for us again the choice a young artist faces when he or she has the possibility of signing a contract with a big record company.

[J. Serge Sasseville]

With your permission, I am going to let Christian Breton answer that question, since he is now the one who deals with that problem in his work as director of the music sector.