Canadian Heritage Committee on May 1st, 2014

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

Good morning everyone.

This is meeting number 20 of the Standing Committee on Canadian Heritage. We are conducting a study on the Canadian music industry.

Because of votes today, we are going to have two panels, but we've been working with our witnesses to put everything into one meeting starting now and running until one o'clock.

We will have the one panel of witnesses and, as a result, the opening remarks today will be limited to three minutes. I apologize to our witnesses for that, but you will have opportunity in the questioning to expand on your opening comments.

We have one witness appearing by telephone and two witnesses who are going to be with us today through video conference. Lula Lounge, which was scheduled to join us, were delayed by weather and so, unfortunately, they will not be with us today.

I am going to go through the list of the witnesses.

First of all, from the Institut de la statistique du Québec, we have Dominique Jutras, director, and Claude Fortier, project manager. By video conference from Richmond Hill, Ontario, we have from Warner Music Canada, Steven Kane, who is the president. By video conference from Vancouver, British Columbia, from Nettwerk Music Group we have Simon Mortimer-Lamb, president and CEO. From the Coup de coeur francophone, we have Alain Chartrand, executive and artistic director, who is here with us today. As well, by telephone from L'Équipe Spectra, we have François Bissoondoyal, director, and also Roseline Rico, vice-president.

When we get to the questions, I ask that our members not forget our folks joining us by video conference as well as our folks joining us by telephone.

We will start with the Institut de la statistique du Québec.

Mr. Jutras, you have the floor, for three minutes.

[Dominique Jutras, Director, Observatoire de la culture et des communications, Institut de la statistique du Québec]

Thank you, Mr. Chair.

Good morning. Thank you for having invited us to appear before you today.

I will briefly talk about the key points we want to present to you today. Essentially, these are statistical numbers. We do not have any definite opinions, but our numbers can still provide interesting insight.

Based on our studies, we can see that the use of cultural products and services has been decreasing for the past number of years. The latest data, from 2013, show that results are rather negative in terms of use and profits.

In Quebec, for example, CD sales, that is sales of physical products, decreased from 13 million units in 2004 to 6 million units in 2013. Moreover, this decrease in the sale of physical products was not made up in sales of electronic products. You may think that this would be counterbalanced by sales of electronic products on iTunes, in particular. We have seen an overall decrease in the number of sales of physical and digital sound recordings. In one decade, the music and song recording market decreased by 30%. This is a significant number.

The impacts of this decrease are greater in the case of Quebec products. We noted that, in 2013, 38% of recorded audio products sold were Quebec products. That number used to be 50%. This means that the market for Quebec products shrank, and this occurred within the context of an overall decrease.

Why was there a greater decrease in the sale of Quebec products compared with other products? On the market for physical products such as CDs, 50% of the products bought by Quebeckers were Quebec products. In the case of digital albums sold online, however, one-third of the products were from Quebec, but this number fell to 7% for digital tracks sold individually. While sales of digital albums and tracks are increasing, the market share of national products of these digital markets is shrinking. The numbers have therefore fallen from 50% of the market to about one-third.

In addition to this, there is what is happening in the area of song and music shows. Our study showed that numbers are also falling in this field. We often think that show ticket sales will compensate for any losses in music sales. However, show attendance and markets have also been decreasing. Things changed between 2004 and 2012. The proportion of income associated with Quebec shows went from half to about one-third. That is clearly a decrease.

I have to keep it short, but I do not have a clock to tell me how much time I have left.

[The Chair, Conservative, Gord Brown]

You're pretty well out of time, but—

[Dominique Jutras]

The study I provided to you also includes the analysis of household expenditures. It would be useful to look at what is happening there. We used data from the Survey of Household Spending pertaining to expenses in culture and access to culture.

This market has represented about 5% of all household expenses over the past 10 years. That number has stayed the same but the proportion used for cultural products fell sharply, while the proportion for access to culture increased quite a bit. These numbers are very important.

[The Chair, Conservative, Gord Brown]

Thank you.

I'm going to have to cut you off right there. You will have a chance to expand on it a little later.

We're now going to go to Richmond Hill, to hear from Mr. Kane, from Warner Music.

You have the floor.

[Steven Kane, President, Warner Music Canada]

Thank you for the invitation to appear before the committee.

As just noted, the marketplace for recorded music in Canada has greatly eroded in the last 10 to 15 years. We commend the government for introducing framework legislation in the Copyright Modernization Act to help rectify the many problems we face in rebuilding a commercial market for recorded music, but this alone will not stem the tide. There is still a missing piece. What is missing is a public policy that addresses foreign direct investment.

The world has changed dramatically in the past 15 years and the marketplace is more and more global. Businesses have ever-increasing options about where to invest. Years ago Canadian policy-makers at all levels sat down to craft a policy that would stimulate domestic film and television production in Canada. A crucial piece of that strategy was the introduction of tax credits at the provincial and federal levels to encourage foreign direct investment in our country. Even municipalities jumped on the bandwagon. For some reason this critical piece of the film industry's success story was left out of the framework that was crafted to support Canada's music industry. You can begin to rectify this by extending a film tax credit-like system to music.

Demand uncertainty has always been an issue for the music sector and our development of artists is fundamentally a form of R and D. Therefore, we believe it deserves some type of public support akin to tax credits available to R and D-intensive industries in Canada. We are not suggesting the money should be diverted from programs such as FACTOR, which offer vital and effective support to the independent community. What we are suggesting is that for sound business reasons you should implement a framework to encourage foreign direct investment in Canada's music industry. It worked for film and it will work for music.

Take the example of the Province of Ontario, which just this year implemented a revolutionary support program for all sectors of the music community not just recorded music. Live music is a beneficiary. But there is also a very specific program that is designed to encourage Warner Music Group and our competitors to bring foreign direct investment to the province of Ontario, and that is exactly what we are doing. Over the next three years Warner Music alone hopes to bring over $4 million of fresh investment into Ontario, into the music sector.

I'll stop there. I'm happy to expand during the question period. Thank you for your time.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We are now going to Vancouver to hear from Simon Mortimer-Lamb from Nettwerk Music Group.

You have the floor.

[Simon Mortimer-Lamb, President and Chief Operating Officer, Nettwerk Music Group]

Thank you very much.

Nettwerk was founded 30 years ago in Vancouver and has since grown into an international music company employing over 80 people offering record label, publishing, and management services to a diverse roster of recording artists, producers, and songwriters. I would very much like to thank the Canadian government and the Department of Canadian Heritage for renewing the Canada Music Fund. These funds have had a significant role in the development of both Nettwerk as a business and the artists we've had the pleasure to work with. Indeed, the early international success of Sarah McLachlan can be tied to the support received from FACTOR.

As everyone is already very well aware, the ministry has undergone significant changes in the retail landscape for recorded music. Nettwerk has always prided itself as being at the forefront of identifying those changes and then adapting to and leveraging new technologies and innovations. However, even with that foresight we had trouble reacting to a dramatic shift in the physical retail market in 2008 and 2009 where products were returned en masse. The support of the Canadian Music Fund during that period was invaluable in allowing Nettwerk to—

[The Chair, Conservative, Gord Brown]

Could you please slow down just a little bit please for our interpreters. I know you are trying to get through it quickly. Thank you.

[Simon Mortimer-Lamb]

No problem.

The support of the Canada Music Fund during that period was invaluable in allowing Nettwerk to continue to release great Canadian artists, all the while weathering this negative retail storm. Indeed, we have built a business that can survive and thrive in a digital retail economy. In today's marketplace you have to be everywhere, on every platform, monetizing every behaviour of your artists' fan base. The CMF has afforded Nettwerk the time, patience, and resources to build the teams and systems to do just that for our clients.

So my recommendation is don't change what is working. The CMF is working.

The title for my section should really be “Can we get on with it already?” I know the committee has heard of the dire predictions about the effect that streaming will have on the artists' and the labels' bottom lines for recorded music sales. It doesn't need to be this way. There needs to be less navel-gazing and debate about how good it used to be, and we need to get on with building Canada's retail marketplace. Streaming should be a big component of that marketplace, and the fact that it isn't today is not acceptable, especially when you see countries like Sweden having 72% of recorded music revenues coming from streaming. Recently that country posted 2013 total recorded music revenues that were 20% higher than in 2009. During that period Canada's declined to 7%.

Many streaming service providers are choosing to stay out of Canada given the uncertainty created by the length of time it takes for tariff decisions. To echo Victoria Shepherd of Connect Music Licensing:

The Copyright Board of Canada should not be seen as a barrier to business or as an impediment. Rather, it should be considered a business development office. It needs resources to ensure it can render decisions at the pace of technological development.

Without the improvements to the Copyright Board, we are simply not realizing the full potential of the dollars we're all investing.

Finally, there was a recommendation in past sessions of these hearings about committing funds toward educating young people about the costs and amount of work that go into creating music. It's a noble idea, but let's at the same time ensure a market environment that provides a multitude of licensed and legitimate music-consumption options for the next generation.

Thank you for your time.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We'll now hear from Alain Chartrand from Coup de coeur francophone.

You have the floor.

[Alain Chartrand, Executive and Artistic Director, Coup de coeur francophone]

Thank you for inviting me.

I would like to begin with some background. Founded in Montreal in 1987, Coup de coeur francophone is an organization whose mission is to promote and present local, national, and international song. Its programming focuses on discovery and creation.

What characterizes Coup de coeur francophone and distinguishes it from other events is its festival format that includes one 11-day event in Montreal followed by events that showcase songs throughout Canada. The festival's home is in Montreal but since 1992 it has spread from one ocean to the other thanks to a pan-Canadian network involving 10 partners and...

[The Chair, Conservative, Gord Brown]

Monsieur Chartrand, plus lentement, please.

[Alain Chartrand]

You are telling me that I am speaking too quickly. That is because we have very little time, only three minutes, and that is stressful.

Thanks to the creation of a network involving 10 partners throughout Canadian provinces and territories, this is a traveling festival that spans six time zones. Each year, in November, Coup de coeur francophone puts on 200 shows in more than 45 Canadian cities.

As the festival director, I am not an expert in new technology. However, for almost 28 years I have been focusing on creating meeting places between the artists and the public. I have therefore chosen to focus my remarks on one theme, and that is the effect of technological change on the kinds of live shows that we and many other festivals present. My testimony will reflect the work that I do at Coup de coeur francophone.

The main challenge that we face in putting on shows, and particularly when all our programming focuses on discovering new artists, is getting the public to the venues. From that perspective, technological change has had a significant effect on promotion and communication and has enhanced considerably our ability to reach the public whose profiles change depending on the kind of music being showcased.

Promotion over the Web and various social networks, that are the main sources of information for 18-to-24-year-olds, has become a major factor in the marketing of shows. For shows of our size, advertising is increasingly involving greater investment in Web platforms and less in advertising spots and newspapers, radio and television.

In a document entitled “Innovation numérique au sein du spectacle vivant“, digital innovation in the performing arts, published last year in France, the following observation was made:

The joint evolution of digital technology and performing arts is a natural one: performance producers are more than ever involved in the promotion and development of artists' careers. The emergence of the Internet, the development of social networks and, more recently, the widespread use of mobile devices have profoundly transformed the way in which music is consumed, and have stimulated the music and arts sector, in particular opening up the performing arts to new actors.

One of those new actors is the public, that the artist, the producer and the presenters now have direct access to. In the chain that starts with creation and ends with the public, this new parameter is having a multiplier effect whereby each link benefits from the work of the other. The outcome is a pollinating effect that fosters the development of artists' careers.

In terms of the funding provided to distributors, we think it is important that the Canadian government support the strategy that gives organizations an opportunity to hire specialized staff, develop original content and use different platforms.

In terms of copyright, the broadcasting of works over digital networks raises the issue of copyright management and fair remuneration for creators. On that issue we can only echo those who have condemned the current system, that I would call homeopathic because of the kind of royalties paid to those who create and perform the music compared to the profit made by those who distribute it.

Does the Canadian government not have the right tools to correct this situation? That is my question.

For a festival such as ours that takes place throughout Canada, the use of new technology for the purposes of communication has greatly contributed to our ability to reach the public. This is true for the festival as well as for the artists who perform. This pan-Canadian adventure has shown us how important it is for minority communities that we develop local content in French.

Thank you.

[The Chair, Conservative, Gord Brown]

Thank you.

Mr. Bissoondoyal, you have the floor for three minutes.

[François Bissoondoyal, Director, Label, L'Équipe Spectra]

Thank you, Mr. Chair.

My name is François Bissoondoyal and I am the Director of Labels at Spectra Musique, a division of L'Équipe Spectra.

I will briefly introduce our company, which has been active on the Canadian cultural scene for more than 35 years.

L'Équipe Spectra owns two concert halls in Montreal: Le Métropolis and L'Astral. It also manages three large-scale events: The Montreal International Jazz Festival, the FrancoFolies de Montréal, and Montréal en lumière. We are also an agency for artists and a record label, and we produce more than 30 artists.

I will now get to the heart of my arguments.

As you know, the music industry has not been doing well for the past several years. Several previous witnesses explained this. There are three major points, notably the almost unlimited access to musical works, which means that it is increasingly difficult to protect copyrights. Then there is the decrease in royalties. There is also the growing popularity of streaming, which allows people to listen to songs without buying them. Users pay a monthly fee of between $5 and $10 and can access 10 or even 30 million songs. In such a situation one might wonder why they should buy an album. The consumer's way of setting priorities has also changed. The cost of living is going up and consumers may cut down on buying so-called luxury items.

We propose three solutions or possibilities.

The first is to get royalties from the sale of MP3 players. Such royalties already exist for blank formats such as CDs. So we could simply extend those royalties to other devices.

The second solution, as was mentioned earlier, would be to give a tax credit for production and marketing of sound recordings. This tax credit would be given to companies whose shareholders are Canadian, of course. This would allow us to increase the production of new Canadian content, and therefore to create or maintain jobs. Furthermore, it would reduce the financial risk for producers. It is very important that this credit be offered in addition to what the Canada Music Fund already provides. In Quebec, there is already a tax credit for producing sound recordings. In Canada, there is a tax credit for film, as was mentioned earlier.

The third solution is somewhat more technical and concerns entrepreneurs in the music industry. Currently the number of units sold is the basis for determining how much support will be given. In order to compare various companies more objectively, it seems to us that it would be fairer if the Canada Music Fund set up a new system that placed more value on a record label's willingness to take risks. The formula for calculating the amount of support given would be based on a points system taking the following three things into account: the company's investment in production and marketing; the number of albums produced and marketed; and the revenue generated by these activities through a sales bonus.

The goal of all this would be to support and maintain the careers of Canadian artists.

In conclusion I would simply say that of course, we support the measures recommended by the ADISQ.

Thank you for having given us the chance to speak to you.

[The Chair, Conservative, Gord Brown]

Thank you very much.

We will now move to questions. We will start with a seven-minute round, beginning with Mr. Falk.

I will remind members that we have folks with us by telephone and by video conference.

Mr. Falk.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chairman, and thank you to all the witnesses who testified here this morning.

Mr. Kane, I'm going to direct my first question to you.

In your presentation to this committee, you commented on the importance of FACTOR investments in the industry. I'd like you to comment a little bit more on whether the government's objectives in funding the Canadian music industry are being met.

Specifically, are we increasing Canadians' access to a diverse range of Canadian music choices? Are we also increasing the opportunities for Canadian music artists and cultural entrepreneurs to develop their skills, and make a significant and lasting contribution to our Canadian culture?

[Steven Kane]

I guess the short answer to that, Mr. Falk, is yes. I think programs like FACTOR or on the private sector side, Starmaker,have been essential and vital for the development of not only Canadian musical talent, but the Canadian music business.

Some of the most innovative and bold music entrepreneurs this country has produced have come from the independent sector and have been able to learn their craft and perfect their profession through the support of organizations like the Canada Music Fund, and FACTOR in particular.

At Warner Music we are very proud of our long association and partnership with some of the country's leading independent record companies, whether that's Six Shooter Records, or Stomp out of Montreal, or Pacific Music out of Vancouver. What I see there is an opportunity to expose more Canadian artists to the Canadian public and at a time when we're watching businesses being built, become self-reliant, and really become in many cases the torchbearers for Canadian culture moving forward, not only in this country but around the world. You only have to look at people like Feist, and to our friends who networked over the years—Sarah McLachlan—and many of their great acts.

It is still such a key component to building a solid industry infrastructure in this country that I would wholeheartedly say yes, it remains vital.

[Ted Falk, Conservative, Provencher, MB]

Good, thank you very much.

Mr. Mortimer-Lamb, could you comment on that a little bit as well?

[Simon Mortimer-Lamb]

I would echo the same thought that yes, indeed, those objectives are being met. You see diversity both in artists releases and independent record labels and publishing companies and what their speciality is. Whether it's jazz music or in the case of network, a lot of singer songwriter, folk music, it allows that breadth of genre and it has allowed effective building in independent music companies.

[Ted Falk, Conservative, Provencher, MB]

Okay.

Mr. Mortimer-Lamb, in your testimony you made reference to Sweden and what they're doing there as far as streaming is concerned. You indicated that revenues were significantly up there in the music industry and in music sales.

Where are those revenues going? Are they finding their way back to the artists, to the producers, or to the songwriters? When they do their streaming there, where does that money end up?

[Simon Mortimer-Lamb]

Obviously, the streaming companies have to pay the content providers. That would run the gamut of record labels, their artists, artists individually if they're independent, and the producers and creators of that content. So yes, that money is flowing back through to the content creators.

[Ted Falk, Conservative, Provencher, MB]

Do you see a system like that in Canada today, or is it even feasible to roll out something like that?

[Simon Mortimer-Lamb]

There are already players here where that's already happening. From our example or our experience with our artists, we're seeing that on a worldwide basis. We're seeing some of our Canadian acts with revenue from parts of the world where they've never been to and have never had the ability to physically sell there. That's coming from streaming services like Spotify, or even down to YouTube, where video plays are generating ad revenue for that artist's content.

The infrastructure and the retail models are there and that flow of money is coming back to the content creators, and that's happening worldwide for us and for our clients. It's really about the hurdles to provide these legitimate retail models and help build that sector in Canada so that the Spotifys and the Pandoras come to our marketplace and provide more options for the consumer.