Canadian Heritage Committee on May 13th, 2014

[Neill Dixon]

For the labels and publishers, I don't think they have any power. I think really the only people who can help would be the government. Somebody has to step in and enforce. It's almost as if you had no traffic cops on the streets; there would be chaos. That's what it is right now. I think to bring a little law and order to it we need to establish the value of these goods, and then somebody has to make them pay.

[Graham Henderson]

If I could add to that, on that point, you heard a few days ago about how online piracy is such a challenge, and Google is doing this, that, and the other thing. As of today, pirated content still remains the top of search results. Right? You do a search for a Carly Rae Jepsen download, and it displays three links to pirate sites before any legitimate retailers.

The pirate sites that are listed at the top of the search results have a combined 8.24 million take-down notices. One of them is called mp3skull. It has 1.7 million take-down notices. Now does mp3skull sound like a legal site to anybody? Why is it still up? Why do we not have something where when you send 1.7 million notices to somebody, you take it down and it stays down?

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

Right. I absolutely understand.

Talking about all this money being put away from the creators, my colleague Mr. Stewart has a question I think.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

Yes. Thanks again for coming. I'm enjoying this discussion.

We've had a proposal on the table for income averaging. We know that musicians have peaks and valleys in terms of earnings. We're just wondering what your thoughts are on the idea of income averaging over, say, a five-year period rather than annual filings?

Would anybody care to comment on that?

[A voice]

It's math, right?

[Alan Doyle]

Yes, I was told there'd be no math.

[Voices]

Oh, oh!

[Alan Doyle]

When you say income averaging, do you mean how people report their income?

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

That's right. When you make a lot of money one year and you make no money the next year, you would be able to average those so your tax would be paid on—

[Chip Sutherland]

Maybe I'll take it, just because as a lawyer I set up all the corporate structures for the artists.

From the commercial level, almost without fail, the artists are incorporated, and the first thing they learn.... People come to me and say that they think they need a lawyer, and I tell them they always need a good accountant first. Always. Learn how to manage your money. Learn how to monitor it. Get a corporation set up. The tax rules for small business work terrifically for artists, who are cash-driven small business kinds of operations. You have to have enough money to take advantage of it, but in that real commercial aspect of it, as a small business, there are lots of small tax breaks for them to average things out.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

That's a no, then?

[Chip Sutherland]

I think the system is there. I don't know whether people who are making $20,000 a year still feel the need to do it, but anyone who's in the sort of $50,000 a year range, as an artist who would come to me, would be incorporated and I would teach them exactly this. You have 18 months off because you're making a record, then you go on tour and make all your money in nine months, so you have to park it, and you want to have the advantages of dividend tax benefits and things like that.

[Alan Doyle]

I might add that if you're in the tax bracket that's below that—this may be prudent; it may not be—the income averaging, the amount of tax you're paying over the five-year period, is not going to make or break you, one way or the other. I don't think so.

[Graham Henderson]

That's the problem now, right? It's almost solving an old world problem.

I think you would agree, Chip. This was a very big problem in the seventies, the eighties, the nineties, where there would be very large advances, huge influxes of cash, and then it had to be digested in the system, and there was a large amount of tax, and then artists stopped touring and they stopped for a year. There was a whole system that it worked...but it is an old world problem.

I'm not saying that you shouldn't do it. Put it in place. It will benefit artists if there's money there, but the big issue that we have is getting them money.

[Alan Doyle]

When's the peak again?

[Voices]

Oh, oh!

[The Chair, Conservative, Gord Brown]

Thank you very much.

We're going to move to Monsieur Dion, pour sept minutes.

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

Thank you very much, Mr. Chair.

Ms. Courtemanche and gentlemen, thank you for being with us today.

I think, Mr. Henderson, you have been very good at describing the problems, but I have problems understanding your recommendations.

If I read recommendation three:

More fluid funding, allocated according to criteria that reward a constant push toward finding innovative ways to do business, should be implemented and would help secure a place for Canada on the leading edge of digital innovation.

I read that in French too. I'm not sure I understand what kind of specific policy the federal government should implement.

[Graham Henderson]

What we're trying to suggest is that digital innovation has to be at the heart of all things music now, whether it's an artist's career or it's a music company, or even touring.

As policy-makers, as funders of the process, we're suggesting that you need to be thinking about that. When somebody is coming to you and saying they would like access to some funding, one of the principal questions has to be whether digital innovation is at the heart of what they do.

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

You said that we are followers and we should lead. That means that other countries are doing something that we are not doing. I would like to understand what Berlin is doing that Toronto is not doing exactly.

Mr. Doyle, you lose 30% to 40% of your revenues because of the copyright problems. Are there artists around the world who have a legal framework that helps them to cope with that, and do we not have that in Canada?

That's a broad question to everyone.

[Alan Doyle]

If I understood Neill's point correctly, I think he made reference to the difference between the tax and the levy.

Is that not correct?

[Neill Dixon]

Yes, that is correct. But it's a hodgepodge of a lot of different tax rules and royalty situations.

We have a unique situation here in Canada. I think the lawyer could probably explain that a little better.

[Chip Sutherland]

Graham is a lawyer too, so we can throw it to him.

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

The question is very specific. Are there some countries that could teach us something about the problem that we are speaking about?

[Graham Henderson]

There are certainly jurisdictions around the world that are doing things better than we are, whether it's at the city level....

What we've tried to do in our study is to take bits and pieces and look at what amounts to a multi-jurisdictional approach—federal, provincial, and municipal—for the first time. We are in the process of getting to best practices.

The Ontario Music Fund is a huge step forward. An idea like that did not exist before. It's here. It may be one of the first of its kind in the world. The fact that the City of Toronto, the City of Hamilton, the City of London, the City of Calgary, and the City of Winnipeg are all looking at specific municipal initiatives to make their cities more music friendly, more musician friendly, those are things we have to do.

Federally we have framework legislation that says what's legal and what isn't. Frankly, it obviously hasn't gone far enough because we have a huge problem. That doesn't mean we have to rip up copyright legislation and start all over again. However, it does mean let's look at the problem. We don't have a middle class any more. We don't have people who are making money any more. Let's try to find an integrated holistic approach from top to bottom.