Canadian Heritage Committee on June 5th, 2018

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Thank you.

I have some questions for Mr. Johnston.

You mentioned exceptions for commercial radio. I was surprised to learn that the commercial radio industry's profits have increased by 8,300% since 1995. That's a lot; it's an astonishing percentage.

My question, more specifically, is as follows. You talk about at least being able to recover production costs. What is the production cost percentage in a work?

[Stuart Johnston]

That would be more your—

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Mr. Moncada, do you want to respond?

[Chris Moncada]

It varies, to be honest. If we were to fund the production of a 12-song record album by an established group that is used to working in the finest studios in the United States and working with the most renowned production teams and engineers, it could be half a million dollars to make some of these records. Other records are made for $10,000 in someone's basement or on a laptop on a plane. It really does run the gamut, as far as production costs. If you're dealing with a 12-piece band, you're dealing with 120 channels. If you're dealing with a bedroom producer, it's a pair of headphones and a keyboard. It's a really difficult question to answer. However, we take all of that into consideration when we do our forecasting. We know that we have three orchestral rock bands and four bedroom producers, so we forecast accordingly.

[The Chair, Liberal, Julie Dabrusin]

You have 30 seconds left.

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Thank you for your comments.

[The Chair, Liberal, Julie Dabrusin]

Thank you to all of you for your presentations today. It was very helpful with all the questions and answers that you've provided to us.

We will be suspending briefly, so that we can get our next panel of witnesses.

[The Chair, Liberal, Julie Dabrusin]

I want to make sure we have enough time for our second panel, so why don't we get started?

We have with us today from ole, Jason Klein.

We also have Gilles Daigle and Geneviève Côté from the Society of Composers, Authors and Music Publishers of Canada.

Why don't we start with ole, please?

[Jason Klein, Vice-President, Legal and Business Affairs, ole]

Good morning, Madam Chair and members of the committee. I'm Jason Klein, Vice-President of Legal and Business Affairs with ole. Thank you for inviting us here today.

As a leading Canadian music publisher, record label, and rights management company, music and copyright are at ole's core. With the rapid shift to digital content consumption, it is essential that Canada address the challenges that threaten our creators' ability to earn a living and make cultural business a risky proposition for investors. Changes to our Copyright Act are needed to ensure that music creators and companies like ole that support them can continue to thrive in the digital world. Since the committee has already heard from our friends at the Canadian Music Publishers Association, I trust you are familiar with the important role of music publishers, which is often either overlooked or misunderstood. If you are not, I would be happy to address any questions you have following these remarks.

For now, I simply ask that, in considering remuneration models, we be careful not to lose sight of the importance of songs, songwriters, and the publishers who invest in them. Like the creators we support, publishers operate largely behind the scenes. The involvement of record companies is far more visible, given the celebrity of recording artists and consumer-facing promotion of records, but it is important not to undervalue the fundamental contribution of the songwriters and the investment of time, money, and expertise that publishers make in them long before a hit song is written, recorded, released, and becomes part of our cultural fabric.

Ole is Canada's largest independent music publisher and one of the world's foremost rights management companies. We are proudly Canadian-owned and operated, employing close to 100 people at our Toronto head office and around the same number across six offices in Nashville, New York, Los Angeles, and London. Ole was founded in 2004 by Canadians Robert Ott and Tim Laing, with backing from the Ontario Teachers' Pension Plan. Fourteen years later, with over $550 million U.S. invested in music copyrights, we remain a 100% Canadian company that competes globally in a business dominated by foreign multinationals. In fact, ole ranked 8th in Billboard's ranking of top music publishers for the first quarter of 2018.

Our catalogue includes over 55,000 songs, including works by Canadian legends like Rush, Lighthouse, and Stompin' Tom Connors, and international hit makers like Timbaland, Rami Yacoub, and Liz Rose. These songs have been recorded by Beyoncé, Justin Timberlake, Taylor Swift, and many other top international recording artists.

Our 60,000-plus hours of film and TV music include catalogues from leading Canadian producers and distributors like Bell Media, Corus, DHX, eOne, the National Film Board, and major Hollywood studios like Sony Pictures, MGM, and Miramax.

Ole's activities also extend well beyond traditional music publishing. Our industry-leading production music businesses—Jingle Punks, 5 Alarm Music, Cavendish Music, and MusicBox—offer custom composition services and over 750,000 library tracks for use in film and TV productions, and our Compact Media division in London is a world leader in audiovisual secondary rights administration, representing more than 700 film and TV producers and distributors around the globe.

We also operate a robust record label group, including the legendary Canadian rock label, Anthem Records, home of Rush, Big Wreck, and The Tea Party, and our latest signing, a band called Stuck on Planet Earth.

Ole's substantial investment in music copyrights has a significant ripple effect through Canada's creative ecosystem. Our acquisition of major foreign catalogues like MGM and Sony Pictures has resulted in millions of dollars being redirected to Canada annually. That funds the continued development of new songwriting talent and further acquisitions of domestic and foreign catalogues, and through our investment in music and secondary rights of Canadian producers, we contribute to the financing of new Canadian film and TV production.

Our continued success in rights management also turns on our ability to effectively match, conform, and process the copious amounts of data that result from the growth of digital platforms around the world. Effective data management is essential to achieving revenue completeness and delivering accurate reporting and remuneration to our songwriters, artists, and other rights holders. To that end, we've invested millions of dollars developing proprietary software called Conductor, an end-to-end rights management and data processing solution that far exceeds the capabilities of available third party solutions.

Ole's business relies on Canadian and international copyright laws to protect the value of creative works, but the rapid shift to digital poses real challenges to our business and our continued ability to return value to creators. As you know, broadcast and cable TV are quickly giving way to over-the-top video-streaming platforms, and paid music download stores are largely being replaced by subscription, and even worse, ad-supported streaming services.

The result is twofold: a significant increase in music access and consumption; and a significant decrease in the remuneration, if any, that is paid to the creators and those who invest in it. This trend needs to be checked, or the consequences for creators and those who support them will be dire.

It is becoming increasingly difficult to justify serious investment in music without real potential for returns. Gaps in Canada's copyright laws are reducing or even eliminating existing revenue streams while impairing the development of new ones. The result is a growing value gap that requires urgent attention.

Commercial enterprises that operate digital services should not be allowed to continue to profit from the exploitation of music without returning fair value to those who create and invest in it. For Canadian music to survive and companies like ole to continue to invest heavily in cultural assets, this value gap has to be addressed.

Through this review, we urge the government to establish a framework that ensures that those who create and invest in music receive their fair share of the economic benefits, and that recognizes the responsibilities of new delivery services and the value music brings to their businesses.

We support several specific recommendations already presented to the committee by the Canadian Music Publishers Association, Music Canada, and others, namely: addressing gaps in the protection and unintended consequences of the 2012 amendments, including exceptions that have relieved commercial users from the obligation to pay for commercially valuable uses of music; addressing the value gap by ensuring that network services that benefit directly or indirectly from the exploitation of music cannot avoid payment or responsibility by hiding behind safe-harbour protection; extending the term of copyright to life plus 70 to align with the majority of our major trading partners; encouraging continued investment in classic catalogues and extending the period in which works continue to generate revenue that could be reinvested in the creation and acquisition of new works; ensuring that the private copying levy is made technology neutral to cover tablets, smart phones, and other digital devices ordinarily used to store music; and finally, ensuring that the Copyright Board is adequately equipped to render timely decisions with due regard to the value of music to commercial users—and we appreciate the efforts already under way in this regard. These steps would go a long way to restoring much-needed balance to our copyright system.

In conclusion, ole takes great pride in its significant contribution to Canadian music and cultural communities to date, and we look forward to a bright future. We call on our government to solidify Canada's reputation as a leader in the protection of creative content and cultural business, and to help position Canadian music and companies like ole to thrive in the digital world.

Thank you again for inviting us here today and for hearing our concerns.

[The Chair, Liberal, Julie Dabrusin]

Thank you.

Now we'll hear from Gilles Daigle and Geneviève Côté from the Society of Composers, Authors and Music Publishers of Canada.

[Geneviève Côté, Chief Québec Affairs Officer, Society of Composers, Authors and Music Publishers of Canada]

Thank you, Madam Chair.

My name is Geneviève Côté, and I am Chief Affairs Officer at SOCAN. My colleague Gilles Daigle is SOCAN's General Counsel.

SOCAN is the society that manages public performance rights for authors, composers, and music publishers. We currently have 150,000 members, and we also represent the global repertoire of music works in Canada. We thank you for this opportunity to speak to you.

No one will be surprised to learn that SOCAN has been pleading for many years for Canada to establish robust copyright statutes to permit fair and equitable remuneration for creators. The Copyright Act has always been and always will be the cornerstone of the entire Canadian creative sector.

Where do we stand on all the technological changes we are currently experiencing? The way creators are remunerated has vastly changed in recent years. Copyright royalties have always been an essential part of our creators' remuneration, and that is more than ever the case today.

As regards SOCAN and its performance royalties for the use of musical works, it is true that we are collecting record royalties. That is attributable in part—and I do mean "in part"—to the increase in revenues from online streaming. However, that does not mean that creators and their publishers are making more money.

When we published our results this year, we pointed out that the vast majority of our members who had received royalties for the ongoing distribution of their music in 2017 had received, on average, only $38.72 for their work.

Our members rely on various uses of their creative works. However, for some of those uses, the revenues they previously enjoyed as a result of other media have virtually disappeared. Royalty revenues from new uses do not compensate for the overall revenues previously generated.

The fact nevertheless remains that the contribution of copyright to a constantly changing digital environment is, now more than ever, becoming one of the pillars of creators' remuneration.

As The Honourable Mélanie Joly said in her speech on Creative Canada,

Investing in our creators also means ensuring they are fairly compensated, and can protect and make the most of their intellectual property.

SOCAN is one of the signatories to the brief filed by the Canadian Music Policy Coalition. We support all the recommendations contained in that document. Today, we want to emphasize three aspects of the Copyright Act.

The first aspect is the extension of copyright protection, which we have already discussed this morning, from 50 to 70 years after the author's death. We want to take this opportunity to thank Mr. Van Loan for recently introducing the private member's bill that he discussed earlier.

With its current term of protection, Canada is a poor player on the international stage. Our main trading partners, including the United States and all members of the European Union, long ago extended protection to 70 years after the author's death. In Mexico, that protection even runs to 100 years after the author's death. Our creators here are clearly less protected than those abroad. The international standard extending protection to 50 years following the author's death was adopted in 1886. Governments at the time wanted two generations following the author's death to enjoy protection of the work. As we may all agree, life expectancy has sharply increased since the 19^th century. Our major trading partners have clearly understood this.

So I will ask you the question directly: does Canada want to remain in the same category as North Korea and Afghanistan in this area? We hope not. Let's take this opportunity to show leadership on this issue and restore Canada to its proper place on the international stage.

Some commentators—very few, to our knowledge—will tell you that increased copyright protection will be provided to the detriment of consumers. However, there is no evidence that consumers would be put at a disadvantage by an extension of copyright protection.

Now I will turn over the floor to my colleague Gilles Daigle.

[Gilles Daigle, General Counsel and Head of Legal Services, Society of Composers, Authors and Music Publishers of Canada]

Thank you, Mrs. Côté.

Good morning, ladies and gentlemen.

A second aspect that the committee should examine is the loophole created by subsection 32.2(3) of the Copyright Act, which provides for an exception for so-called charitable organizations that use music "in furtherance of a religious, educational or charitable object." Let's be clear: we at SOCAN do not intend to penalize activities that are charitable in the true meaning of that term but would like instead to restrict organizations that circumvent the act and attempt to avoid paying what they owe.

Allow me to explain. Certain organizations, theatres, and festivals that have multi-million-dollar budgets currently assert that they are charities within the meaning of the Income Tax Act. Since they have that status for tax purposes, they claim they are not subject to the Copyright Act by virtue of section 32.2. Although the Montreal International Jazz Festival pays SOCAN royalties in accordance with the applicable tariffs, many others, even though they make extensive use of musical works, refuse to pay those royalties, relying on the exemption for charitable organizations.

To close these loopholes, we propose two changes. First, It should be specified that the exception under the subsection in question applies only where the music is used without any intent of monetary gain. That's already the case for the preceding exception, which applies to agricultural and industrial fairs. It should also be stated that charitable status under the Income Tax Act is not in itself sufficient to allow the exception. Consequently, the act should provide that a proper benefit concert may qualify for the exception, whereas an event in which the principal activity is to present truly commercial concerts may not.

The third aspect is the private copying royalty. The private copying system was established to offset lost revenue due to the emergence of certain media, cassettes in particular and, subsequently, blank compact discs. As you may imagine, the sums previously collected and distributed to creators evaporated, and only a few crumbs remained. The present system must be reviewed and should include a technology-neutral element so that new digital media, which are now the standard for music listening purposes, are incorporated. Here we are talking mainly about tablets and smart phones. Together with the music industry, which is united on this point, we also advocate the establishment of a transition fund of $40 million a year over five years to support significant use of our creators' musical works.

In addition to these three main aspects, we support the request by certain groups that the exception under which commercial radio stations pay no royalties in respect of sound recordings and performers on the first $1.25 million of revenue be repealed. We believe this is an injustice that must be corrected. It was intended as a transitional measure but has become permanent for no reason. The same is true of the change made to the definition of sound recording: we believe this isolated exception is obsolete and unfounded.

We take this opportunity to underscore the government's efforts with respect to the Copyright Board of Canada. More particularly, the government has begun to reform the organization and invest additional funding in it. We hope to see a reduction in the observed time it takes for the board to render its decisions.

Ladies and gentlemen, it has taken 15 years for the Copyright Act to be amended for the digital era. During that time, enormous changes have occurred in the way we consume music. From 1997 to 2012, smart phones became omnipresent, streaming and downloading surpassed sales of physical copies, and new services afforded consumers finger-tip access to the global musical repertoire. The purpose of the amendments made in 2012 was to recognize the changes in the digital landscape, but additional efforts must be made to bring the act into the modern era and guarantee a fair balance between users' rights and those of creators.

Let's not wait another 15 years before making further significant amendments.

Thank you.

[The Chair, Liberal, Julie Dabrusin]

Thank you.

Now we will begin our period of questions and answers.

Mr. Hébert, you have the floor for seven minutes.

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Thank you, Madam Chair.

Thanks to the witnesses for some interesting explanations.

My first question is for Mrs. Côté from SOCAN.

I'm surprised to learn that average streaming royalties amount to only $32.72.

[Geneviève Côté]

In fact, it's $38.72.

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Is that per work, per year?

[Geneviève Côté]

It's the amount received by those of our members who have received royalties. You know how to calculate an average: you take the total amount of royalties collected and you divide it by the number of people who have received royalties.

Since our members include stars like Drake and The Weekend, the average of $38.72 means that other members received only five cents or a dollar. We're talking about an average for the members who received revenue.

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

So you're talking about an annual average.

[Geneviève Côté]

It's the annual average for 2017.

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

That's quite surprising.

My next question is for Mr. Daigle.

You talked about not-for-profit organizations and benefit concerts. The blueberry festival in my region, in Lac-Saint-Jean, for example, will be presenting three or four artists such as the Cowboys Fringants. Am I to understand from your explanation that the festival's organizers are contravening the act or that the festival is considered a not-for-profit organization?

[Gilles Daigle]

I certainly wouldn't want to target the festival in particular because I don't know its situation, but some festivals don't pay us. I'd like to take it for granted that that one pays us, but some don't pay us. What especially troubles us here are the very big or enormous festivals such as the jazz and blues festivals that refuse to pay us on the ground that they are charities within the meaning of the Income Tax Act. However, the fact that they're designated as such doesn't automatically mean they're using musical works for charitable purposes.

Here's a specific example. The benefit concert that was held following the Lac-Mégantic tragedy was definitely a charity event, and, to my knowledge, all those who took part in it donated their time, products, and services. SOCAN would've done the same had it had to do so. The exception is entirely appropriate in that case.

However, it's different for festivals that are simply commercial in nature, that have nothing to do with fundraising, and that may be considered as competing with commercial producers. Why would those organizations, which take in millions of dollars in revenues, not pay the creators of the music that is performed, particularly since their only ground is that they've obtained charitable status from the Canada Revenue Agency?

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

The act is often an obstacle: it can be circumvented.

My next question is for Mr. Klein.

Our era being what it is, works are increasingly disseminated around the world via the Internet. Unfortunately, artists make poorer livings from them. Could we say that the remedy is killing the patient?

[Jason Klein]

I'm not entirely sure I got the full question there, but I think certainly the result of digital has been that there is a lot more access, and—

[Richard Hébert, Liberal, Lac-Saint-Jean, QC]

Let me clarify my question. Since a work is now more widely distributed—for example, a song can be heard 100 million times a year instead of three times at the blueberry festival—that should work in its creator's favour. In other words, is the problem the fact that distribution is now so extensive? As the saying goes, is the remedy killing the patient?

[Jason Klein]

In a way, I think you are right. Financially, certainly, it seems to be worse because the numbers aren't coming in that reflect the increased consumption. We certainly have more access to music and more consumption of music than we probably ever had, which is a good thing when you look at it from a consumer perspective and potentially from an artist's perspective. But when it comes to the artist being remunerated, and those like us who invest in artists, and like the labels you heard from earlier, more use seems to be less of a return on investment.