Canadian Heritage Committee on June 5th, 2018

[The Chair, Liberal, Julie Dabrusin]

We will start with our 113th meeting of the Standing Committee on Canadian Heritage.

We are continuing our study on remuneration models for artists and creators.

First, today, we have Messrs. Lauzon and Lavallée, from the Society for Reproduction Rights of Authors, Composers and Publishers in Canada.

We have with us the Canadian Independent Music Association with Stuart Johnston and Chris Moncada. Following the order that appears on the agenda why don't we start with the Canadian Independent Music Association, please?

[Stuart Johnston, President, Canadian Independent Music Association]

Thank you, Madam Chair, and thank you for the invitation to present to the committee today.

My name is Stuart Johnston. I am the President of CIMA, the Canadian Independent Music Association, and with me is Chris Moncada of eOne Music, Last Gang Music, a CIMA board member and vice-chair of our government affairs committee.

CIMA is the national not-for-profit trade association representing the English-language, Canadian-owned and -controlled companies of the domestic music industry, including independent record labels, managers, publishers, distributors, artist entrepreneurs, recording studios, and the like, all small businesses.

Today you will hear us repeat recommendations that previous witnesses have given this committee. This is because there is a broad consensus within our industry on what needs to be done to improve the livelihood of our music creators. It's also important to know that creators must be defined as everyone in the music ecosystem of creating, recording, performing, and commercializing music. Creators are the artists, songwriters, and composers, and the companies that support them, such as labels, managers, and publishers. We urge the committee to review these consultations through this lens to ensure that all who create and commercialize intellectual property are properly supported and protected by Canadian law.

You've been told about the value gap, the difference between the value of our music and what is paid to our creators for the use of that music. Our four recommendations for amendments to the Copyright Act will go a long way toward closing that gap here in Canada.

First, remove the temporary $1.25-million radio royalty exemption. Since 1997 Canada's radio broadcasters have been exempted from paying statutory public performance royalties on the first $1.25 million of revenues. The federal government had amended the Copyright Act to provide this exemption to commercial radio stations in an era of low profits and uncertainty for the radio industry. Since then their profits have risen by 8,300%. This means creators have been subsidizing Canada's commercial radio industry to the tune of about $8 million a year. This exemption, unique in the world, was supposed to be temporary. I must point out that songwriters appropriately are not covered by this exemption; only performers and record labels are penalized under this system.

Second, amend the definition of sound recording in the Copyright Act to allow recorded music in TV and film to be eligible for public performance remuneration. The act does not consider recorded music as a sound recording when it's included in a soundtrack of TV or film. Because of this omission sound recordings are not entitled to royalties. For example when the movie Titanic is broadcast to the public the composer of the song My Heart Will Go On receives public royalties, but not the performer, Céline Dion. This omission is costing performers and makers approximately $45 million or more a year in loss of revenues.

Third, extend copyright term to life plus 70 years. We support SOCAN and CMPA and others in this request. Both the European Union and the United States provide copyright protection for a baseline term of life plus 70 years for authors of musical works, which includes publishers, songwriters, and composers. This will bring Canada in line with international intellectual property standards and trade agreements. It will also provide greater protection for Canadian creators of musical works, including songwriters, publishers, and composers.

Finally, renew support for music creators. We support the Canadian Private Copying Collective's recommendation for the creation of a four-year private copying compensation fund of $40 million annually. Music creators should receive fair compensation for private copies made of their music, and this fund is a good interim step until a more permanent solution can be found through legislative change. Ideally the Copyright Act needs to make private copying technologically neutral. Unfortunately, private copying is limited to media that are quickly becoming obsolete such as blank CDs.

Thank you very much. I now would ask Chris Moncada to say a few words.

[Chris Moncada, General Manager, Last Gang Records/eOne Music, Canadian Independent Music Association]

Thank you, Stuart.

My name is Chris Moncada. I am a resident of the Toronto—Danforth riding and the General Manager of Last Gang Records and eOne Music Canada.

Last Gang records is a 15-year old Canadian independent record label based in Toronto, representing both new and well established Canadian artists such as Metric, Stars, Death From Above, and many others. The current active roster is home to over 20 artists, most of whom are Canadian. We support and develop this roster across different lanes like radio promotion, consumer marketing, PR support, brand strategy, and retail distribution. The label, very simply, generates most of its revenue from the exploitation of the master recordings we have licensed from our artists. This includes the streaming of music on legitimate services, the sale of album and single downloads, the sale of CDs and vinyl records, and the synchronization of music to visual entertainment.

Our artist partners are paid a royalty or a percentage of net proceeds after their individual projects have recouped the agreed-upon costs that the label incurs to produce and market the projects. The biggest challenge to seeing our artist partners get paid is simply getting to this recouped position in this day and age. The rates paid out by streams are a fraction of those paid by CD, and the costs involved to market and promote the art have only risen since our industry has moved to a streaming consumption model. On top of that, the market is truly global now, and the costs to promote our artists in markets outside Canada are substantial.

Digitalization has had a monumental impact on our business. In a relatively short period of time, it has changed how our artists make their records, how we distribute them, how we market them, and how we promote them. It has redefined our relationship with the retail sector. However, what has not changed is that the path an artist embarks on to earn a living in his or her business starts with the creation of new master recordings, many of which are funded and promoted by labels. The tours, the streaming playlists, the terrestrial radio play, the press and blog interest, the TV and film placement opportunities all come after new art is created and promoted.

By making the appropriate changes to the copyright system—which my colleague, Stuart, has mentioned—the government will be supporting the companies that are the launching pad for our Canadian talent to make a truly global impact.

Thank you.

[The Chair, Liberal, Julie Dabrusin]

All right.

Now we will hear from the Society for Reproduction Rights of Authors, Composers and Publishers in Canada.

You may begin your presentation.

[Alain Lauzon, General Manager, Society for Reproduction Rights of Authors, Composers and Publishers in Canada]

Thank you, Madam Chair.

Thank you, committee members.

We come before you today on behalf of SODRAC, an organization engaged in the collective management of copyright and reproduction rights for its member authors, composers, music publishers, and creators of artistic works. In so doing, we facilitate the use of our repertoire of works on all distribution platforms so that the work of our members is fairly remunerated.

We are appearing before you today as part of your study on remuneration models because we want to present an overview of the impact of digital technology and to propose some options for restoring balance in the value chain so that creators are more fairly remunerated.

I would like to present our findings concerning the economic lives of our members.

Considering the new digital business models and the modernization of the Copyright Act in 2012, we, as a collective representing creators, want to address the following points.

In section one, we want to present our findings concerning all market stakeholders.

First, there is the consumer. We have shifted from an ownership mode to a digital access mode in which the local, national, and international music repertoire is both legally and illegally accessible with a single click. Since consumers pay their Internet service providers for access to content or purchase individual subscriptions, they believe they pay enough for cultural, musical, and audiovisual products.

Second, there is the user. The current environment favours digital operators. Given the new digital business models, we are witnessing the emergence of new intermediaries. Some of those intermediaries use music as a loss leader, whereas others enjoy exceptions, which creates a value gap among digital works.

Lastly, there is the creator. In itself, digital technology benefits creators because it expands and democratizes the means of distribution, which used to be limited. Digital technology helps diversify creativity and reach audiences that otherwise would never have been accessible. It also helps completely transform the formats in which music is consumed.

However, the most significant finding concerning creators is their inability to obtain fair remuneration for the use of their works. The most prolific creators always find a way to do so, but that's not the case of the vast majority of creators, the equivalent of the middle class, who used to live from their creations before the advent of digital technology. For them, the imbalance that digital technology causes in the value of works is constantly increasing.

In section two, we want to outline the factors that have an economic impact on creators.

The most crucially important factor is, of course, the Copyright Act. Since 2012, however, that act has contained more exceptions than any other similar act elsewhere in the world. Those exceptions are wide-ranging and concern, for example, the private copying system and user-generated content. There are also exceptions for certain digital intermediaries.

Recent judgments of the Supreme Court of Canada have also conferred a new right on users.

Mandatory national French-language content quotas are also lacking in the digital space.

Lastly, although the Copyright Board of Canada plays an essential role, there is a value gap in its decisions on digital uses of works, and that has a negative economic impact on creators relative to the situation of other countries for the same uses.

That brings us to the final point we want to raise, and I'm going to let M^e Lavallée tell you about it.

[Martin Lavallée, Director, Licensing and Legal Affairs, Society for Reproduction Rights of Authors, Composers and Publishers in Canada]

In fact, we're talking here about the need for a copyright act that benefits authors. Ultimately, in our view, the method used to remunerate creators affords the opportunity for that creator to follow the economic life of his or her work, no matter how it is used. This principle is supported by three pillars: access to the work, authorization of the holder, and value based on multiple uses and reuses.

Let's consider those three points.

Access is not a major problem area because the digitization of works, particularly musical and audiovisual works, is now commonplace. Works are universally accessible. Digital warehouse initiatives would meet needs for access to authorized copies intrinsically containing universal metadata.

Authorization should not cause problems either since, on large scales and in high volumes, the system whereby collectives such as ours grant general or one-time licences works quite well and proceeds via an exchange of metadata. However, the many exceptions provided for in the Copyright Act nullify the authorization process. We will therefore be addressing the Standing Committee on Industry, Science and Technology on the idea of reducing the number of exceptions.

The biggest challenge is to assign value based on multiple uses. Digital operators currently benefit from broader rights than those of the creators themselves, who are the ones who provide the raw material for those distribution platforms. How have we managed to migrate from an author protection system to a user protection system? Why are creators prevented from enjoying the potential economic impact of the use of their works, either as a result of exceptions under the act or because the responsibility of operators is unclear and because that constantly requires them to go to court to assert their rights?

This result is quite the opposite of what Parliament should wish for the cultural industry as a whole. Consequently, the departments of Industry and Canadian Heritage should join forces to review the Copyright Act and transform it into a tool to defend and promote rights holders.

We invite you to consider the following potential solutions, which we firmly believe acknowledge today's evolving digital market and the state of copyright in the 21^st century.

First, it must be acknowledged that content transmitted by a digital service provider is subject to a proprietary right that belongs to others. Authorities must take further action along these lines and acknowledge that certain Internet players, in particular Internet access providers, Facebook and YouTube, to name only a few, still deny all responsibility. In the new digital economy, however, they should ensure that creators are properly remunerated. Their contribution is therefore necessary.

The result of an enormous sector that distributes the music of creators but, in return, pays only a very small portion of revenues is a "value transfer" or "value gap". These two common expressions describe the transfer of the value inherent in creative works to the platforms that host and monetize them but that pay little or nothing in the way of royalties to those who have invested time and money in the creation of those works.

Second, the expropriation of creators' works must be prevented by reducing access to those works unless compensation is paid. The many exceptions contained in the present act have constantly been a recurring subject of complaints by rights holders. The parliamentary review that you are conducting must help improve the economic situation of creators. The way to do so is to reduce the number of exceptions under the act that result in no remuneration or inadequate remuneration.

Lastly, we must encourage the distribution of paid works through licences granted by copyright collectives.

In addition to maintaining greater defensive power for our members in order to assert their rights, we are developing a strong position on users. The strength of that position, however, will depend on what the Copyright Act enables us to do.

I believe our allotted speaking time is almost up.

[The Chair, Liberal, Julie Dabrusin]

You have two minutes left.

[Martin Lavallée]

Very well, thank you, Madam Chair.

How can we bring users, particularly foreign users, to the bargaining table if the right we advocate is diminished by a range of exceptions? This situation has a direct impact on the remuneration method and on the value established based on the multiple uses and reuses of works we mentioned earlier. If that right is diminished, value is undermined.

Let's talk briefly about how technology can serve the cultural industry.

As a secondary concern, the various procedures for identifying and documenting used works do not cause problems for copyright collectives in fairly allocating monies collected. In future, the development of new technologies such as blockchain and artificial intelligence will definitely help improve the efficiency of the process. The real problem is the fact that users are not required to use standardized metadata. The problem stems from the lack of value perceived by those same users, who enjoy the benefits of an act that protects them more than it protects authors.

[Alain Lauzon]

Note that, in Europe, the European Commission is amending its directives to give copyright collectives more power in dealing with the web giants. It intends to limit certain statutory exceptions to enable copyright collectives to compel certain intermediaries to pay their fair share and thus reduce the value gap.

At the end of its review, your committee should ideally provide Parliament with proposed amendments to the act that reflect the solutions that will be presented to you today.

Thank you for listening. We will be pleased to answer your questions.

[The Chair, Liberal, Julie Dabrusin]

Now we will begin a period of questions and answers.

I'd like to welcome Mr. Sorbara to our committee.

Ms. Dhillon, you have the floor for seven minutes.

[Anju Dhillon, Liberal, Dorval—Lachine—LaSalle, QC]

Thank you, Madam Chair.

Thank you to our witnesses for being here today.

I have questions for everybody.

I'll start with CIMA, and if somebody else wants to step in, you can do so as well.

The first question is about the digital era. We've been hearing a lot about this over the testimony of the last few weeks. Do you believe that the digital era has had a very negative impact on artists?

[Stuart Johnston]

Do you want me to take that, or do you want to start with your perspective?

[Chris Moncada]

I'll start.

I think it's a loaded question to some degree, because from this perspective or through this lens, the value gap is obviously negative. However, from an artist's perspective, what the digital era has done from a production standpoint to a distribution standpoint can be seen as more opportunity for getting your work out to people. A lot of bands and artists have gotten to a place of profit because of that distribution model being accessible to them now, whereas before, there were certain gatekeepers that were blocking one's way to getting records onto shelves, for lack of a better term.

[Stuart Johnston]

If I may, it really is a double-edged sword.

Following on what Chris is saying, technology and the digital world has enabled artists and companies to more efficiently record and distribute. It allows artists more of a level playing field; they can get their product into market, but now there is such a volume of product on the market that the challenge now is discoverability, being discovered and being paid for that. It's a double-edged sword. It enables everybody to record and distribute their music but, quite frankly, not everybody should be recording and distributing their music. It does make a challenge in discoverability when there's so much music out there now. It's a double-edged sword; it's a blessing and a curse, in a sense.

[Anju Dhillon, Liberal, Dorval—Lachine—LaSalle, QC]

Mr. Lavallée, is there a major gap between the act and the technology? You think the act has not had time to adjust to today's technology?

[Martin Lavallée]

The act is supposed to be technology-neutral. It should apply regardless of the technology in place. It's the introduction of exceptions that has made it possible to target specific uses in the act in order simply to expropriate creators' works and strip creators of the right they may have had.

In addition to that, the Supreme Court has interpreted the act and granted a user right, contending that the act should henceforth maintain a balance between the rights of each party and that users also have a right. The problem in all that, and it should be solved by legislative means, is that we should basically go back to a technology-neutral act, an act that protects creations of the mind, regardless of distribution platform.

The creation of this user-right movement has undermined the bargaining power of rights holders, including those like us who band together to establish a strike force against foreign giants such as the GAFAs—Google, Apple, Facebook, Amazon, Spotify, and Alphabet. Where their rights are unclear or weak, when they should be as strong as they were in the analog world, that encourages players not to want to negotiate with us or pay at the fair value of those rights.

[Anju Dhillon, Liberal, Dorval—Lachine—LaSalle, QC]

You mentioned that social media such as Facebook were aware of the situation but that they denied responsibility. In your view, if the act changes, will Facebook and all other social media be held responsible, or will they still be able to deny their responsibility? How is it that they can deny that responsibility?

[Alain Lauzon]

When you talk about today's social networks, you have to understand that a concept called user-generated content has been introduced into Canada's Copyright Act. Some intermediaries, social media in particular, are subject to exceptions under the act. That's one of the things we would like to change in it.

You asked what the impact of digital technology was on responsibility. We manage copyright, but there are many types of copyright. Mr. Johnston discussed public performance rights. We more particularly manage music reproduction rights. Since people traditionally had CD readers, CD and phonogram rights were granted, as well as synchronization rights. In short, there's a full range of reproduction rights.

Before the advent of digital technology, francophone creators—whom we mainly represent—and other Canadian creators could receive national remuneration in accordance with the directives and policies the government had established.

Here's an example. You need only compare digital revenues with those generated by the traditional media. As a result of the contracts we've entered into with users, I can't give you specific numbers, but I can tell you, generally speaking, what we've observed: the distribution of a work on a digital platform will generate 50% less revenue for its author than distribution of that same work via a traditional medium such as radio.

Digital definitely has its strong points. We can't go back in time, and we have to look to the future, but we have to re-establish a balance in this area.

[The Chair, Liberal, Julie Dabrusin]

Perfect.

That's all the time you had.

[Anju Dhillon, Liberal, Dorval—Lachine—LaSalle, QC]

It's already up?

[The Chair, Liberal, Julie Dabrusin]

Yes.

We will go to Mr. Van Loan now for seven minutes.

[Peter Van Loan, Conservative, York—Simcoe, ON]

Mr. Johnston, one of the things you talked about was term of copyright extension to life plus 70 years for authors. I think you know, this is something I have a private member's bill on. It was going to be covered in any event in the trans-Pacific partnership trade agreement. Then, when the Americans backed out of that, the current Liberal government actually had the entire chapter on copyright stuff removed because it was one of the big American asks.

The argument on this is that, because it's an important trade issue with the United States, you don't want to unilaterally disarm, if you will, for your trade negotiations. You want to be able to go into renegotiation of NAFTA right now, for example, or any other trade negotiation with that as something you can exchange for something else that's a Canadian interest.

How do you deal with that question on the trade concerns that would be raised as the objection to moving forward on it now?

[Stuart Johnston]

I think the most straightforward answer to that is that the author's rights, in this case, shouldn't be used as a bargaining chip in trade. It's the right thing to do. It already has its strength in our partners around the world, our competition around the world. The U.S. and the EU, as examples, already have it. We already have it on the performer side and the maker side. It was raised in the last government, as you know.

It's the other half of the equation that we're talking about, and we are talking about the intrinsic value of music. I think that's why we're all here, and so if music has a value, and we understand that the creators of music have to be paid for that, whether it's today or for a period of time, and we're lagging behind our competition, the right thing to do is to do it now.

[Peter Van Loan, Conservative, York—Simcoe, ON]

I'll throw out a hypothetical to you. If, for example, the answer was, well, if we were to do that unilaterally we wouldn't be able to protect the cultural exemption in NAFTA renegotiations, would that trouble you?

[Stuart Johnston]

I'm not sure I'm prepared to deal with hypotheticals today, sir. We can go all day about hypotheticals.