Canadian Heritage Committee on Oct. 4th, 2018

[Jason Kee]

With respect to the GST, one thing that—

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

No, I'm not talking about the GST. I'm talking about the fact that if you're selling advertising space, we know getting the commission back to creators is tough, as you say, but are these sales made in Canada and are they taxed? Are there taxes paid by Google or Alphabet on these sales in Canada? Are these taxes paid in Canada?

[Jason Kee]

We pay corporate income tax on operations in Canada. It's not necessarily sales. This is actually part and parcel of a much more complicated conversation that is happening in the the OECD with respect to the taxation of intangible goods and services and how that interacts with international taxation regimes—

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Then we are importing advertising space from the States, from your place. We are importing lemons and kiwis, and we are importing advertising opportunities from you. We actually send Canadian cash outside of the country to pay for these. Is that correct?

[Jason Kee]

Again, it depends on the nature of the advertising. For example, with display advertising, YouTube advertising, as I was saying, when an advertiser spends money on that, the bulk of that revenue actually flows back to the creators. That would include Canadian creators. It flows back.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

I'm going to ask you if you're telling me that

a percentage of advertising revenues goes to creators.

You explained why it was difficult to say that it ranged from $2 to $600, as it varied based on value, bidding and advertising space.

Nevertheless, a percentage goes to creators. What percentage do rights holders get?

[Jason Kee]

With respect to YouTube, there's some variability there. It's basically a minimum of 55% or above; it depends.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Fifty-five per cent of the advertising revenue going to YouTube goes to the rights holders?

[Jason Kee]

Correct, or above. I have to be clear about this. That's the minimum amount.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

This sounds good. We'll have to dig through these numbers.

Do you earn any advertising revenues on content uploaded by users illegally? Is that possible?

[Jason Kee]

Is it possible that it could potentially happen? Yes. This is why we deploy a system like Content ID: we ask rights holders to upload reference files that we can compare. Basically, we have them decide what they want to do to take action against that: whether they want to block it entirely, whether they want to monetize it—in which case the ad revenue is actually diverted to them—or whether they just want to track it.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

I completely understand the importance a system like Google can have. I understand that you have met with the government many times.

How many times have you met with the chief of staff at Canadian Heritage, Leslie Church, who used to work for Google?

[The Chair, Liberal, Julie Dabrusin]

I'm sorry, but unfortunately that puts you at five minutes. You might want to talk about that afterwards, but that's the end of our time, because we are actually at noon.

Thank you very much.

We're going to suspend for a few minutes, and then we will regroup with our next set of witnesses.

[The Chair, Liberal, Julie Dabrusin]

We are back.

As we continue our study, we are hearing from Francis Schiller, from Border Broadcasters, Inc., Catherine Jones, from Connect Music Licensing, and Mathieu Dagonas, from the Documentary Organization of Canada.

We will start with Mr. Schiller please.

[Francis Schiller, Canadian Advisor, Border Broadcasters, Inc.]

Madam Chair, vice-chairs, members, clerk and committee staff, thanks for the opportunity to appear before you today as part of your study on remuneration models for artists in the creative industries in the context of copyright.

My name is Frank Schiller. I'm here as a Canadian adviser to Border Broadcasters, Inc., a not-for-profit copyright collective representing 26 local over-the-air American television stations, including ABC, CBS, NBC, and Fox affiliates located along the Canada-U.S border from coast to coast.

As part of your study, I hope to inform and seek your committee's support on three fronts.

First, I hope to share with you a better understanding on how the current Canadian retransmission and copyright regimes are fundamentally unfair, not only for U.S. border stations, but also for Canadian viewers and broadcasters alike.

Second, I urge your committee to support and recommend retransmission consent as a new Canadian remuneration model available for local over-the-air broadcasters, including U.S. border stations, as a means to provide badly needed new commercial revenues to create industries.

Finally, I encourage the committee to recommend the necessary legislative changes to the Copyright Act to facilitate the implementation of these new remuneration models and to ensure fairness and nondiscriminatory treatment moving forward.

Local and distant signals and programming from U.S. border stations form part of Canada's regulated pay-TV services. Signals from these stations are appropriated, packaged in channel bundles, and sold to Canadian cable and satellite TV subscribers in every market across Canada. It's the Government of Canada that enables these U.S. stations to be listed and licensed for authorized Canadian distribution. What's remarkable is that this happens without notice to, consultation with, or consent from the U.S. station owners in the process. These Canadian practices are discriminatory and fundamentally unfair against U.S. stations. Consequently, the owners of these stations retransmitted in Canada experience demonstrable economic injury and harm under copyright, advertising, and consent for remuneration opportunities.

Canada has been importing U.S. television signals and programming for over 50 years. Initially, these practices and policies were intended to provide a direct subsidy to the then fledgling Canadian cable and satellite industries. It was a simple business model: Take for free from U.S. television stations and sell to Canadian pay-TV subscribers.

As technology changed from cable to satellite and then digital, the number of U.S. stations listed for retransmission in Canada exponentially increased from an original set of three U.S. channels to now multiple sets of what are known as the U.S. “4+1s”, plus superstations and more. The average Canadian TV subscriber is likely now to receive between eight to 15 over-the-air U.S. stations in their channel packages.

It was not until the early 1990s that U.S. stations even became eligible to receive copyright remuneration for their programs on distant signals retransmitted in Canada. This followed from efforts under the Canada-United States Free Trade Agreement to provide compensation consistent with the 1976 U.S. Copyright Act.

After 30 years of administration, U.S. TV stations are still waiting for non-discriminatory treatment in Canada. Canada does not require reporting, auditing or notification provisions when Canadian distributors are licensed to package and sell listed American channels to Canadian TV subscribers. As a result, U.S. stations cannot reasonably determine where and when their digital broadcast signals and programming are sold to Canadians.

Canada accepts inaccurate and incomplete data for Canadian viewership of retransmitted American stations, and this also causes economic injury to U.S. station owners.

For example, in 2010, TV viewing measures changed in Canada with a significant under-representation of U.S. border stations. At the same time, Canada changed distant signal regulations. The immediate impact was the significant under-reporting of Canadian viewership of U.S. stations. Consequently, copyright allocations to U.S. border stations were retroactively reduced by 64%. Border Broadcasters, Inc. received an unfair liability of over $8 million moving forward.

It's in the public interest and supported by sound public policy for the immediate remission of these unfair copyright liabilities retroactively adjusted against Border Broadcasters, Inc. It's also notable that local stations receive no copyright remuneration on local signal retransmissions in Canada, and this can be easily addressed with a small change to the Copyright Act.

There are many other examples of unfairness for U.S. stations under Canada's regime, including over the introduction of HD services. The bottom line is that Canada's copyright system is not providing for non-discriminatory treatment of U.S. stations. There's something fundamentally wrong with the Canadian listing process that allows the Government of Canada to decide what broadcast signals can be carried, without input or consent, even in cases where the signals are not available off air in Canada.

The unfairness is only compounded given that Canadian cable and satellite operators willfully alter U.S. signals by covering commercials, stripping out materials such as closed captioning, or inserting advertisements overtop of the retransmissions. Canada does not require an international trade agreement to reform its procedures here and remedy an inherently flawed and unfair process.

In 1992, the U.S. Congress established a retransmission consent regime for U.S. stations. Local stations can negotiate compensation for the retransmission of their signals by cable and other pay-TV distributors. These retransmission consent fees are now vital sources of revenue for local stations, which rely on the income to invest in modern digital broadcasting infrastructure, to deliver expanded local news offerings and to have emergency alert systems.

New commercial revenues from consent rights in Canada's listing and licensing processes, in addition to non-discriminatory copyright remuneration, will also benefit local Canadian stations and TV viewers. Canadian broadcasting will benefit from new commercial revenues that will offset the growing losses year over year for Canada's private conventional broadcasters, which now stands at more than $700 million in losses over the last five years. In contrast, the U.S. experience confirms that local TV stations are profitable. Recent studies also highlight that in most small and medium-sized markets, it's the local television stations that are the primary creators and generators of local news online.

Now, with the digital transition complete, in addition to high-definition multicasting, U.S. stations are getting set for the interaction of a new digital broadcast standard, ATSC 3.0. This includes next-generation digital delivery services to both fixed and mobile receivers, seamlessly combining over-the-air and broadband delivery.

Under Canada's current unfair regime, Canadian TV subscribers are paying the price with higher TV fees, reduced local news offerings, diminished digital services and an inferior TV experience. Canadians pay for the price of costly duplicate American programming in their TV channel bundles whether they watch the duplicate programming or not. It is Canada's copyright and retransmission regimes that provide the economic incentive for the oversupply of U.S. services by Canadian distributors to Canadian subscribers. At the same time, Canada's local broadcasting infrastructure is not being converted from analogue to digital in all markets. Consequently, the availability of free HDTV off-air reception is being reduced for some Canadians.

Finally, the cost of these recommendations, including new remuneration models and fair copyright, on Canadian pay-TV subscribers is likely to be negligible to positive, with a reduction in pay-TV fees possible depending on channel bundling and implementation.

Local TV brings us together. Cross-border television reflects our common values, our shared communities of interest and our programming diversity. Local U.S. border stations have a distinguished legacy of strengthening and deepening the relationship between Canada and the United States. By addressing the fundamental unfairness that underlies Canada's retransmission and copyright regimes and embracing retransmission consent, your committee will deliver new remuneration opportunities for creative industries, including local news, and this will benefit local viewers, communities, creators and broadcasters on both sides of the border.

Thank you.

[The Chair, Liberal, Julie Dabrusin]

Thank you.

I'm just going down the list in order, by the way, so you understand why I'm jumping to the other side.

We're going to Ms. Jones, from Connect Music Licensing, please.

[Catherine Jones, Executive Director, Connect Music Licensing]

Good afternoon. My name is Catherine Jones, and I'm the Executive Director of Connect Music Licensing.

I'm lucky to have worked in the music industry for 25 years, at a record label, at a broadcaster and now at Connect. I've witnessed first-hand the seismic shift that has occurred since the dawn of the digital age. In my early days at Universal Music Canada, I remember when we first got email—first internal, then external. It was the beginning of a series of changes that would fundamentally alter the way musicians and record labels are paid for their work and investment. As a result of these changes and the effect on the industry, I have been through five major restructurings, and I made it through four.

At Connect, we represent more than 2,700 rights holders of sound recordings in Canada. Our membership spans the breadth of the Canadian music industry, ranging from single self-produced and self-released DIY artist-entrepeneurs to Canada's largest record labels, with Canada's leading independent labels in between.

Our mission on behalf of our members is to return maximum value when their sound recordings are used commercially by others. This includes distributing royalties for public performances or recordings, negotiating licence agreements with commercial music users, and collecting licence fees from those who make reproductions of our members' sound recordings. Our licensees include services like Stingray, background music suppliers, radio and television broadcasters, online music services like iHeartRadio, and many more.

To elaborate on the seismic shift I referenced earlier, new technologies have changed the ways music is accessed, consumed, reported and paid for by music users. Just like so many of our members, Connect has adapted in order to unlock the greatest value for our members as the ways we listen to and interact with the music have evolved.

Two years ago, Connect completed a drastic overhaul of our operations with our partners at Re:Sound, which slashed our administrative costs by 28%, putting $1.2 million annually in additional royalties into the hands of Connect members. As part of this overhaul, we identified and eliminated duplicative processes and implemented a simpler, more direct way to connect the identifiers our members provide about the recordings directly with the data Re:Sound receives from commercial music users. This generates more revenue for our members, expediting and increasing their paycheques when their music is used.

We are a lean and nimble music licensing company, committed to international best practices, and we've done what we can to get more of every dollar that we collect into the pockets of music creators within our current copyright framework. The reality for our members is that within that framework, there exists a massive gap between the value of their music and what is returned to them by the music users who commercially use and profit from their music.

This disparity is known as the value gap, a term you've all become very familiar with during this study of remuneration models for artists and creative industries. The value gap is not the result of a failure by the music industry or the artist to adapt; it is the result of misapplied and outdated copyright legislation that has not kept pace with technological change.

To give you an idea of the scale of harm of the value gap, between 1999 and 2013, global music revenues decreased by approximately 70% in real terms. In Canada, between 1997 and 2015, music revenue fell to just one-fifth of what it would have been if it had kept pace with inflation and real GDP growth. Industry is only now, in the last three years, seeing a modest return of growth.

Andrew Morrison of The Jerry Cans and artist and label owner Miranda Mulholland, both members of Connect, appeared before this committee and offered a first-hand glimpse into their economic realities. It is becoming increasingly difficult for them to rely on the value of their recorded music for financial stability. They worry that the middle-class musician is disappearing.

There are, however, changes to the Copyright Act that this committee could recommend that would immediately improve the music ecosystem for Connect members.

The first would be to remove the $1.25-million radio royalty exemption. Since 1997, commercial radio stations have only been required to pay $100 in performance royalties on their first $1.25 million in advertising revenue. This two-decades-old exemption is outdated, inequitable and, in 2018, wholly unjustified. I understand that this recommendation has received a fair bit of attention at this committee, so I'd like to provide some clarification.

We heard the concerns expressed by community radio stations during last week's hearing. To be clear, what has been proposed by music industry groups and artists would have no effect on community radio stations. Community radio stations are not covered by the $1.25-million exemption. They are, in fact, separately exempted entirely from royalties, other than the nominal payment. We support retention of the community radio station exemption, which requires a total of $100 in royalties to be paid by such stations annually to record labels and performers. That said, Canada's largest vertically integrated media corporations—commercial enterprises that benefit from the exemption for each radio station that they own—no longer need to be subsidized by musicians and record labels.

The second change would be to amend the definition of “sound recording” in the Copyright Act. The current definition of a sound recording excludes performers and record labels from receiving public performance royalties when the recordings are broadcast in film and television soundtracks.

Miranda Mulholland summarized this problem succinctly when she appeared before this committee with her Republic of Doyle example. Even though her fiddle-playing features in almost every episode of the show, and despite this program being syndicated in multiple global markets, she only received a one-time, union-negotiated fee for each studio session.

Contrast this with the experience of screen composer Ari Posner, representing the Screen Composers Guild of Canada, who told the committee last week that he could not survive on his upfront fees alone and that he relies on the royalties he receives from the public performance of his compositions to pay his bills and support his family.

Our recommendation is simply that performers and record labels be afforded the same rights as composers and publishers when their work in film and television is broadcast or performed.

Number three, we also recommend the creation of a private copying fund. This will ensure that recording rights holders and performers, as well as composers and publishers, are fairly compensated for non-commercial reproductions of their recordings, without creating an extra cost for the consumer.

I teach licensing and copyright at Humber College in Toronto. The introduction I give to my students about Canadian copyright law is that any song you hear on the radio, on a streaming service, on vinyl, or on a CD has two separate and distinct copyrights that make up the whole.

One of them is for the composition for the lyrics and the notes in the song; the other one is for the sound recording, or the song, which covers whoever creates it and the musicians who perform on it. In almost all uses of music, the two rights are treated equally—in downloads and streams, for example—but in film and television, and with the radio royalty exemption, they are not. The effect of these provisions is that my members are subsidizing massive media companies that are syphoning value away from their music.

On behalf of Connect's members, I ask that you give careful consideration to these recommendations to close the value gap in Canada.

Thank you.

[The Chair, Liberal, Julie Dabrusin]

Thank you.

Now we will go to the Documentary Organization of Canada, with Mathieu Dagonas.

[Mathieu Dagonas, Executive Director, Documentary Organization of Canada]

Thank you, Madam Chair.

Thank you, members of the committee.

My name is Mathieu Dagonas, and I am Executive Director for the Documentary Organization of Canada.

DOC is the collective voice of independent documentary filmmakers across Canada, a national non-profit arts organization representing over 800 directors, producers and craftspeople from all provinces and regions of the country working in the documentary genre.

DOC advocates on behalf of its members to foster an environment conducive to documentary production and strives to strengthen the sector within the broader film and television production industry. In so doing, DOC seeks to ensure that viewers in Canada and abroad have access to high quality, original programs reflective of current Canadian events, lives and values.

By the way, 25 years ago we were also the founders of the biggest documentary festival in Canada, Hot Docs, and POV magazine, the largest magazine in Canada on the documentary community.

Canadians can be proud of the broadcasting system that has been built over the past 80 years. It has encouraged and sustained successful public and private broadcasters. It has supported the creation of a respected production industry. Most importantly, it has reflected Canadian values and told Canadian stories to audiences throughout Canada and around the world.

However, the system badly needs updating, as you all recognize during this important process that is now under way. In DOC's view, the key policy declarations set out in section 3 of the Broadcasting Act remain valid. For this committee, the policy requirement that:

each element of the Canadian broadcasting system shall contribute in an appropriate manner to the creation and presentation of Canadian programming.

is particularly relevant.

The policies designed by government and the CRTC to ensure the creation of quality Canadian programming have also worked well.

In the digital age, however, there is a key missing piece, which I am sure you've heard much about. As audiences increasingly turn to the new digital streaming services, we have no policies in place to ensure that these services, both foreign and Canadian, contribute appropriately to the creation of quality Canadian programming.

In the old analogue days, the CRTC ensured an indirect contribution from U.S. border stations and specialty networks through its simultaneous substitution rules, and foreign specialty services helped drive subscriptions to Canadian cable and satellite distributors that are required to offer a preponderance of Canadian channels.

Digital streaming services, however, are currently exempt from regulation and make no contributions to the Canadian system. The CRTC's 1999 exemption order for Internet-based broadcasting services was based upon its conclusion that licensing such services would not contribute in a material manner—believe it or not—to the objectives of the act. What may have been true then is clearly not true today.

DOC is pleased that the CRTC, in its recent report to the government, recognizes this situation. I won't read the entire quote, but I'll take a slice of it. The CRTC states:

... if legislative change is to take place, it should clearly and explicitly make any video or audio services offered in Canada and/or drawing revenue from Canadians subject to the legislation and incorporate them into the broadcasting system. This should apply to traditional and new services, whether Canadian or non-Canadian. Further, any new or revised legislation should be founded on the principle of ensuring that Canadians continue to have access to high quality audio and video content and that is made by and for Canadians, as well as the best content from around the world, regardless of the platform, device or technology they wish to use. This principle is, in essence, similar to many of the current Broadcasting Act objectives, updated to better reflect the future of content distribution in Canada.

This is the greatest challenge for policy-makers today, and I don't envy your position. It is also the policy with the greatest potential benefit to Canadian producers and the one that most directly bears on the work of the committee.

If an appropriate contribution from digital streaming services can be achieved and a fair copyright framework is in place, Canadian documentary producers will be able to negotiate fair remuneration for their programs using the existing mix of private investment, tax policies, licence fees and public-private funding agencies.

We see other avenues as well to ensuring fair artist remuneration. To put it simply, it's growing the pie. I know it's slightly outside of the scope here, but these avenues include: an investment into Telefilm Canada of $50 million, supported and brought forward by the CMPA a few weeks ago; a topic the minister knows well, a return of the CIFVF, something DOC is committed to working with committee members on, and a relaunch of this fund that was abruptly cancelled in 2009 to help francophone, rural and indigenous stories get made and seen, which they often are not; and fair pay for equal work, to ensure the system prevents broadcasters from paying a fraction for work placed on digital platforms that would otherwise pay a living wage if commissioned for TV, for example.

Finally, and more closely related to the scope of the committee's work today, the Canadian Copyright Act allows for the use of material from copyright-protected work—literature, musical scores and audiovisual works—for specified purposes without permission from or payment to the copyright owner. These purposes include research, private study, education, parody, satire, criticism, review, or news reporting.

In fact, we're users and we're rights holders. This rule, called the “fair dealing exception”, is often utilized by documentary filmmakers and is necessary to represent reality more completely and truthfully within our work. While its practical applications aren't perfect, we believe this provision must remain intact beyond this review.

Thank you for your attention. I will happily answer any questions you have.

[The Chair, Liberal, Julie Dabrusin]

We're now beginning our question-and-answer period. We'll start with Ms. Dhillon for seven minutes, please.

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

Thank you to our witnesses for being here.

My first question is for Ms. Jones.

You spoke about the value gap for artists. Can you please explain to us what this is and what changes you would like to see made to the legislation so that there could be fairness for artists and composers?

[Catherine Jones]

We're looking for equality when it comes to the payment of the public performance royalties with respect to radio versus film and television. We're looking for the removal of the $1.25-million radio exemption, and we're looking for an opportunity to create a private copying fund.

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

In recent years there have been many changes to technology. It's rapidly able to do things it wasn't able to before. How has this affected remuneration for your members?

[Catherine Jones]

The model has changed from transactional—purchasing a CD, purchasing an album, vinyl, or even a download—to a one-size-fits-all monthly fee that allows you to consume as much music as possible. We're now dealing with going from a lump-sum fee for one particular unit—a song or album—to micropayments for multiples, so the opportunity, the revenue, has decreased exponentially.

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

Do you think the federal government could help with fair compensation, and if so, how do you think so when it comes to this aspect, the technological aspect?