Canadian Heritage Committee on Oct. 16th, 2018

[Robert Malcolmson]

I'll be quick, but to address your first question, today BCE contributes, I think, $900 million a year; 30% of our media business revenues are reinvested in Canadian programming, which ultimately the artists and actors share in; and 5% of our broadcasting distribution revenues are ploughed back into the creation of Canadian content. What we're saying to you is that the system was working, but the leakage from piracy is constantly reducing the amount of money that is going into that system, which funds culture, and we need to solve that first. We need to stop this from happening so that we can continuously contribute to culture.

[The Chair, Liberal, Julie Dabrusin]

I want to thank all of the witnesses. If there are other comments that you want to make, you can also put in briefs with additional comments, if there are things that you feel you need to bring up in response to some of the questions that were asked.

I would like to thank all of you.

We are going to suspend briefly while we change panels. I'm going to ask the members to please do this quickly, because we have another full panel coming up.

Thank you.

[The Chair, Liberal, Julie Dabrusin]

I call the meeting back to order for our second hour.

We have with us in person, from Sirius XM, Oliver Jaakkola. We have Spotify, by video conference, with Darren Schmidt. We have Jennifer Mitchell from Casablanca Media Publishing. Thank you.

We will start with the video conferences in case we run into technical issues.

We will start with Darren Schmidt from Spotify. You can start your presentation, please.

[Darren Schmidt, Senior Counsel, Spotify]

Thank you, Madam Chair.

Thank you for inviting Spotify to contribute to this committee's study. My name is Darren Schmidt. I am senior counsel at Spotify responsible for content licensing in Canada, and globally. I have been working on music industry issues for 17 years. Before joining Spotify, I worked at a major music company, often touching on issues related to Canada.

I'm delighted today to be able to talk to you about Spotify, particularly the benefits of our service to recording artists and songwriters as well as their fans, and also, as we've been requested to do by this committee, to explain generally the various ways we pay royalties to rights holders, recording artists and musicians.

First let me introduce the company.

Spotify is a Swedish company created in Stockholm in 2006. Our service launched for the first time in 2008 and was made available in Canada in 2014.

Our mission was and remains to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and by giving billions of fans the opportunity to enjoy and be inspired by these creators.

Spotify is now available in 65 markets. We have more than 180 million active users on our service every month, and 83 million paying subscribers. Through August 2018, we've paid over 10 billion euros back to rights holders around the world.

Spotify is heavily invested in the Canadian music industry and supports the creators of music, whether they be songwriters, composers, recording artists or performers. Spotify has given Canadian artists great exposure via our playlists. Some of Canada's most popular weekly playlists on Spotify are Hot Hits Canada, with a half of a million followers, and New Music Friday Canada, with a quarter of a million followers. In fact, Prime Minister Trudeau even released a playlist on Spotify himself.

More than 10,000 unique Canadian artists have been promoted through Spotify's editorial and algorithmic programming in the past month alone.

In 2017, we partnered with the Canadian government to celebrate Canada's 150th birthday. Influential Canadians created and shared their own Spotify playlists of top Canadian artists and tracks. This fall, we're planning to launch a campaign specifically targeted at growing our francophone hip hop audience.

Artists' revenues are rising because the music industry as a whole is growing again, after a terrible run in the early 2000s. Canada, like many markets, entered a steep decline in revenues as piracy sites like Napster took off. Broadly speaking, recorded music revenues nearly halved since their peak in the late nineties, and Canada was no different

However, things have changed, much for the better. Not only is the global music industry back to growth, but so is music in Canada, and 2017 was the first year that revenue from music streaming services like Spotify accounted for over half of the overall music market. This is a remarkable achievement, given that revenue from this segment was negligible just five years ago; and Spotify has been a big part of that comeback story.

With that introduction out of the way, as we've been asked to do, I want to turn now to providing some detail for this committee about how Spotify licenses its music and how those licences result in payments to rights holders and creators.

By its nature, Spotify's service is one that relies on licences from rights holders in order to get content on our service. As I believe the committee is aware, music has two separate copyrights associated with it: one for the song or musical composition, and a separate copyright for the sound recording itself. The copyrights to the songs are typically held by music publishers—we will be hearing from one today—while the sound recordings are typically owned by record labels. To make things more confusing, the music publishers and record labels, particularly the larger ones, are often owned by the same overall holding companies and sometimes share ultimate management.

Spotify obtains licences from both sides of this divide. For the sound recordings, we obtain global rights from the three major record companies—Universal, Sony and Warner—as well as Merlin, which represents the rights of many independent record labels. Spotify also has direct licences with hundreds of smaller and medium-sized record labels around the world, as well as with some recording artists directly, to the extent that they control the right to their own music.

On the music publishing side—that is, for the songs underlying the sound recordings—the world is much more fragmented. This fragmentation has two primary causes.

First, unlike the world of sound recordings, it is relatively common for a musical composition to be owned by several different entities.

Consider the track In My Feelings, by Canadian artist Drake. The copyright for that sound recording is controlled by a single record label, but the musical composition underlying that track has 16 different credited songwriters, along with five different music publishers, each controlling a different percentage of those rights. Here we have an example of per-work ownership fragmentation.

Second, depending on the territory, different kind of entities or royalty collection societies will control different kinds of composition rights. Canada is an excellent example of that. In Canada, Spotify has a licence with SOCAN, but that licence is limited to the public performance rights of the compositions played on our service in Canada. However, the reproduction right, sometimes called the mechanical right, for those same compositions for which Spotify also obtains a licence comes from other entities—primarily CSI, along with others—so Spotify pays SOCAN, CSI and others, and those entities in turn are responsible for distributing those royalties to their rights holders, those being the songwriters and music publishers.

I should note here that I'm leaving a lot out, primarily about how in Canada, unlike in some other territories, there is no blanket mechanical licence, which would be very helpful in ensuring that all songwriters are appropriately paid.

There are a lot of changes forthcoming in the market as well. For example, SODRAC, which controls primarily Francophone mechanical rights, was recently purchased by SOCAN, which until recently focused only on performance rights. All of this may substantially change the licensing landscape in the near future.

In summary, Spotify was a late entrant into Canada due to our determination to respect copyright and seek licences rather than rely on copyright safe harbours. Since launching in 2014, our story, and that of Canadian music, has been one of success. Today, millions of Canadians are choosing not to pirate music but to access legal music and pay for it.

This encapsulates the origins of Spotify. We believed that if we built a legal and superior alternative to stealing, artists and songwriters could now thrive. That work has begun, and we still have a long way to grow.

Thank you for letting us contribute to this committee's study. We look forward to engaging with you.

I'm happy to answer your questions.

[The Chair, Liberal, Julie Dabrusin]

Thank you.

We will now go to Jennifer Mitchell, from Casablanca Media Publishing.

[Jennifer Mitchell, President, Red Brick Songs, Casablanca Media Publishing]

Thank you very much, Madam Chair and honourable members, for this opportunity.

I am the president, founder and owner of Casablanca Media Publishing and Red Brick Songs, a leading Canadian-owned independent music publisher for 17 years based in Toronto, Ontario.

When I co-founded Casablanca in 2001 with my late business partner, Ed Glinert, we started with very little. Now, 17 years later, we have seven Canadian employees, and I'm proud to say that our organization is over 70% female. We control over 700,000 music publishing copyrights in Canada, 30,000 in the U.S. and 4,000 worldwide.

Some of the well-known songs that we are privileged to represent include Imagine, by John Lennon, What a Wonderful World, My Way, Despacito, Start Me Up, by the Rolling Stones, and even the theme to the The Simpsons. We represent almost every genre of music, including current hits and songs that have been recorded over the decades. We also represent brand new songs by Canadian songwriters that have yet to be recorded.

That is who we are, but, as my family always asks me, how do we actually make any money? Well, we do a number of things.

First of all, we administer or sub-publish music publishing copyrights, largely in Canada but also internationally, for other music publishers and for songwriters who control their publishing. This represents the majority of our revenue. In most cases, we don't own the copyright.

On a typical day, our team liaises with rights organizations like SOCAN and CMRRA, chases unpaid royalties, tracks income, processes monies we've received, talks to our foreign reps in the U.K. about an upcoming tour, or pitches songs to a music supervisor in Toronto or L.A. to be licensed in film or TV.

Second, we invest in the creation of new music-publishing copyrights, which we co-own with songwriters. As you can imagine, this is the riskier part of our business model. This is where we attempt to build a house in the air, if you will use that analogy, by bringing the best builders together, financing their training and their materials, guiding their designs and then hoping that someone will ultimately want to pay something to rent that house, because there is no land value on day one and maybe not even on day 1,000.

As music publishers, we both develop new songwriters and sign songwriters at more advanced stages in their careers. We become their personal cheerleaders, pseudo-managers and long-time business partners.

As an example, we signed the 22-year-old Tom Probizanski from Thunder Bay, Ontario, which allowed him to move to Toronto. We then paid for him to go to L.A. and Denmark to co-write, and we set up his co-writing sessions. We also arranged and financed his trip to Banff to speak on a panel and introduce him to the Banff World Media Festival audience. When he later released his latest EP under the name of Zanski, we paid for his blog and playlisting promotion so that he was featured in Clash magazine and EARMILK and various Spotify playlists.

For another songwriter, Dan Davidson, from Edmonton, Alberta, we've arranged co-writes in China and financed radio promotion, which led to a top 10 Canadian country radio hit.

For Jeen O'Brien, from Stratford, Ontario, we guided her and helped her secure J-Pop releases in Japan, as well as various placements in TV and ads for Capri Sun and Google.

Even with older well-known songs like Skinnamarink, which was made famous by beloved children's entertainers Sharon, Lois & Bram, we have continued to promote and extend the economic life of this song by securing a Bose ad in 2016 that aired worldwide and a book publishing deal with Penguin Random House to release a picture book in 2019.

We make these investments of money, connections, time and knowledge because we believe in our songwriters, we love what we do, and we hope that the combination of our connections and knowledge and their talent will equal success, financial or otherwise, but so often it doesn't, and the one radio hit pays for other developing songwriters. Likewise, the sub-publishing and administration side of our business pays for our investments in Canadian songwriters.

This is a risky business. It takes decades to build. As I said earlier with the house analogy, there is no land value for a song if the house is a teardown. You can invest in a songwriter and walk away with nothing.

This is why the music publishing business is a true business partnership with songwriters. One cannot succeed without the other. There is always a team behind a hit song, and the team is behind the scenes. A hit song is what allows publishers to keep investing in songwriters and building Canadian talent to export worldwide. Unfortunately, for both songwriters and publishers the amount of money being generated in the music publishing industry today is fractions of cents. One million streams might generate an average of, say, $300 in publishing royalties for a songwriter, and that's if the song has only one writer.

The transition from physical product to a digital world has been very difficult for songwriters and music publishers. Too often we found our music being used on a platform, and that platform profiting without compensating songwriters and publishers. We survived only because we had other revenue streams, such as royalties from radio stations and private copying royalties. Changes to the Copyright Act in 2012 created new exemptions that decreased the amount of these royalties just when we needed them the most.

Of course, as we continue to transition to a fully streaming world, the importance of royalties from radio stations and private copying cannot be overstated. It's not only about diminishing revenue for music publishers; it's also about increased costs. Besides the sheer volume of data publishers now have to process, the costs of identifying unpaid uses are significant. Claiming works on YouTube, for instance, is a full-time job and a great example of a service downloading its operational costs onto songwriters and publishers.

Meanwhile, creators are relying on publishers to collect this income and to reinvest this income in their careers. The Canadian economy is relying on small and medium-sized businesses like mine to provide full-time, stable jobs, but to survive in the music business today, independent music publishers like me need to be able to earn a reasonable return on our investment in creativity. The 2012 amendments to the Copyright Act have not made that easier. In fact, they have made that harder than ever, which makes your work here today that much more critical. The review of the act is an important opportunity for Canada to address the expanding value gap and to get things right for songwriters and publishers.

To do that, Parliament can take a few simple steps.

First, it can revisit the immunity afforded to ISPs, hosting services and other Internet intermediaries, who continue to profit from the use of music without paying their fair share to rights holders. Intermediaries should be required to act quickly and block access to sites that facilitate infringement by others. When an intermediary is a content provider and profits from the use of music directly or indirectly, the creators and owners of that music should profit too.

Then, it can amend the new and expanded copyright exemptions that have led to a dramatic reduction in royalties from radio and private copying over the last five years.

Finally, it can introduce clear processes and rate-setting standards for the Copyright Board of Canada. The board's unpredictable decisions have led to royalty rates for music streaming that are a fraction of the comparable rates in the U.S. and elsewhere.

I would like to take this opportunity to thank the government for agreeing to term extension in the USCMA. It benefits companies like mine and the songwriters we invest in, and we look forward to seeing this implemented as soon as possible.

Thank you again for the opportunity to appear.

[The Chair, Liberal, Julie Dabrusin]

Thank you.

We will now continue with Oliver Jaakkola from SiriusXM Canada.

[Oliver Jaakkola, Senior Vice-President and General Counsel, SiriusXM Canada]

Thank you, Madam Chair and members of the committee.

Thank you for inviting us to contribute to your study on copyright. My name is Oliver Jaakkola and I am senior vice-president and general counsel of SiriusXM Canada, Canada's only satellite radio broadcaster. We are a CRTC-licensed broadcaster with over 2.5 million subscribers in Canada.

We assume you have some familiarity with our service, but as we are short on time, I have attached additional pertinent information, as appendix A, to a handout of our speaking notes that I have distributed in both French and English, including a summary of our expenditures on copyright and Canadian content development.

Incidentally, I will mention that we have paid copyright royalties in excess of $175 million to creators, makers and performers. In addition to that, we have paid cumulatively and in an ongoing capacity $110 million to music education, sponsorship of Canadian artists, and cultural infrastructure through Canadian content development. We are also committed to paying tangible benefits in the amount of $28.7 million over seven years to a number of CRTC-mandated funds, including those that would promote the development of Canadian artists and their participation in the broadcasting system.

Satellite radio is an expensive technology, but one of great value in a country with the vast open spaces of Canada. For us to continue to provide a competitive service with a North America-wide distribution platform for Canadian artists and creators, Parliament must promote an ecosystem that encourages dissemination technology such as ours.

Our submissions are focused on two themes.

The first is that the copyright system needs to be a level playing field. Everyone who provides access to content in the digital environment should play by consistent rules, particularly as they reap value from that content.

The second theme is that this committee should consider creative ways to make the collective system more efficient and more responsive. This allows artists to profit from their content, and it allows providers of music and other content to know what their licensing costs will be.

What does a level playing field for music services in the digital environment look like? We say it involves three elements.

First, it means that organizations that are providing music to Canadians should be treated in a fair and consistent way. Sirius XM offers music to Canadians, and it pays a royalty for that music determined through the Copyright Board process. The problem is that we have competitors in the music space who offer music in vast quantities but who are able to take advantage of certain mechanisms in the Copyright Act. This has been described as the value gap problem. It applies, in particular, to services that allow users to upload content for the world to consume en masse and for free.

These services reap considerable ad revenues. We support the call of many parties who have asked this committee to take a hard look at the hosting shelter under the Copyright Act; in particular, the committee should ask itself whether it distorts the competitive environment to have sections of the act favour some services and not others. Reports submitted to this committee indicate that services in the position of Sirius XM may be paying as much as 20 times the royalties of user-uploaded services.

Second, there should be care to avoid double-counting of royalties. Sirius XM is aware that there is a call for extending the private copying levy to storage media on devices, but if the levy is extended, care should be taken that it does not apply to memory in dedicated devices when the music service is already paying the tariff for such copies. Otherwise, a service will pay twice for the very same activity, a situation the Supreme Court decried in the ESA case in 2012.

Third, this committee should take care to avoid any recommendations that might disturb the Supreme Court of Canada's technological neutrality findings in the CBC v. SODRAC case in 2015. In that case, the Supreme Court examined the copyright balance and properly recognized that services that disseminate content to Canadians make meaningful contributions through the risks they take and investments they make.

Satellite radio is a perfect example of these contributions: before the first song is broadcast, multiple satellites have been launched into space at great expense and must be maintained with care and at significant cost. Sirius XM also subsidizes the costs of its receivers installed in new vehicles and the costs of after-market radios sold to consumers. Without this investment, users in many rural and remote areas would have far less access to news, ideas and music. A level playing field requires these kinds of investments to be properly recognized in coming to a fair and equitable copyright rate.

Our second theme is that copyright royalties can be set far more fairly and efficiently. This idea was raised in the ESA case I mentioned a moment ago, wherein the Supreme Court properly recognized that Parliament's purpose in creating collective societies was to “efficiently manage and administer different copyrights under the Act”.

At paragraph 11, the Supreme Court quoted a passage suggesting the following:

When a single economic activity implicates more than one type of right and each type [of right] is administered by a separate collective, the multiplicity of licences required can lead to inefficiency. . . .

In its decision, the Supreme Court suggests that when single-user licensing becomes fragmented, the resulting inefficiencies cause everyone, including the copyright owners, to suffer as a result.

Unfortunately, Sirius XM has had to live through that inefficiency repeatedly. We provide a satellite radio service and an adjunct online service using primarily satellite radio content. It's a simple offering, yet the tariff system requires Sirius XM to deal with numerous different tariffs with multiple collectives, each involving fragments of rights. Simulcasts online? That's one tariff. Allowing a user to pause a simulcast? Sorry, that's a completely different tariff.

Now consider that rights are further divided among multiple collectives, each of which is entitled to file inconsistent tariff proposals. The result for a user is many different proceedings as well as tremendous inefficiencies, costs and uncertainty. Tariff proceedings drag on for many years and result in retroactive payments. There has to be a simpler solution.

Leading scholars like Daniel Gervais have raised the idea of a one-stop shop licensing system. The basic idea is to bring all collectives together into a “multiple blanket” licence, or single tariff, so that all rights for a given service can be cleared quickly and fairly.

If you look at the history of copyright, you see that it used to be that performing rights societies and reproduction rights societies licensed completely different activities—one an opera, the other a vinyl record. Back then it made sense that different societies would clear rights separately, but in this era, almost every digital dissemination involves a composer, a performer and a maker, and a performance and a reproduction.

Is there a way to achieve a single clearance mechanism for all these uses? What can Parliament do to streamline the system fairly and efficiently? Perhaps this could be done through an omnibus licence application initiated by a given user, as suggested by the Supreme Court of Canada in the CBC and SODRAC case. Sirius XM suggests that this committee explore all potential opportunities to make rights clearance simpler for creators and users alike. This won't be easy, but it would be a tremendous legacy of this study.

Subject to any questions, these are my submissions.

Thank you.

[The Chair, Liberal, Julie Dabrusin]

Thank you very much.

To everyone on the committee, my apologies; I want to clarify that we did not have enough copies of the submissions. That's why we distributed a little bit to everyone. You will be able to get a copy electronically later. This is in case you're wondering why you don't have a copy of the submission at the moment.

We'll begin our question-and-answer period with Mr. Randy Boissonnault, please.

[Randy Boissonnault]

Thank you very much.

I am now old enough to say that I've lived through the digital revolution. When I was at university, we had the old Mac Classic microcomputers. They had a monochrome screen. It was not pre-Internet, but pretty darn close.

We've gone through the wonder of the web. Now we're in an era called the “tyranny of the technology”, and it's putting a lot of our artists at risk.

Let me be clear: I want all of your businesses to succeed. Before I got into Parliament, I was in business. I love business. I love those you employ and all the economic benefits, but I also love the arts. I love musicians. I love performance and visual artists. We have to create an ecosystem where we can survive.

My concern is that artists and their work are becoming a utility and that the technological aggregators are literally becoming, or positioning to be, the robber barons of the 21st century. We'll see what happens when cannabis is legal later this week, but as we're talking about technology right now, you are positioning yourselves to take advantage of really good creators, and I'm not sure they're getting paid.

Mr. Schmidt, I'll start with you. I am a Spotify customer, although you may shut off my feed after today's questions. Let's hope not. Look, you made a general statement that there's more money for artists. I believe that. I'm not sure, but I think there's more money in the music industry. I think we've plugged some holes on piracy.

Here's my question. I did some math with YouTube and another aggregator of music, and to make $2,400 a month, which is the minimum wage here—an Alberta wage is $15 an hour—it would take 16.5 million hits on one streaming site and it would take 9.8 million hits on another streaming site for one artist to make $2,400 in one month. That's 180 million hits just to make a living wage for the year.

My question to you is this: How do artists get paid per hit on Spotify today in Canada?

[Darren Schmidt]

First, I promise you we will not be shutting off your Spotify service. Thank you for being a subscriber.

I think that question is somewhat difficult to answer. As I described in my opening statement, generally speaking we don't have relationships directly with these creators. We have relationships and licences with rights holders, copyright owners, be they record labels that own the copyrights to the sound recordings or music publishers or a collection of societies to which we pay royalties. They then distribute those royalties to their members or their recording artists. We don't have any visibility into how that's done or what money they choose to pay; all we know is we already pay the vast bulk of our overall revenue for content, and we expect that goes to compensate creators.

[Randy Boissonnault]

An example comes from a parallel industry, which is the music industry, but not from the aggregated side. In the case of record labels, big three music labels dominate, and in that area the top 1% of artists account for 77% of all recorded music income. The top 10 selling tracks command 82% more of the market and are played almost twice as much on top-40 radio. Do you have data on who your superstars are, how many hits they get, and then, by extension, how much more money they're making than the person whose creation maybe isn't so interesting for listeners?

[Darren Schmidt]

We certainly have that data, yes. I don't have it with me today. We'd be happy to get that for you. We have giant teams of people here who do nothing but data.

[Randy Boissonnault]

I'm interested in seeing whether the aggregational technology, in doing this legally, as you so rightly said, is flattening and making the income less equal than it was in the old bricks and mortar radio world.

I have limited time, so I'm going to move on to Ms. Mitchell.

What could be done to increase the returns to artists and improve the copyright framework for the benefit of both creators and users?

[Jennifer Mitchell]

I think the biggest issue, which I addressed, was trying to prevent larger companies from hiding behind exceptions that exist right now in the Copyright Act and not fairly compensating creators. I think we need to strike a balance between creators and digital companies that doesn't exist right now in the current legislation to create more of a willing buyer and willing seller negotiation when we have those negotiations.

[Randy Boissonnault]

Okay. I'm going to pause you there. Should we get rid of the royalty radio payment exemption right now?

[Jennifer Mitchell]

Of course not.

[Randy Boissonnault]

Why not? Radios don't have to pay for the first $1.25 million they make. It's a royalty exemption.

[Jennifer Mitchell]

Yes. Sorry, I didn't understand your question. Anything that increases radio royalties or private copying is obviously beneficial for creators and buyers.

[Randy Boissonnault]

Okay. Would you like to add anything else?

[Jennifer Mitchell]

Obviously, I think we need to look at the points I addressed. Making sure the Copyright Board is more efficient is very important. The issue that I addressed about ISPs is very important. As I said, we need to look at trying to create a balance in the legislation between creators and between these larger digital companies. I think it's really important that we take that view when looking at the Copyright Act.

[Randy Boissonnault]

That's definitely our job as government. The job of this committee, and the reason I'm on this committee, is to weigh in on the side of artists. The industry committee is there for consumers. At some point we have to put all this stuff in the middle and come up with a revised and renewed copyright framework. I'm here so I can be listening to streaming media and go to live performances and know that we have Canadian content well into the lifetime of my grandkids. I'm not sure we're heading down that path right now.

To Sirius XM, Mr. Jaakkola, should we get rid of the radio royalty payment exemption?

[Oliver Jaakkola]

It's my understanding that there are cultural and historical reasons that this exemption was introduced—

[Randy Boissonnault]

I mean now. Those were in the past.

[Oliver Jaakkola]

Obviously, satellite radio was never eligible for such an exemption.

I think that one of the things this committee needs to look at.... To put it simply, we are looking for a more level playing field going forward, but you have to balance certain cultural interests. I would caution the committee to look at the treatment of licensed broadcasters versus unlicensed foreign streaming services. You want to make sure that in eliminating any of these exemptions, you're not losing a small broadcaster that does have a 35% Canadian content requirement—