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.