Singing, not quite.
Thanks for the opportunity to testify before the committee today.
The music industry has transformed itself into a predominantly digital industry, and to achieve this the music industry has worked tirelessly to adapt, innovate, and invest to drive a new digital age for music. However, for this positive development to be sustainable, there must be a fair digital marketplace for all participants playing with the same fair rules.
The sustainable and balanced growth of the digital content market continues to be undermined by a fundamental flaw in legislation underpinning the market that has created a value gap, a mismatch between the value that online user uploaded services, such as YouTube, extract from music, and the revenue returned to the music community. It is currently the biggest policy challenging the music industry today. For music to thrive in a digital world, those who are creating and investing in music must be able to negotiate fair commercial terms for its use.
Furthermore, digital music services that are licensing music on fully negotiated terms must be allowed to compete on a level playing field, something they currently do not have in Canada.
The Canadian music community is united in its call to fix the value gap, and it's advocating for a legislative solution. The government needs to look at the laws that were put in place at the dawn of the Internet that were designed to help the Internet flourish in the early days. Today those laws are hurting creators. In many cases, they mean that creators are subsidizing some of Canada's largest vertically integrated corporations. Today, the consumption of music has reached record-breaking numbers, yet our creators are worse off financially than they were in the 1990s.
Canada's creators urgently need the government to act because the laws in place now are preventing digital success stories from being shared with creators. Changes to the Copyright Act would create a functioning marketplace where artists are paid when their work is commercialized by others.
I'm sure most of you are aware of the term “value gap”. To summarize, the value gap describes the growing mismatch between the value that user uploaded services—again, such as YouTube—extract from music, and the revenue returned to the music community, to those who are creating and investing in music. The value gap is the biggest threat to the future sustainability of the music industry in Canada.
To fix the value gap, copyright reform must include the following.
Number one is an examination on the effects of safe harbour laws and exceptions. Safe harbour hosting provisions were introduced into copyright law around the world in the late 1990s and early 2000s to protect technology companies that were investing in developing the infrastructure needed to move content around the Internet from copyright infringement liabilities. Again, these provisions were introduced in the early days of the Internet, to help technology flourish at the time. In return for this protection, these companies were required to removed content only if they were notified of copyright infringements.
Years later, a number of platforms now exist that actively provide content rather than simply host it. These include video-sharing platforms, digital locker services, and user-generated content sites that are often generating vast revenues off the backs of creators' work, yet who maintain, at best, a partial liability for the content they provide.
The Canadian music industry believes that companies should only benefit from safe harbour defence if it is truly providing only technical, automatic, and passive service. Some companies are exploiting safe harbour positions, depriving creators of a fair value for their endeavours, and undermining legitimate music services in what is an increasingly important revenue stream for creators. Legislative action is needed to ensure that laws on copyright liability are applied correctly and consistently, so that online user uploaded content, services making music available, must negotiate their licences to do so with creators instead of riding freely on the backs of creators with these safe harbour privilege liabilities.
The music community is united in calling for policy-makers to take action.
Number two is the removal of the $1.25 million radio royalty exemption. When the Copyright Act was amended in 1997, every commercial radio station in Canada was exempt from royalty payments on their first $1.25 million in advertising revenue. Since then each of the nearly 700 commercial radio stations, regardless of their size or revenue, were only required to pay a nominal $100 to artists and recording companies on the first $1.25 million in advertising they earn. This is outdated and unjustified, and simply a cross-subsidy paid by artists and their recording industry partners to large, vertically integrated, and highly profitable media companies. Annually, the exemption costs rights holders an approximate $8 million, and since 1997 until 2017, it has resulted in losses to artists and labels of nearly $150 million.
These losses are contrasted to the fact that the radio industry has experienced steady growth and net profits before income tax from approximately $3.6 million in 1995, when the exception was first proposed, to approximately $437.5 million in 2016.
What should be done? Repeal subparagraph 68.1(1)(a)(i) of the Copyright Act. This will give power back to the Copyright Board and to stakeholders to come to a fair, market-based tariff, one that is set on a sliding scale and takes into account station revenues, use of commercial music, and ability to pay.
Number three is the amendment of the definition of “sound recording”. The current definition of “sound recording” in the Copyright Act is worded in such a way that performers and record labels are excluded from receiving royalties for the use of their work in television and film soundtracks. This exception is unique to television and film, and does not apply to composers, songwriters, and music publishers. It is inequitable and unjustified, particularly in light of the profound role that music plays in soundtracks. It is estimated that artists and recording labels lose $45 million annually to the current definition of “sound recording” in the Copyright Act as it stands now.
What should be done? Part II of the Copyright Act should be amended to allow for sound recordings used in television and film to be eligible for public performance compensation, pursuant to section 19 of the Copyright Act.
In summary, the Canadian music industry recommends the following changes: one, examining safe harbour provisions for companies that corner business as provision of content; two, eliminating the $1.25 million radio royalty; and three, changing the definition of “sound recording” in the Copyright Act.
At the outset of the digital era, creators were promised that they would be ushered into a golden age that would deliver them financial and artistic rewards. However, the reality for artists and their partners in the creative industries has been almost exactly the opposite. As a result of rules established two decades ago, wealth has been diverted from creators into the pockets of massive digital intermediaries, and what little is left over for creators has been concentrated into fewer and fewer hands. As a result, the creative middle class is disappearing, and with it numerous jobs and opportunities.
When we compare the global revenue from the sale of recorded music in 1999 with today, it is obvious to anyone that jobs and opportunities have been lost. This is a problem we're solving. Help us put Canadians back to work in the creative sectors. Help artists and other creators get back to full-time creative work. The government can address this and other effects caused by the value gap by taking simple, moderate steps to rebalance rules created at a time when everyone was guessing how the digital age might unfold.
The guessing is over. Now we know that the golden age promised to creators has never happened. We therefore collectively owe it to them to address the rules that have so profoundly undermined their careers. These rules must be adapted to the reality of today's digital marketplace in a way that is fair to all stakeholders.
Thank you.