Industry Committee on Sept. 24th, 2018

[Nathalie Dorval]

I'll try to take them one at a time. For the first one, distribution of that money with the record labels, we had to do an analysis of the songs that we play on the radio in our industry to try to understand how that money is being distributed within Re:Sound organizations. It's difficult for us to give you more than the breakdown that we've provided to you. We've been able to sort out through our own analysis of what's being played on the radio. It would be great for Re:Sound to come and explain how they distribute that money to the different components of their constituents.

In terms of exposure, because of the public policy of the CRTC, Canadian radio plays 35% of Canadian music in the English market, which is a direct exposure to Canadian artists. In the francophone market it's even higher. We have to play 65% of French vocal music, but 100% of that is not necessarily Canadian because we're allowed to play songs from France or Belgium. Most of it, close to 60%, is Canadian music. That gives you a sense of the exposure that Canadian artists get on radio.

[Susan Wheeler]

In addition to the airplay, we often bring artists into our studios and allow them to talk about their new albums or their new projects. We also have spotlight initiatives when we invite our listeners and members of the community to come and benefit from a showcase of Canadian artists and maybe gain exposure to artists that they are not otherwise familiar with.

We see it as a symbiotic relationship, where we provide promotion and exposure for Canadian artists and help them to grow their careers, both here at home and then—through our direct financing or funding to agencies like Factor and starmaker fund —we give them access to monies that they would otherwise not have to be able to tour and make their records and manage their careers in a way that doesn't require them to have other outside distractions.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

That's helpful.

Help me understand this. What I'm having a bit of a problem with is that we have this chart that shows that Canadian labels are getting 2% and Canadian performers are getting 28%. It's showing that 70% of non-Canadians are getting a benefit under the current system, but you're saying don't change it. We're still only getting 30%, and you're saying it's going to be worse if we change it.

[Nathalie Dorval]

Oh no, actually, we're not saying “don't change this”. We're saying that maybe there's something that you should look into with that part of the issue. Even if you were changing the $100 on the first $1.25 million and making it more, it would end up there and that would flow out of the country.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

How would we change it to improve that particular piece of evidence?

[Susan Wheeler]

You can't change it, because that is something that is contractually arrived at between the artist and their label. I think that's where you heard Bryan Adams earlier in this hearing—

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

He didn't testify here. He testified over there....

[Susan Wheeler]

Oh yes, you're right. My apologies.

He talked about the contractual challenges that certain artists have when they're starting out. They don't have the contracting power to be able to arrange for things in a way that's as balanced as it might be now, once he has become Bryan Adams....

There was a very useful article recently about Spotify changing its business model, and it really reinforces the message we're trying to convey here. It talks about a traditional label deal. They have a pie chart that shows 41.6% going to the label, 48% going to Spotify and 10% going to the artist.

These are contractual arrangements that the labels have entered into with Canadian artists. It's not something that can be undone through a legislative regime. It's really something that is a business affair of theirs.

All we're saying is that under the copyright regime, if you change the amount that radio is paying out, the net beneficiaries, really, are the multinational record labels in the end. Yes, artists will get a bit more money, but the lion's share of that money will go out of Canada, at the expense of local broadcasters.

[The Chair, Liberal, Dan Ruimy]

Thank you.

We're going to move on to you, Mr. Chong. You have five minutes.

[Michael Chong, Wellington—Halton Hills, CPC]

Thank you to our witnesses for appearing.

I want to focus on radio and in particular on for-profit radio. I don't really want to focus on the not-for-profit community radio stations at this point.

In looking at the research that our analysts have pulled together, it's clear that your revenues are under pressure, both in radio and in television, but the operating margins seem to be holding fairly constant although there is a slight decrease in the operating margin for radio.

A pretty big landmark study by the C.D. Howe Institute about three years ago concluded that the value of the royalties that artists and multinationals and domestic rights holders should be getting is about two and a half times what actually is being paid out. The study concluded that for the year they analyzed, which was 2012, about $178 million was paid out in royalty revenues, but the actual value of the playing of these songs on radio was actually closer to $440 million. It concluded that there has to be a new way of looking at how these royalties are structured.

The author of the report, who is a professor emeritus of economics at the Université de Montréal, concluded that the amount of royalty revenues is not fair. I wonder if you could comment on that study or on the principle behind the study.

[Nathalie Dorval]

I have no direct knowledge of that study. I would say that we feel that the Copyright Act as it is today achieves the right balance. It is very easy to upset that balance. Obviously, you will probably always have one side that says they don't get enough and the other side that says they give enough. What's the right answer to that? We believe that the current act really achieves that. It was difficult to get there.

I think what we're saying is that you'll probably find one study that says something and another study that's going to say something else. I think we need to be really careful, because by pulling one thing on one side, we're affecting a whole ecosystem in the copyright regime that we have, and this might be very disruptive.

[Michael Chong]

This was a pretty rigorous analysis, I think. It was done by an economics professor. He analyzed the amount of talk time on a radio station and the amount of music time. He took the last minute of each to analyze what actually would be the commercial value of talk versus music on a radio. Using standard methodology, he came up with the conclusion that the value of recorded music on private sector radio stations in Canada in 2012 was closer to $440 million of market value, but the royalties paid out were only $178 million.

It seems to me that this is something the committee has to look at. That's why I'm asking the question.

[Susan Wheeler]

I won't purport to be an economist, but all of the radio tariffs are set by the Copyright Board. They're an economic tribunal, so that is their expertise. In terms of the tariffs the economist in question is looking at, if the standard methodology they're using is clearly not the standard methodology the Copyright Board is using, then perhaps that is where there may be some information missing and why they would arrive at two different quantums. The sole purpose and work of the Copyright Board is to arrive at the right rate for the input of music use.

[Michael Chong]

The author of this report is Marcel Boyer, professor emeritus. He wrote about this in The Globe and Mail at that time as well. He was quite critical of how the Copyright Board came up with its determination of what the royalties should be set at. His belief is that the Copyright Board needs to be restructured in order to ensure that artists are getting market value for the playing of their songs on for-profit commercial radio.

At any rate, I raise the point because I think it's relevant to the study we're having here. C.D. Howe is a pretty big organization. Usually its research is looked at by committees and people across the country.

I know there are two sides to every story. That's why I'm asking the question.

[Susan Wheeler]

I can attest, having witnessed a number of Copyright Board proceedings, that there are volumes of economic analysis and data filed for each tariff proceeding, using real data in terms of the music that's played on radio and looking at the segments as well. It is a very thorough process and something that I guess would be done in that context as opposed to a legislative review.

[Michael Chong]

I have one last quick question on what he recommended. He recommended that there be two types of royalty rates, one for terrestrial radio, or traditional radio, and another for Internet radio. These two technologies are very different. The costs of entry are quite different for commercial terrestrial radio. It's quite high to enter the marketplace, whereas anybody can set up an Internet radio station. He argued that because of that, royalty rates for terrestrial radio should be based on a percentage of revenues, and for Internet radio the royalty regime should be set on a per-play measure.

I want to get your thoughts on that kind of two-tiered system.

[Susan Wheeler]

We don't represent any streaming or Internet radio broadcasters.

My colleague from Stingray may want to comment.

[Annie Francoeur]

Well, we need to keep in mind that Stingray is a little bit different from other services. Most of our services are distributed through third parties such as the BDUs, so it's a little bit different in our case. Most of the streaming we do is made by subscribers to the TV service who are authenticated as Internet users through their mobile app or the web player.

So the situation is a little bit different. We do receive revenue from the BDUs for the TV service and apply it to the other platforms as well. The model developed by Mr. Boyer wouldn't necessarily apply to our case.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Ms. Caesar-Chavannes, you have five minutes.

[Celina Caesar-Chavannes, Whitby, Lib.]

Thank you to the witnesses.

To Stingray, can you explain a little bit more about it? Is it similar to a Spotify-type platform?

[Annie Francoeur]

Not at all.

[Celina Caesar-Chavannes]

Okay.

[Annie Francoeur]

Spotify is an on-demand service. Contrary to Spotify, Stingray tries to stay away from on-demand audio, on-demand service. We prefer to use the benefit of the statutory licence, whether it's in Canada or in the U.S. or in most jurisdictions where we distribute the service. The service is audio linear playlist with limited semi-interactive functionalities, depending on the market, depending on the statutory licences. But you cannot select the song that you want to listen to. It's not a Spotify, no.

[Celina Caesar-Chavannes]

It's not a streaming service at all.

[Annie Francoeur]

We are streaming, but it's not an on-demand streaming service like Spotify.