Industry Committee on Nov. 26th, 2018

[Dan Albas]

In that case, I'd like to ask about the new European rules that make platforms liable for infringement.

Could either Facebook, through Mr. Chan, or Google, through Mr. Kee, point out some of these new rules and whether or not your platforms can operate under those conditions? We've had a number of witnesses come forward to this committee asking for similar provisions. I believe the CEO or someone quite high up at YouTube suggested that it's a very difficult environment to be working under.

Mr. Chan, maybe you can go first.

[Kevin Chan]

I would just say, once again, that our enforcement of any kind of illicit or infringing content is pretty good where it stands. You'll know, sir, that in terms of music content, at this point we are removing that content when it is detected or when people report it and it's a valid request.

If your question is with respect to ideas about undoing intermediary liability protections, I think that is indeed challenging. I think it's challenging because without those kinds of protections in place, platforms that are able to host a myriad of content—not just rights holder content, but including people's free speech—would be at risk. I think that is just not the type of tradition from which we approach these things here in Canada. If these sorts of things were to be pushed to their logical end, I think you would find that platforms of scale would be very challenged and would in fact reduce the ability for, in this case, artists and rights holders to be able to reach large audiences.

[Jason Kee]

We would share that view. We've certainly been flagging some of the challenges with the current articulation of article 13.

It's worthwhile noting that the specifics of article 13 itself are still in the process of being determined. Negotiations are happening between the three areas of the European Union. It's more in terms of what the potential implications are. That is actually what motivated Susan Wojcicki to write an op-ed. It was mostly to alert the creative community to the concerns.

Primarily from a YouTube perspective in particular, the challenge would be that if the platform is liable for all content on the platform, we can only host content that we are absolutely assured is completely cleared. For the vast majority of YouTube creators, that's very difficult to assure.

You raised a number of good examples, during the course of this discussion, of the many different copyright elements that can exist in terms of the video and in terms of who actually has copyright ownership over what. Even in the case of music, sometimes the ownership is not necessarily clear. There could be any number of songwriters involved, and so forth. That would make it very, very challenging for us to operate. It would certainly adversely impact the small and emerging creators, who don't have large legal teams and can't provide the assurances of legal clearance, more than it would affect the larger operators.

[Dan Albas]

Okay. Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Ms. Caesar-Chavannes, you have five minutes.

[Celina Caesar-Chavannes, Whitby, Lib.]

Thank you very much.

I'll focus my questions on Google and Spotify.

First I'll go to you, Mr. Schmidt, because I'm a premium Spotify user. A few months ago, my subscription went up two dollars. I'm sure a lot of people's subscriptions went up two dollars. Do the two dollars go toward paying royalties to Canadian creators?

[Darren Schmidt]

What territory is this in?

[Celina Caesar-Chavannes]

Ontario.

[Darren Schmidt]

Well, first of all, I wasn't aware that it went up two dollars. You just told me something I didn't know.

When prices go up, as they do in various territories around the world at various times due to inflation and other reasons, that revenue is accounted for in our licence agreements as part of the revenue pool. The answer to your question is yes, a portion of any current price increase ends up going to creators. More accurately, though, it goes to the rights holders with whom we have licence agreements. We have to assume that some of that goes down to creators, but they have those relationships with those creators; we don't.

[Celina Caesar-Chavannes]

Okay.

You said that you started in Canada in 2014, right? Why did it take so long?

[Darren Schmidt]

I wasn't at Spotify then, but I do know anecdotally that the licensing landscape in Canada was difficult at the time, particularly—

[Celina Caesar-Chavannes]

Can you explain what that means?

[Darren Schmidt]

—on the music publishing side of things. I think I talked in my opening statement about the issue of fragmentation of rights.

On the mechanical rights side in particular, it's difficult in Canada to get a full coverage of rights when you're licensing from an entity like CSI which, I think practically speaking, only controls perhaps 70% or 80% of the market. It's that long tail that becomes your problem. You need to find who controls what and get licensing agreements in place, to the extent that you can.

Sometimes it's unknown whom you should approach to get licences, because there's a matching problem. How do you know, for any particular musical composition, which sound recording it matches to? It's a much more difficult problem than people realize. It's a worldwide problem, and it's been a big problem in the U.S. as well.

I think that explains, for the most part, what took us so long to get into Canada.

[Celina Caesar-Chavannes]

We've had some testimony from previous witnesses who said that the royalty rate for semi-interactive and non-interactive webcasting for copyrighted works in Canada is almost 11 times lower than the equivalent rate in the United States.

To Google or to Spotify, does the Canadian rate constitute fair and equitable compensation for creators?

[Darren Schmidt]

I'll go.

That surprises me. I'm not sure I understand that data point. Did you say it's 11 times lower than the equivalent rate in the U.S.?

[Celina Caesar-Chavannes]

The royalty rate is, yes.

[Darren Schmidt]

I think you might be talking about Re:Sound, which we don't utilize.

[Jason Kee]

My understanding is that specifically was a tariff rate. I believe it's tariff 8 that set that rate.

For us, in part because of the challenges we experienced with respect to the Copyright Board, we didn't necessarily rely on the tariff rates very frequently. We would negotiate our own arrangements with the collectives. As a consequence, that actual rate didn't apply to the majority of our services. My understanding is that it certainly doesn't at this point.

[Celina Caesar-Chavannes]

Is it the same with...?

[Darren Schmidt]

It's the same with Spotify.

[Celina Caesar-Chavannes]

At the beginning, Mr. Price said a number of points, which he gave all companies across the board some credit for. He said that you guys have really good companies, but the percentage that was allocated to creators was 0.000-something; I can't remember how many zeroes he used.

Do you have any rebuttals or comments to some of the statements that Mr. Price made? Were they fair, accurate?

[Jason Kee]

Well, I think he flagged a great number of the many challenges that artists are facing. Some of this has to do with fundamental changes that have happened to the underlying economics of the music industry over the past 20 years.

Jeff raised a very fair point with respect to the sustainability, given the price point. The reason that the price point is what it is—actually, right now it's the market rate—is that was a response to ongoing piracy from 20 years ago, when no one was paying anything. This led to the development of the download economy, primarily driven by Apple, which led to the emergence of the streaming economy and so on.

We're in a situation in which there's been a great deal of consumer surplus, where consumers benefit from access to these massive libraries of music, but that's now the consumer expectation. Moving away from that too aggressively would be a real challenge, and essentially we have a much greater number of artists who are taking from a smaller pot. That's creating some challenges.

One of the things we are very focused on with YouTube in particular is ensuring that we can activate alternative revenue streams for artists, recognizing that sometimes royalty rates alone are not necessarily going to help them. This is by means of things like—and this is the bulk of the revenue, frankly, that YouTube creators tend to make—what we call “off-platform”. They're doing brand sponsorship deals. They will have a brand that will sponsor their videos and they will do, say, a series of six videos. It's very much more lucrative for them than the advertising revenue.

[Celina Caesar-Chavannes]

Do you help them with that?

[Jason Kee]

A lot of them will do it on their own.

We've actually now deployed a system that we call FameBit, which is a brand matchmaking service. We'll match the creators with brands—many of whom are our clients on the advertising side—to basically help them with that.

We're also deploying things like memberships, whereby individual users can simply do a monthly subscription to a creator to give them monthly support. We're implementing merchandising and ticketing options that will automatically display if they have a show coming up so that there are tickets available to that show. Creators can diversify their revenue streams so that they're no longer reliant on a single stream but have a multitude of streams to help build sustainable businesses.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Mr. Nantel, you have two minutes.