Canadian Musician

NEWS

How Music’s Middle Class Disappeared in the Tech Revolution

January 12th, 2017

banner

A shortened version of this interview appeared in the January/February 2017 issue of Canadian Musician magazine. The full interview can also be listened to on the Dec. 7, 2016 episode of Canadian Musician Radio.

By Michael Raine

In November 2016, Music Canada President Graham Henderson gave a speech to the Economic Club of Canada entitled The Broken Promise of a Golden Age. In it, he explained how at the dawn of the digital revolution, creators were told they would thrive in this new era; instead, creators and other copyright holders ended up subsidizing the tech companies’ growth at their own expense. The result has been a disappearing middle class of musicians and songwriters. Henderson also explained that when federal government proceeds with its review of cultural policies in 2017, there is a chance to correct this inequity.

Canadian Musician spoke to Henderson at length after his speech about how creators have been “squeezed out” and how this can change.

CM: Before we get into the details, can you give a quick synopsis of the point you made to the Economic Club of Canada in your speech?

Graham Henderson: Sure. Well, the Economic Club is a great platform to do this and it’s the sort of platform that attracts a lot of the big names from government and business, so it’s a good place to be. It’s also the place that Minister Joly, our minister of Canadian heritage, chose earlier in the year to give her first major policy speech on the creative sector. She took that opportunity to emphasize the economic importance of music and film and television and books. So I thought the Economic Club would be a good place to present a slightly different message, which really focused on creators. Because, notwithstanding what a great economic driver the cultural sector is, driving billions of dollars in economic activity and employing so many Canadians, it’s still under incredible stress and has been for almost 20 years.

What I wanted to draw the government’s attention to, and Minister Joly in particular, was that creators are worse off today than they were in the 1990s. Now, that in itself is a rather shocking fact because if you think back to the promise of technology and the digital marketplace and so on and so forth that was coming together in the late 1990s and burst onto the scene in the early 2000s, the promise of that technology and of the digital marketplace was that creators were going to be better off. That was kind of the whole point. So, for us to be standing here 20 years later with creators worse off, that is an exceptional outcome, which clearly has to be addressed by the government. That was basically the point behind my speech.

I should also draw your attention to the fact that the minister is criss-crossing the country hosting roundtables. She’s actually just wrapped it up, but had been criss-crossing the country hosting roundtables where she was challenging Canadians to think “out of the box” – her words – and to be “bold” – also her words – and to bring to her new ideas for her to create this. What she wanted was a new toolbox to address the challenges of the creative sector in the digital age. That, to me, was a call which we answered.

CM: The speech can be broken down into three big sections: 1) the promise of this golden age, 2) why that promise was broken, and 3) what we can do about it. Let’s start at the beginning and provide some background. You said the promise was that this revolution in digital music would bring about a golden age. The idea was that it would upend the traditional recorded music industry, but the counterweight to that is that it would provide new opportunities for creators to make up for revenue that had been lost by that disruption. So, what was the reasoning given to justify that argument?

 GH: It’s worth going back in time because we’re living in a world for which the rules were set in the mid-1990s. Now, when you think back to that time, and I point this out in the speech, Google hadn’t been invented, the iPod hadn’t been invented, and one per cent of the world’s population was on the internet, and yet, it was very clear to policy makers around the globe that something big was coming. That technology and the internet was going to change the way we deal with one another, change the way we talk to one another, change the way we buy things. That was looming.

There were several meetings at an international level designed to create international treaties, which would sort of establish the foundation for domestic laws, and these domestic laws would be designed to usher in this new era and to provide critical protection for copyright, because a lot of it was going to be intellectual property that was going to be transacted online. So what protections do we need for that? And also, what are we going to do to enable the new technology businesses?

So, the governments around the world played a role in enabling the new technologies and this is where this promise arose, I believe. Because what government was told, and policy makers were told, was in order for the new technologies to get off the ground – the nascent startups in a period of creative anarchy and all that kind of stuff – they were going to need to be excused from making payments for the intellectual property that was going to flow through the pipeline. The old rules would’ve required them to make payments to the creators but the technology companies and those who supported them said, “If we have to make those payments, we’re never going to get off the ground.”

So fine, obviously when you say to creators that “I don’t want to have to pay you money that I would otherwise have to pay you,” you’re basically saying “I want you, Mr. and Mrs. Creator, to subsidize me with your money.” So obviously the creative community was interested in the quid pro quo, the “Well what am I going to get for subsidizing you?” And the answer really was, “Well, I can’t be sure, but I can tell you this much…” as you put it, Mike, “We’re going to upend the existing order, we’re going to disrupt that and we’re going to get rid of middlemen and middlewomen – those annoying record labels and managers – and artists are going to go into a direct relationship and there is going to be all of these new ways to make money. Trust us, you’ll be fine.”

The term “golden age” is something that I heard one quite prominent Canadian musician use in an interview on the CBC when he was asked, “So what do you think of this new environment? I mean, there’s all this piracy and craziness. What do you think about it?” His answer was, “it’s a golden age, a golden age.”

Now, I think that that sounds in retrospect kind of silly, but realistically, a lot of people back then, a lot of people, had bought the idea that all this disruption was going to lead to something really, really good. So I think that musician could be forgiven for his optimism. It’s only as years went by, year after year, where it’s like, “OK, so where is this golden age? Where is this prosperity? Where have we ended up?”

I say that promise is broken because in a single generation the creative middleclass has been wiped out. If you took a snapshot of what the music industry looked like, and not just music, but books and everything, in the 1990s, there was a thriving and bustling marketplace with a middleclass and getting signed to a record label or getting a book deal meant a legitimate, bona fide shot to enter the middleclass and to be able to put a down payment on a home or to be able to buy a car or whatever. It was legitimate and there were careers. And it wasn’t just for bands, it was for everything that went on around the bands; the lighting techs, the tour bus drivers, and right across. There was this ripple effect that created this thriving economy. When we look at it now, well we have increasing concentration of wealth in fewer and fewer hands and we have this middleclass that has just disappeared. And it has disappeared in books and it has disappeared in music.

So, very clearly, what I say is we have a promise, the government in good faith – and let’s not point finger and lay blame – let’s just say in good faith decisions were made and very clearly they didn’t pan out for creators. They sure as heck panned out for Google and Facebook and they sure as hell panned out for Twitter and others, but did they pan out for the creators and others? No.

So, what we now have an opportunity for, without laying blame and without pointing fingers, we have an opportunity to say that we’re out of the enabling phase, we’ve enabled this new digital marketplace and very clearly we enabled market distortions that we didn’t intend, and the government will play the role of a leveler. We’re going to restore balance.

CM: Like you explain in the speech, the foundation of modern copyright rules in the digital realm was laid by two international treaties and a major piece of American legislation.  They are the two treaties adopted by the World Intellectual Property Organization in 1996; the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. And then there is the Americans’ Digital Millennium Copyright Act (DMCA) in 1998. You say the DMCA introduced this system of creators subsidizing tech companies by exempting them from copyright payments and that this provided the blueprint for similar legislation in other major countries, which is what created a lot of these problems. In Canada, did we have similar legislation to the DMCA?

Graham Henderson speech

Music Canada Pres. Graham Henderson speaking to the Economic Club of Canada. [Screengrab: YouTube/Music Canada]

GH: Yes, well I think it played a big role. The United States put the Digital Millennium Copyright Act into place in the late 1990s under Bill Clinton and then in Europe you had the European Directive, which was a series of guidelines enacted by the European Parliament, which required their members to enter into a similar domestic legislation, stuff like the DMCA but everybody was going to do it slightly differently.

Canada, interestingly, even though they were one of the principle drivers behind WIPO, did nothing. And they did nothing throughout the ‘90s and they did nothing in 2000, 2001, 2002, and so there was real confusion in Canada. Like, “Well, what is the law? We’re signatories to this treaty but we haven’t enacted it here, we haven’t ratified it, and we haven’t put forth any domestic legislation.”

And so began this horrific saga where the minister of heritage and industry under Paul Martin, a name we’ve almost forgotten by now and who had a brief minority government in the early part of the 2000s, he introduced a piece of legislation, which he said was specifically designed to save the creators. By that point in time, even in 2003 or 2004, obviously the disruption wasn’t just getting rid of these middlemen; it was really biting at the livelihood and the ability to earn a livelihood of musicians. So he introduced a piece of legislation, it gets to second reading, and then his government falls.

Then we get a [minority] conservative government and they took 18 months, I think, to sort of figure things out. I can sort of understand that since they hadn’t been in power for God knows how long, and so they took forever to reintroduce legislation and their minority government fell. So they come back with another minority government and another two years go by and another piece of legislation is introduced and that government falls.

This was just like this horrific merry-go-round, it was like a Doom’s Day scenario, and it wasn’t until the Conservatives got a majority government in 2010 that we had an opportunity to see some domestic legislation that ratified those WIPO treaties.

And look, while it was great that they did it, it was at a very controversial period of time and it was at a time when I still think it wasn’t totally clear to people exactly what the effect of the Digital Millennium Copyright Act and the EU legislation was on creators. I remember during that whole debate that people kept saying, “Hey, creators are better off. Things have never been so good for creators!” And there were actually a few creators around and it kind of looked like that. You know, the exceptions that prove the rule. There were these exceptions, people who were doing exceedingly well, and they get on YouTube and they become world famous. It’s like, “Obviously the system is working. It must be, look at him!”

For bands who had created their careers in the 1990s and 1980s, well the internet wasn’t actually that bad because for them, they just used the internet to find their fans and they could disintermediate record companies and some of them, like famously David Bowie, did exactly that. “Why do I need record companies anymore?” Well he already had a fan base. The people that this was hurting are those who had to build fan bases and that is very, very difficult in this new environment.

So what happened in Canada in a piece of legislation got introduced in 2011 or 2012 and it was a real compromise, but, most importantly, the minister of industry at the time, it was James Moore, recognized that he himself was guessing and so he built into the legislation a five year review. [It said,] “If we’re wrong in what we do here, we’ll fix it in five years.” That, I think, was very far-seeing and that review is scheduled to take place in 2017 and, unfortunately, the [current] government has said they’re not going to start the review in January, they’re going to start it in November, but nonetheless, that review is going to take place, which takes us back to Focus on Creators and my speech.

If there is going to be this review and if we can take Minister Joly at her word, and I think we can, that there is going to be a new toolbox and that she is going to stand up for her creators, well then we need to power her with an army.  The Focus on Creators, which I hinted at in my speech because we weren’t ready to launch it at that point in time, this is a coalition of musicians, songwriters, poets, playwrights, novelists, short story writers; it’s a very unusual coalition who are, all with one voice, saying, basically, “This whole technology thing hasn’t worked out for us and we’re worse off today than we were then and you, government, need to fix this. We’ll help you and you help us and we’ll fix this and we’ll rebalance the ledger.” Very clearly there were some people who were winners and there were some people who were losers and the losers were the creative class.

CM: When that Canadian legislation was finally passed in 2012 by the Conservative government, it was a much different digital world than when the DMCA was passed in 1998. If the original 1990s argument for those subsidies was that tech companies needed to be enabled, financially, to grow, well by 2012 you had Google and iTunes and Facebook and a mature digital marketplace. So did the Canadian legislation include the same kinds of copyright exemptions that subsidized tech companies at the expense of creators and copyright holders?

GH: Yup, and they even added to a few of them. I mean, there are some very powerful special interest groups that can get in front of government and, look, obviously the argument is persuasive that you can’t mess with success. Like, “look at what has made us successful, you don’t want to stop that because look at what we drive!” So yeah, I don’t think the government really got our message and I also don’t think that there was enough clear evidence that the middleclass was wiped out.

I think it’s really finally gotten to be insurmountable now and, again, I think there are a lot of other factors at play because as we’ve moved further and further into our new digital environment. There are a lot of issues that people have with the approach that is being taken by the technology companies and the intermediaries to our environment. They don’t want to be regulated, they don’t want to have rules unless those rules benefit and enable them, they don’t want to pay taxes, and there’s all of these complicated offshore tax structures for all of them and we’re starting to see more and more talk about this, and, of course, they don’t employ as many people as the old heritage industries, so people lose their jobs and there is more part-time work now than there was ever before. Yet, what they say, and I point this out in the speech, those sorts of people say, “Government needs to get out of the way and we should not be regulated and we need to be enabled and so don’t set any boundaries on us.”

I think that message is a libertarian, extreme right-wing business model. The belief is that the free market will look after the people. Of course, you have that term, “free market.” Well, there has never been anything remotely like a free market. There is no such thing. There have always been rules of the road for the marketplace. You can do this and you can’t do that. Well why should digital be different? Why should they not be subject to the same type of rulemaking that social democracies have employed forever?

That is another point that I make that, look, this world where our creative middleclass has been wiped out, that is not a world I want to live in and I don’t believe the majority of Canadians want to live in. Or, frankly, French or German or Italian people want to live in. I think we want to live in a world where our creators can enter the middleclass, can have a legitimate opportunity, and can make money. If that’s true, then we get to decide. We shouldn’t just get out of the way and let the marketplace decide who the winners and losers are. We in social democracies get to make choices about the sort of world that we want to live in and Focus on Creators, I think, will help with this message when people realize what has happened.

Also, as people increasingly, parents for example, start to look at the world their children are graduating from university into and there is no prospect of full-time employment, and we need to just get to use to that? Well, you know, the first industrial revolution, you go back to the 1780s, it produced an enormous amount of wealth for an awful lot of people, but it also produced child labour and a lot of terrible excesses like pollution and destruction of the existing social order. And then people thought, “Well, OK, we like this and we like this, but we don’t like that,” and so the Reform Act of 1832 comes into place in England and the rules of the road are established and so on.

So what we’re kind of saying is this is the fourth industrial revolution. That’s how people ought to describe this, and it’s obviously produced some dramatic inequities for our creative class, and not just them, increasingly others and you only have to look at what’s happening to newspapers. Where is local news today? It’s vanishing. So who is watching what’s going on at the Collingwood or Guelph city councils?  Nobody. Is that good? That is probably not good at all, that is probably terrible. Well that is the world we’ve lived into. Do we want that world? I think a lot of people are increasingly saying, “No, we don’t want that world.” And for a government to say, “Well, this is the world, get used to it,” because the technology companies tell us that the “genie is out of the bottle” or “the horse is out of the barn.” Whenever I hear that, by the way, there are two things that always strike me. I saw that show I Dream of Genie and the genie did go back in the bottle all the time, and as far as horses being out the barn, they also go back in the barn. It is the weirdest metaphors that are being used to suggest that there is nothing that we can do about it.

Minister of Canadian Heritage Mélanie Joly during one of the Arts & Culture roundtable discussion. [Photo: Twitter/@melaniejoly]

Minister of Canadian Heritage Mélanie Joly during one of the arts & culture roundtable discussions. [Photo: Twitter/@melaniejoly]

There is something we can do about it and thank god our minister of heritage and hopefully our minister of innovation and science, Navdeep Singh Bains, I think they care and I think our prime minister does, too, so I think they’re going to do something about it.

CM: Do you think that there is both willpower from government and also acceptance from the tech industry to, like you say, put the genie back in the bottle, which I’m guessing would largely mean reintroducing the copyright payments that had been made exceptions to subsidize those tech companies?

GH: Yes. What I think it largely is, is we have to go back and look at every single exception to the old rules.  All of those exceptions involved what amount to cross-subsidies, so [essentially] creators are cross-subsidizing technology companies. We have to look at every single one of them and say, “Should we still have that one?” I’m not saying we throw everything out, I’m saying it needs a good, hard look and the rules of the road that were designed to enable little baby startups, like little baby Google. Remember, I don’t think their IPO was until 2004, so little startups that have now become mammoth multinational behemoths. Should they still have the benefits or are they now the entrenched monolithic, oligarchic powers and maybe they need to be constrained?

CM: Have you taken a look at those exceptions? Are there specific examples of those exceptions they you think we should start with and say, “This should be reversed”? 

GH: Yes, one of the ones we point at is actually a broadcasting exception. In 1997, copyright was expanded to give performers a right in the public performance of their music. So, to give you an example, my wife is Margo Timmins is in Cowboy Junkies and they famously recorded Lou Reed’s song “Sweet Jane.” When their version of “Sweet Jane” was performed on the radio, Lou got paid but Margo got nothing. Well in 1997 the Copyright Act was changed to bring it into harmony with the rest of the world, except for the United States, so that not only Lou got a payment, but Margo got a payment. That was the so-called “neighbouring right.”

Well, when that happened, the radio companies asked for some temporary relief because they were worried that these new payments might put small independent radio stations out of business. So an exemption, another exemption or exception, was created. The first $1.25 million advertising income that is brought in by every station is going to be exempt from the royalty otherwise payable. There is another cross-subsidy.

So when you create that exception, the musician who would otherwise be paid, if they’re not being paid, then that person is subsidizing the radio station. Now, that might’ve been a good idea at the time, but the question is, is that still a good thing? Or have the subsidies, which amount to not a huge amount of money, it’s about $8-10 million dollars, so you think the creative class has been subsidizing Bell Media and Rogers – pause on that for a second – to the tune of about $8 million dollars a year for 20 years. Should we still be doing that or is the time for that subsidy over? That is one example.

The whole question of the safe harbours that the intermediaries got where people get to put whatever they want up and the intermediary doesn’t have to pay a nickel for it. Is that fair? Is that still fair and should we still be doing that? Hmm, I would say probably not, or at least let’s have a look at it.

I should also say, too, in that regard, it isn’t just in Canada where we’re asking and saying, “You know what, we need to be taking a look at this.” Hundreds of musicians in the United States signed an open letter to their government and hundreds and hundreds and hundreds of musicians did the same thing in Europe.

What’s different about what we did in Canada is I called my good friend John Degen at the Writers’ Union of Canada, and we’ve always been looking for a way to work together. [Minister Joly] has very specifically said that she wants artists to stand up for her. That if she is going to be bold, she is going to invent this new toolbox, but she needs to be backed by artists. So I thought, “How can we best do that?” and it occurred to me that I think when Canadians think of our national identity, I think they think of it in terms of music and in terms of writing. So, that particular alliance struck me as being novel and unusual and workable, and also sends a big message. John was 100 per cent supportive and so we started gathering names and got up to about 1,100 and that was not even really scientific, it was just sort of getting the word out and then people were like, “Well I’ll sign up,” and we started collecting names. Now that we have a website, FocusOnCreators.ca, that’s where musicians and poets and playwrights and songwriters can go to join. That’s only been up since last Thursday and I think we’ve had an additional 500 and more every single day.

So, one of the big things we’re doing right now, we’ve moved into phase two, so to speak, and we’ve launched Focus on Creators. Now, have an interview like this, and we’re hoping to get the word out to musicians through you and have them visit that site, FocusOnCreators.ca, and sign up because there is strength in numbers. You know, 1,500 is great, but 3,000 sounds better to me, so let’s go get them.

CM: Just to add to those names you’ve mentioned, there are major players that are behind this initiative as far as artists who have put their names to it, including Gordon Lightfoot, Blue Rodeo, Brett Kissel, Alanis Morrissette, and in the new music spectrum there are people like Grimes, Metric, Tegan & Sara, and The Sheepdogs. 

GH: Yup, Gord Downie is also there and some authors. You’ve got Marie-Claire Blais and Margaret Atwood and Rudy Wiebe and you’ve got prominent playwrights and poets and music producers like Garth Richardson on the west coast and more coming all the time.

And one other thing, too. Yes, these are the big names, but what is just as important are the young artists. The young artists, they’re signing up in droves because they’re the ones for whom this promise evaporated.

Again, you sort of think, very early on – I just want to sketch out what this would’ve looked like – they’re saying to musicians that there is going to be these wonderful alternative sources of income and the “long tail” and while you may not sell a lot of records in Canada, or may not get a lot of downloads or whatever it is, but around the world you will.

When that obvious didn’t seem to be panning out, and there actually was no tail, particularly for the independent artist, then, well, what was the next thing? Well the next thing they started saying is, “Well you know what? Why do you need to sell music anyway? It’s a great advertising thing so don’t sell it, give it away, and tour.” So the idea was that suddenly, out of the blue, because this was never in the original promise, was “just tour.” The moment they started to say that, I knew there was something wrong because if what you’re offering creators, music creators specifically, in the 21st century, is an 18th century model, touring and itinerant musicians, then you know there is something wrong. If the benefits of the 21st century and technology are only going to accrue for technology companies, financially, by the way, then I say there is a problem.

Now look, no young artist, by the way, is going to tell you that there haven’t been advantages to social media, to Facebook or Twitter or whatever. It is a fantastic tool to build audiences and reach out to people and connect and stay in touch with people. Our new generation of musicians are digital natives. There is almost nothing about that environment that they don’t know and they don’t understand. They get it and they know how to do it. The problem is they do it all, and they don’t get paid properly. They can’t afford rent. Prominent musicians and songwriters who have had there music on 75 records, people who have JUNOs and JUNO nominations can’t afford rent. It’s ridiculous.

CM: One of the new promises of the digital age is streaming. Downloads replaced physicals sales and now downloads are being replaced by streaming. When it comes to what is termed non- and semi-interactive streaming, the government does play a role through the Copyright Board of Canada tariffs that set the royalty rates. Of course, the Copyright Board handed down an exceedingly low tariff rate for those services…

 GH: Yes, the lowest in the world.

CM: But when it comes to the big players, like Spotify and Apple Music and Google Play Music, those fully on-demand services, it’s those that are increasingly becoming the dominant players in the digital music realm. With those the government doesn’t play a role, at least on the label side. What gets paid to labels and how that is divided is largely the result of privately-negotiated contracts.  Now, there has been reason for optimism as, globally, music industry revenues have been going up over the last three years, largely thanks to streaming. But we’re still not seeing that resulting in significantly more money going to artists and the rebuilding of that artist middle class we’re talking about.

 GH: Yeah, I was talking to an artist the other day who has got a new record out and struggling to get some attention in the marketplace. One of the songs on the record was streamed 16,000 times according to he most recent report and that adds up to $16. So, two artists in the band can now buy a couple coffees or they can share a cocktail and that is about it.

It starts to be like, “Well OK, this is nuts.” That kind of thing doesn’t make sense. The other thing is YouTube and as I point out in the speech, Spotify returns about $18 per year, per consumer. YouTube is $1. That is ridiculous and there is no reason why.

Remember who owns YouTube, [Google does], and how much money they have. And yes, there is a deal between labels and artists and YouTube that produces that one dollar, but part of the problem is, and the reason that is such a bad deal is, Google bargains in the shadow of the DMCA; in the shadow of the law. They know even if record companies and artists waked away from YouTube, all the content would still be there, it would all be put up as user-generated content, it would all be put up, even if we took down all the legitimate stuff, it would all still be there and they’d still get their advertising revenue. Because companies like that aren’t in the music business, they are in the advertising business and that is all they really care about.

That is fine, that’s their business model and I got no problem with that, but, the question starts to be one of social responsibility. If your business model is impoverishing, to your benefit, an entire generation of creators, then maybe it needs to be rethought.

CM: Yes, I agree with you about YouTube. But to return to those major on-demand streaming services. Unlike those previous tech companies, it seems the streaming companies aren’t necessary the winners financially. I interviewed your colleague Amy Terrill about this a couple months ago for an article in Canadian Musician. Yes, Spotify took in over $2 billion last year, but still lost nearly $200 million and its biggest overhead cost is the royalties paid to rights holders. It’s paying around 70 per cent of it revenue right back to rights holders, and the largest share is going to the major labels. This gets into the nature of record contracts between labels and artists and so on, but what seems to be happening in a lot of that is being pooled at the labels and not making its way back to artists…

 GH: No, I don’t think that is true at all. I know that is an allegation that has been made but I don’t think there is any evidence of that happening at all.

CM: How so? Streaming royalties are being considered sales rather than licencing in major label record contracts and that creates a split of those streaming royalties that is heavily in favour of the labels. [On average, the split of record sales royalties is around 80/20 in favour of the label versus 50/50 for licencing revenues. Indie labels, however, will often lump it all together and split it the royalties 50/50.] Now, there are legitimate arguments the labels have for why this is the case, but my point is there does seem to be a shift from the tech companies – the streaming services in this case – to the labels as far as who is winning financially in this new paradigm.

 GH: I completely disagree. Let’s just talk about Spotify themselves. So Spotify is losing money and yes, royalty payments are the biggest chunk of their costs. Well, isn’t that the way it is suppose to be? They only have one thing that they are offering. It is music and it is their entire business model.

CM: Yes, I agree with that.

GH: And so I think the share they’re paying out to labels and musicians is exactly what it should be. Maybe it should be even more. But here is where I sympathize with Spotify; they also are operating in the shadow of YouTube and how difficult do you think it must be for them to convert people to paid subscriptions from the free platform when the alternative is to just go over to YouTube and not pay a cent and use ad-supported services? So I think they have a legitimate issue with YouTube and the type of services it’s offering to the world. Because if that wasn’t there, sort of imagine that there was a level playing field, I would’ve thought that the rate of conversion [from the free tier to paid streaming subscriptions] would be enormous. If the rate of conversion is enormous, then suddenly Spotify scales and is making a lot of money.

So, that is one point, but back to who is making out. The bigger issue is not Spotify, it is how little is being derived from these ad-supported free services.

CM: You’re referring to what’s been termed the “value gap” between royalties and revenues generated by paid subscriptions versus ad-supported streaming. That a disproportionate majority of revenue for streaming services is being generated by the minority of paid subscribers.  

GH: That is the value gap and there is where 95 per cent of the problem is. Now, are some people saying that “I think I should get paid a bigger share of royalties?” This is an artist who is signed to a major label or indie label. “My contract says X. I think I should get more.” Well that’s a subject for the artists and for the labels who have that contractual relationship. Some people are going to say it should be 50/50 and other people are going to say [otherwise] and this is a debate that is going on all around the world. But people are still signing contracts and people still want to be on labels because there are very valuable services that are being offered [by the labels].

I mean, if it was that bad, why would people be still lining up to sign with labels, large or small? And the other thing to think about, too, is it’s not that different. So take a completely independent artist who is not signed to a major label and might be distributed by an independent label and look at that example I gave you earlier of 16,000 streams equalling $16. Well, that’s still not good. And there is no label who is siphoning off $160 and only turning over $16. That’s what they are getting paid.

CM: If, like you say, 95 per cent of the problem is that value gap between paid and free/ad-supported streaming, how do we fix that?

GH: A better share of advertising revenue.

CM: Would even that fix it? It seems the free ad-supported model was, in a way, a new version of those old subsidies to the tech companies we’ve been talking about. The argument was that the services would use this free model to boost user numbers and convert them into subscribers, but in the meantime they need artists, publishers, and labels to cut them a break in order to get those user numbers up. When does that stop being a valid argument?

GH: I think it stopped a long time ago. I mean, some of these companies have more money than small nations, even large nations, in the bank! So why can’t a better, more socially-conscious deal be struck for a greater share of this advertising revenue? Let’s put it this way, considering the number of people who use YouTube versus Spotify, if we were getting $18 per user from YouTube [per year], it would be worth billions I would imagine. That’s what we’re missing.

If you look at Canada and ask what is Canada missing between 1999 and today? It’s about a $1 billion a year that just disappeared and did not reappear as touring income or merchandising income or anything else.

CM: That brings attention to a report you mention in your speech that Music Canada commissioned that was done by George Barker of at the Centre for Law and Economics. He essentially looked into those two big questions of the supposed golden age promise: Was there a golden age? And has the need intellectual property protection fallen in light of these benefits?  Obviously the answer to both those questions was an overwhelming “no.”

GH: Exactly. We don’t need the exceptions and there wasn’t a golden age and there’s $12.6 billion that just vanished. So, that very clearly we need to rebalance, right. His research, coupled with the blunt statement from thousands of creators there are worse off, you put the two together and it’s incontrovertible evidence.  

CM: You cite the statistic that in Canada between 1997 and 2015, music revenues fell to 20 per cent of what they would’ve been had they kept up with the pace of inflation and real GDP growth.  That really exemplifies just how bad it got in a relatively short period of time.

GH: Yup, and just remember that wasn’t suppose to happen. It was very clear that creators were supposed to be as well off or better. So we can apportion blame however we want. Some people can point at the evil record companies and other people can point over here. The fact is it happened, it’s a fact, and what are we going to do about it? Everybody is going to play a role in fixing it, for the better. Just sort of walking away because, “Hey, this is the new world and the genie is not going back in the bottle and this is our new world.” It’s like, “No, I’m sorry but that was not what the promise was and we do get to pick and we do get to choose.” The government needs to move from that enabling phase into the levelling phase and rebalance.

CM: That’s a good segue into the closing and how we move forward.  One, what do you want to see happen as a result of the government review in 2017 and, two, what do you think is a realistic expectation?

GH: I think that the minister in her consultations, at every single one of them, she stood and said the government has four levers; legislations, institutions, policy and treaties, and funding. “We’ve got four levers,” she said, “and I want you to think out of the box and I want you to be bold because I want to be bold and I want to think out of the box. Tell me how we should pull those levers to make sure that the creators are better off.”

So, in my speech, I provided several ideas under each heading. One of them under legislation, obviously, is get rid of the cross-subsidies. Have a look at every single copyright exception that was introduced in the past 20 years and make a decision about whether we still need them or whether we shouldn’t maybe cause wealth to flow to creators. So, you start there right now. That is what I would hope this review process in 2017 is going to do.

Secondly, in institutions, we have this Copyright Board of Canada, which you pointed out earlier, for non-interactive and semi-interactive [streaming], issued a decision that pays creators the worst rates in the entire world. And not just a little bit bad, it’s one-tenth of what the creator or label would get in the United States. One-tenth! Very clearly they don’t get it. Very clearly these people continue to think that intermediaries need to continue to be subsidized by creators. Well, I disagree with that and just last week as we were up in Ottawa and the Senate Finance and Banking Committee issued their report.

I testified, and it was users and everybody from Google to us and everybody in between all testified. Academics testifies and lawyers testified, we testified, user groups testified. Everybody, including the Copyright Board itself, all went in front of these senators and I’ve got to tell you, my respect for the senate went through the roof during that process. I found those senators engaged, and I found them to be intelligent, concerned, and they were thoughtful and well researched and asked good questions. I’ve appeared in front of dozens of House of Commons committees and this is my first time in front of the Senate. It was unbelievably efficient and unbelievably involved.

They issued their report last Wednesday and they were so energized by the report that they decided they were going to have a press conference, which was broadcast live using Periscope, to absolutely hammer the Copyright Board, which they said was out of date, dysfunctional, and in dire need of reform. Then they went on to say that nothing that the Copyright Board said to them gave them any sense that the Board of capable of reforming itself and maybe it was incapable of reforming itself, therefore, the Senate says this needs to be fixed.

So there is an institution, right off the bat, which if the government modernized it, it would make a big difference. I’m not saying we’d necessarily get ten-tenths of what they get in the United States if that board was reformed, but I’m saying we’d get more than one-tenth. So that will make a big difference to creators. There is a lever that they could pull there.

In terms of policies and treaties, I suggested some thinking about – and I am thinking out of the box because [Minister Joly] wants us thinking out of the box – should we be looking at how creators live their lives? Should we be thinking about cultural infrastructure funding, because affordable housing is an issue? Do we want to think about entrepreneur training for musicians? There is a whole range of things, little levers that could be pulled in there.

On the funding side, well I think the government has done a great job in reflating the CBC and reflating these institutions that had been under pressure from the past government. So that was a terrific box ticked. I would agree with the Canadian Independent Music Association (CIMA) who have said that they want money to be pumped into trade routes programs for export development and they’ve also asked for the program that funds FACTOR and other programs like that, that should also be topped up because, really, they haven’t received any inflationary increases, although inflation has gone up, it hasn’t tracked. So there is money there.

So there is a whole slew of areas where a little bit of funding could be injected. So those are some ideas, but I want to echo something I heard from a songwriter at one of the roundtables. A very prominent songwriter whose comment was: “Funding is great, support for the sector is great, and grants are great, but let’s not forget that what we really want is a functioning marketplace.” Our creators should not have to live hands-to-mouth from government largesse. My point about that is, it’s “be careful what you wish for.” If you’re not going to have a functioning marketplace where there is a willing buyer and a willing seller and artists can make money that way – if they’re going to rely increasingly on governments – then you better be careful what you wish for. If you don’t think a Trump could show up here and cut all those programs to the bone, you better guess again because it could happen. The last thing we should want is to be beholden entirely to government. It’s great that they fund these things, it’s terrific that they provide this support, but we need the functioning marketplace.

CM: Thank you for making all this time. I know your time is valuable… 

GH: You’re welcome. Well I’m glad you’re interested in it and wanted to chat about it.

CM: Absolutely. I’ll just wanted to say that I do hope this conversation and what you’re talking about reaches an audience beyond musicians and the creative industries and is heard by the general public, because in your speech you point out the macro level importance of this. That supporting creators and protecting copyrights is not just about altruism and fairness, but it is also about the health of Canada’s economy and democracy.

GH: Yes, and I think that is a great place to end with, the importance of culture to our democracy. One of the great things about humanities, education, and liberal arts education, I mean there are obviously great things about science and technology, but all of our focus has been over there to the determent of the humanities. But one of the great things about the humanities, and one of the great things about culture and music and all that, is it activates our imagination, it brings us into contact with other ideas, and it allows us to develop a skeptical faculty, right? We’re not so credulous when we’re well read. We’re going to look at the claims of a Trump or whoever and say, “No, I know that is wrong because I read a book about it.” Something like that is going to be increasingly important. So, I would say that support, to the extent that our cultural class is in any way disadvantaged or disempowered, then our democracy is at risk.

CM: A good note to end on. Thank you, Graham, and I hope we get to talk again soon.

GH: Yup, I do too. Thank you for all your time.

END

Michael Raine is the Assistant Editor of Canadian Musician

Tags: , , , , , , , , , , , , ,

Canadian Musician Associated Sites

Norris-Whitney Communications Inc.   Canadian Music Trade   Professional Lighting & Production   Professional Sound   Music Directory Canada   Music Books Plus