Canada's Digital Content: New Technology Delivering Canadian Content to Canadians

Summary

The convergence of broadcasting and telecommunications technology is a reality in Canada and throughout the world. Government measures that apply to broadcasting in Canada and that encourage the creation and dissemination of Canadian culture must be sustained in the digital economy on a technology neutral basis (i.e. irrespective of whether broadcast or telecommunications technologies are used).

Canada's Digital Economy and national sovereignty objectives cannot be achieved by pretending the telecommunications and broadcasting sectors are not substitutes for one another, or by simply liberating domestic or foreign market forces and 'hoping for the best'.

Digital Canadian Content rules and other government measures are required to ensure Canada's Digital Economy achieves its full potential. These measures must not be trumped by National Treatment, Performance Requirements restrictions, or any other foreign investment obligations that could impair Canada's ability to pursue Canadian culture and content policy objectives, now or in the future.

For these reasons, policy makers must acknowledge

• that the Digital Content created by SOCAN's members and other Canadian creators is essential to developing Canada's Digital Economy. And that without the upstream creation of Canadian Digital Content, there can be no downstream production, distribution or domestic and international consumption of such content.
• that creating Canada's Digital Content advantage means developing the right government policies to promote the creation of, and access to, Canadian content created by SOCAN's members and other Canadian originators and that market forces are not sufficient to attain Canada's cultural and content objectives.
• that the creation of Canadian Content may not be sufficient. Canadians must also have meaningful access to this content. Access requires more than availability of content. Access also requires prominence of availability, which facilitates the actual consumption of content. Canadian Content rules play a critical role in promoting such access.
• that as a result of technological convergence (broadcasting and telecommunications processes) and corporate integration, any discussion of changes to Canada's foreign investment and control rules in the telecommunications cannot ignore the broadcasting sector.
• that Canada's foreign ownership regime cannot be treated as a purely domestic issue, because there are international trade treaty implications involved which may trigger unintended consequences for Canadian Content rules and other vital government measures.

All these facts suggest that if the government wishes to consider opening up the Canadian telecommunication sector to foreign control, it must first also carefully review and consider the broadcasting sector and the consequences (both intended and unintended) that any decision may have on Canadian culture. The government must also measure the risks of triggering international trade obligations that, so far, have not been an issue due to the lack of foreign control in the broadcasting sector.

Submission

This Submission is filed on behalf of the members of The Society of Composers, Authors and Music Publishers of Canada/Société canadienne des auteurs, compositeurs et éditeurs de musique ("SOCAN"), in response to the Consultation Paper on a Digital Economy Strategy for Canada issued by the Government of Canada on May 10, 2010 (the "Paper").

From the outset, it must be recognized that, as a result of technological convergence and corporate integration, the dividing line between the broadcasting industry and the telecommunications industry is no longer clear.

As a result, when discussing digital infrastructure and other telecommunication issues one cannot simply ignore the broadcasting industry and Canadian cultural policy.

Cultural goods and Digital Content like musical works are not commodity products, and market forces alone cannot achieve Canada's content objectives in the telecommunications, broadcasting and other cultural industries.

In addition, globalization and international trade treaties make it impossible to discuss legislative and regulatory changes in a domestic vacuum. For example, before changing Canadian foreign investment rules, both the domestic and international treaty implications must be carefully considered for the telecommunications and broadcasting sectors, and for Canada's cultural sovereignty.

As a result, the scope of this Submission is not confined to the domestic telecommunications sector. Canadian cultural policy, the broadcasting sector, and international issues are also discussed.

SOCAN's Submission focuses on the discussion theme "Canada's Digital Content" and is presented under the following headings, which are based on the Paper's Discussion Questions:

1. Who we are
2. What does creating Canada's digital content advantage mean to you?
3. What are the core elements in Canada's marketplace framework for digital media and content?
4. How do you see digital content contributing to Canada's prosperity?
5. How can stakeholders encourage investment, particularly early stage investment, in the development of innovative digital media and content?
6. Conclusion

1. WHO WE ARE

SOCAN is a not–for–profit Canadian–owned and operated organization that represents composers, lyricists, songwriters and publishers of musical works from across Canada and around the world.

On behalf of our over 35,000 active Canadian members, and members of the affiliated, similar societies from around the world, SOCAN collectively administers performing rights in music and lyrics — musical works.

The performing right is that part of copyright that gives owners of musical works the sole right to perform in public, to broadcast their works, or to authorize others to do so, in return for royalty payments.

Performing rights are essential for music creators and their publishers because they are remunerated by the performing rights royalties they receive when their songs are used (i.e., performed in public or broadcast) by music users.

The amount of copyright royalties our members receive is determined by the Copyright Board of Canada. This quasi–judicial tribunal balances the interests of both creators and users, and allows interested parties an opportunity to be heard in transparent public hearings.

The musical works created by SOCAN's members are digital content. This digital content generates copyright royalties that are paid to SOCAN in accordance with tariffs — including the Copyright Board's Tariff 22, which deals with online music services and websites that use music in various ways.

2. WHAT DOES CREATING CANADA'S DIGITAL CONTENT ADVANTAGE MEAN TO YOU?

Creating Canada's Digital Content advantage means developing the right policies to promote the creation of, and access to, Canadian content that is conceived by SOCAN's members and other Canadian creators.

The opening paragraph that appears under the heading "Digital Media: Creating Canada's Digital Content Advantage" on Page 24 of the Paper states:

For generations, we have sought as a country, through appropriate market frameworks and policies, to promote the creation of and access to Canadian creative content made by Canadians, designed to inform, enlighten and entertain, and that is reflective of our linguistic and ethnocultural diversity.

(emphasis added)

The Paper's statement recognizes that market forces are not sufficient to attain Canada's cultural and content objectives. Enlightened government policies are also required.

Canada's Digital Economy and national sovereignty objectives cannot be achieved by simply liberating domestic or foreign market forces and hoping for the best. Parliament continues to have a vital role to play in this regard.

The Paper's statement also recognizes that the creation of Canadian Content is not sufficient. Canadians must also have meaningful access to this content.

Access requires more than availability of content. Access also requires prominence of availability, which facilitates the actual consumption of content.

The importance of the prominence of availability — which is often referred to as "shelf space" — was highlighted in a Press Release issued by Canadian Heritage Minister James Moore on July 31, 2009, that was entitled Government of Canada Renews Canada Music Fund and Increases Investment in Digital and International Market Development. Backgrounder II to the Press Release stated:

Promoting and selling music online is essential to open markets for Canadian music.

Our music entrepreneurs and artists must ensure not only that their content is available digitally, but also that it is highly visible to aid its discovery among the wealth of content online.

No less than 53 percent of Canadian Internet users reported in 2008 that they could not easily find music by Canadian artists online.

Access is critically important to SOCAN's members because they are entrepreneurial risk–takers who do not get paid "up front" for creating Digital Content when they write songs.

SOCAN's members — for the most part — do not receive any early stage financing or grants, or get paid for "showing up", because they only receive copyright royalties for their creative efforts if their musical works are actually performed or communicated by others.

As a result, SOCAN's Canadian royalties depend on access to Canadians. For example, when Internet broadcasters or other users communicate musical works written by Canadians, royalties remain at home with Canadian creators. On the other hand, when users play more foreign music, royalties are paid to foreign sources. The role of Internet Service Providers ("ISPs") and other digital services as economic gatekeepers and "tastemakers" is critical in this regard.

It is for this reason that SOCAN has always supported measures which promote the use of Canadian music, including the Broadcasting Act and the Canadian Content rules of the Canadian Radio–television and Telecommunications Commission (the "CRTC").

As discussed below, SOCAN is concerned that, if foreign ownership or control rules in the broadcasting or telecommunications sectors are directly or indirectly changed, Canadian Content rules may be adversely affected, which in turn would diminish the supply and access to Canada's Digital Content.

3. WHAT ARE THE CORE ELEMENTS IN CANADA'S MARKETPLACE FRAMEWORK FOR DIGITAL MEDIA AND CONTENT?

The core elements in Canada's marketplace framework for digital media are strong Canadian Content rules, and foreign investment and control regulations.

With respect to Canadian Content rules, SOCAN remains concerned that the CRTC's New Media Exemption Order continues to exempt digital media and content from these rules. Canadian Content rules should be modernized to ensure that SOCAN's members and other Canadian Digital Content creators receive fair and appropriate remuneration for the risks they take.

With respect to foreign ownership regulations, the Government of Canada has indicated that it wishes to make changes which somehow will be confined to the telecommunications sector and have no direct or indirect impact on the broadcasting sector. Second, there has been no mention of how such changes would affect Canada's international trade treaty obligations.

SOCAN's views regarding foreign investment and control are presented under the following subheadings:

1. As a result of technological convergence and corporate integration, changes in the telecommunications sector cannot be made without considering the broadcasting sector
2. The broadcasting sector cannot be ignored because it is a public good that plays a critical role in Canada's democratic discourse and national identity
3. Canada's foreign ownership and control regime cannot be treated as a purely domestic issue, because there are international trade treaty implications involved which may trigger unintended consequences

(a) As a result of technological convergence and corporate integration, changes in the telecommunications sector cannot be made without considering the broadcasting sector

It is not possible to draw a clear line or create a firewall between the telecommunications and broadcasting sectors, because many telecommunications carriers have been granted licenses and/or provide services under the Broadcasting Act.

Increasingly, telecommunications companies compete with broadcasters and cable companies in numerous markets — including Fixed Telephone, Mobile Cellular Phone, Internet, and broadcasting markets. Effectively, these services — whether broadcasting or telecommunications — are "technologically neutral" or equivalent.

To ensure they are not put at a competitive disadvantage, integrated Canadian telecommunication/broadcasting companies have made it abundantly clear that they will lobby against any foreign investment changes that attempt to create a false dichotomy between the telecommunications and broadcasting sectors.

On June 16, 2010, the House of Commons Standing Committee on Industry, Science and Technology tabled a Report entitled Canada's Foreign Ownership Rules and Regulations in the Telecommunications Sector. Page 28 of this Report summarized the views of integrated Canadian telecommunication/broadcasting companies as follows:

Officials from Industry Canada indicated to the Committee that the removal of foreign ownership restrictions is under consideration for telecommunications industries only, not for broadcasting industries.

Since broadcasting distribution undertakings (BDU) are regulated under the Broadcasting Act, a number of witnesses (e.g., MTS Allstream, Shaw, Rogers, Bell, Telus) that are integrated market players (i.e., that are both telecommunications common carriers and BDUs) informed the Committee that they strongly oppose the potential differential treatment of telecommunications carriers and broadcasting distributors with respect to the liberalisation of foreign ownership rules.

They indicated that technological convergence has resulted in corporate convergence, and that creating an artificial difference between the two types of businesses from a regulatory standpoint would put them at a competitive disadvantage.

By reason of this technological convergence and corporate integration, SOCAN submits that, before removing any foreign ownership or control restrictions in the telecommunications sector, Parliament must carefully consider any direct or indirect effects such changes may have in other sectors, including the broadcasting sector.

(b) The broadcasting sector cannot be ignored because it is a public good that plays a critical role in Canada's democratic discourse and national identity

The broadcasting sector must be carefully considered because it is a public good that plays a critical role in Canada's democratic discourse and national identity.

Canada uses foreign ownership and control rules in the broadcasting sector to promote our national interests and Canadian cultural sovereignty. It is easier to regulate Canadian–owned firms than foreign ones. Canada is not alone in this regard because our major trading partners also limit the foreign ownership of broadcasters.

For example, the government's Competition Policy Review Panel issued a consultation paper entitled Sharpening Canada's Competitive Edge dated October 30, 2007, which described broadcasting foreign ownership limits on Page 43:

While some developed countries have no restrictions, others like the U.S., France and Japan have foreign ownership limits on over–the–air broadcasters.

In Canada, our relatively small, diverse population and the availability of U.S. broadcasts limit the degree to which market forces alone can ensure the provision of a range of Canadian news and entertainment programming in both official languages.

Canadian ownership rules in broadcasting and broadcasting distribution, established under the Broadcasting Act, ensure that Canadian news and entertainment programming is made from a Canadian perspective and with Canadian audiences in mind.

In addition, although the Telecommunications Policy Review Panel Report issued in March 2006 (the "Telecommunications Report") focussed on the telecommunications sector, it concluded with an Afterword regarding Canadian broadcasting policy, which the authors found to be inextricably linked to the matters reviewed under their mandate.

The Telecommunications Report called for the establishment of a comprehensive review by independent experts of Canada's broadcasting policy framework, and stated:

On the question of foreign ownership rules, the Panel recommends that no changes be made to the current limits on foreign ownership of telecommunications firms which are also licensed broadcasters, pending the review of the sector.

(c) Canada's foreign ownership and control regime cannot be treated as a purely domestic issue, because there are international trade treaty implications involved which may trigger unintended consequences

SOCAN is concerned that, if more foreign investment and control are permitted (directly or indirectly) in the broadcasting sector, a foreign investor may attack Canadian Content rules on the grounds that they constitute illegal "performance requirements" under the North American Free Trade Agreement ("NAFTA") or other international trade treaties.

The investment chapter of the NAFTA creates absolute standards that Canada must apply to NAFTA and other foreign investors — even if Canada does not apply these standards to its own nationals.

NAFTA Article 1106(1) creates obligations regarding "performance requirements", which limit a state's ability to develop its domestic economy by requiring foreign investors to increase exports, decrease imports, balance trade, transfer technology, or to use local labour, goods, or services:

No Party may impose or enforce any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, conduct or operation of an investment of an investor of a Party or of a non–Party in its territory:
…
(b) to achieve a given level or percentage of domestic content;

(c) to purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from persons in its territory;…

But for the NAFTA's "cultural exemption" (which, in practice, has not provided absolute protection — e.g., the split–run magazine dispute with the United States), Article 1106 could prohibit the application of CRTC Canadian Content regulations to foreign investors, which would adversely affect SOCAN's Canadian members.

Likewise, on May 17, 2010, Japan filed a communication at the World Trade Organization (the "WTO") in which it attacked Ontario's Green Energy Act, 2009 and its Feed–In Tariff ("FIT") program as follows:

With regard to Ontario's FIT program, we are seriously concerned about its requirement for the use of domestic content in order to be eligible for the program (i.e., its "local content requirement").
…

We are also seriously concerned that even one FIT program which contains a local content requirement may trigger the introduction of other FIT programs which contain local content requirements, and may result in the proliferation of local content requirements in the future.

Canada's foreign ownership and control regime cannot be treated as a purely domestic issue, because there are international trade treaty implications involved which may trigger unintended consequences.

SOCAN therefore submits that, if the government wishes to consider opening the Canadian telecommunication or broadcasting sectors up to foreign investors, it must carefully measure the risks of triggering international trade obligations that, so far, have not been an issue due to the lack of foreign control in the broadcasting sector.

4. HOW DO YOU SEE DIGITAL CONTENT CONTRIBUTING TO CANADA'S PROSPERITY?

The Digital Content created by SOCAN's members and other creators is essential to Canada's economic prosperity and cultural sovereignty.

Without the upstream creation of Canadian Digital Content, there can be no downstream production, distribution or domestic and international consumption of such content.

The value of Canada's digital telecommunications infrastructure ultimately depends on the content it carries. Page 24 of the Paper recognizes the critical importance of digital media in the following terms:

Digital media has been described as the 'soft infrastructure' that is equally as important as the 'hard infrastructure' like broadband connectivity.

Both elements have a profound impact on Canada's ongoing success in the digital economy …

As broadband networks spread around the world, digital media and the content are the advantage; they will be what attracts continued investment and talent, improves productivity, promotes prosperity in the digital economy and secures Canada's place in the digital world.

Due to the symbiotic relationship between Digital Content and carriage, government policies must promote Canadian Digital Content, so that this content can in turn drive the development of digital hard infrastructure.

Government policy and regulation are more important than ever — including digital Canadian Content rules which are not subject to National Treatment, Performance Requirements restrictions, or any other foreign investment obligations that could impair Canada's ability to pursue Canadian culture and content policy objectives.

5. HOW CAN STAKEHOLDERS ENCOURAGE INVESTMENT, PARTICULARLY EARLY STAGE INVESTMENT, IN THE DEVELOPMENT OF INNOVATIVE DIGITAL MEDIA AND CONTENT?

As noted above SOCAN's members generally do not receive any early stage financing or grants, or get paid for "showing up".

Instead, they receive copyright royalties for their creative efforts if their musical works are actually performed or communicated by others.

SOCAN's Canadian royalties depend on access to Canadians, and copyright legislation that remunerates creators when their musical works are used.

With respect to access, the importance of Canadian Content rules and foreign ownership rules has been discussed above.

With respect to copyright and the current royalties regime, SOCAN intends to provide more detailed submissions in response to the recently tabled Bill C–32, the Copyright Modernization Act.

6. CONCLUSION

To conclude, SOCAN wishes to reiterate the following five points.

First, the Digital Content created by SOCAN's members and other creators is essential to developing Canada's Digital Economy.

Without the upstream creation of Canadian Digital Content, there can be no downstream production, distribution or domestic and international consumption of such content.

Second, creating Canada's Digital Content advantage means developing the right government policies to promote the creation of, and access to, Canadian content created by SOCAN's members and other Canadian originators.

Market forces are not sufficient to attain Canada's cultural and content objectives. Enlightened government policies are also required.

Third, the creation of Canadian Content is not sufficient. Canadians must also have meaningful access to this content. Access requires more than availability of content. Access also requires prominence of availability, which facilitates the actual consumption of content. Canadian Content rules play a critical role in promoting such access.

Fourth, as a result of technological convergence and corporate integration, any discussion of changes to Canada's foreign investment and control rules in the telecommunications cannot ignore the broadcasting sector.

Fifth, Canada's foreign ownership regime cannot be treated as a purely domestic issue, because there are international trade treaty implications involved which may trigger unintended consequences for Canadian Content rules and other vital government measures.

SOCAN therefore submits that, if the government wishes to consider opening the Canadian telecommunication sector up to foreign control, it must first carefully review and consider the broadcasting sector.

In addition, the government must measure the risks of triggering international trade obligations that, so far, have not been an issue due to the lack of foreign control in the broadcasting sector.

Digital Canadian Content rules and other government measures are required to ensure Canada's Digital Economy achieves its full potential. These measures must not be trumped by National Treatment, Performance Requirements restrictions, or any other foreign investment obligations that could impair Canada's ability to pursue Canadian culture and content policy objectives, now or in the future.

The bottom line is that Canada's Digital Economy and national sovereignty objectives cannot be achieved by pretending the telecommunications and broadcasting sectors are not integrated, or by simply liberating domestic or foreign market forces and hoping for the best.

SOCAN looks forward to continuing to participate in the development of Canada's Digital Economy.