CRTC Hearings: Spotify Worries About Financial Sustainability in Canada

Spotify made an appearance before the CRTC to talk about the Online Streaming Act. They talked about financial stability among other things.

We’ve been offering highlights (and lowlights) of the CRTC hearings on the Online Streaming Act (formerly Bill C-11).

Previously, we showcased Bell pounding the table and declaring that “a level playing field is not enough“. This while demanding that they shouldn’t be expected to contribute to Canadian culture as much and demanding that they be able to more cheaply rebroadcast American programming.

Rogers, for their part, demanded 30% of the free money swiped from platforms be directed towards news operations.

Corus also jumped in with the constant drumbeat of “GIMME!!!” by demanding that 64% of the streaming loot be redirected towards radio stations – radio stations that they just so happen to own and operate.

Google, for their part, was much more diplomatic and simply called for a system that supports the digital ecosystem. After all, if it’s digital first creators contributing greatly to the generation of wealth, you’d think that they should be entitled to the fruits of their labor, right? Well, legacy media corporations are obviously disagreeing with that and what creators make should be given to the legacy media corporations instead. This would create that dynamic of taking money from people who need it the most and redistributing it among the corporations that need it the least.

Another organization that appeared before the CRTC is Spotify. They were there seemingly to counteract the misinformation and disinformation that says that platforms do not contribute to Canadian culture. The transcript of what was said can be found on the CRTC website.

Spotify opened with the following:

6612 With our remarks we want to touch on three critical issues in this proceeding. First, we believe imposing initial base contributions on platforms before defining critical elements of the broadcast policy is premature and risks overlooking the many ways that Spotify already contributes to and supports Canadian and Indigenous artists. Further, it is incumbent on the Commission to consider the significant portion of revenues streaming services immediately distribute back to the music ecosystem as royalty payments. And finally, the Commission should take into consideration the delicate economics of the music streaming business model and not impose blunt financial obligations.

Spotify then goes into detail about how they actually contribute to Canadian culture:

6615 Spotify launched in Canada in 2014 with this same commitment. Today, Spotify’s 150‑strong Canadian team’s mission remains to grow the stage for Canadian and Indigenous content through playlisting, marketing campaigns, partnerships, and training that empowers artists, writers, and podcasters to organically grow their audience.

6616 We are proud of the success of the Canadian music ecosystem we have helped build. Thanks to the payments of streaming services, the record labels and artists of the Canadian recorded music industry earned nearly 80 per cent of their revenue from streaming last year, driving robust growth of 8 per cent. Unlike traditional radio, interactive streaming has made space for new talent. Every week, 83 times the number of unique Canadian tracks are listened to on Spotify in Canada compared to radio, creating more opportunities for diverse voices to be heard.

6617 Spotify puts significant effort into showcasing and supporting Canada’s diverse, multilingual, and multicultural society. Our editorial team curates playlists with deep experience in and passion for different cultures and musical genres. Spotify Canada programs over 100 playlists editorially, with our popular local flagship playlists programming 100 percent Canadian and Indigenous artists.

6618 Moreover, Spotify empowers creators and their teams with tools for success, including data analytics, educational resources, expression formats, and promotional tools to make the most impact on and off platform.

6619 Combined with special partnerships and tailored campaigns, Spotify is helping Canadian and Indigenous artists from diverse genres and backgrounds to reach listeners at home and around the globe. To highlight a few key examples mentioned in our written submissions.

Reading this is a nice change to the constant doom mongering from legacy media corporations. Contrary to the constant comments about how Canadian culture is disappearing and how much they are entitled to free money, Spotify, meanwhile, is highlighting how they are contributing to the promotion and building of Canadian culture and how they are supporting creators.

Spotify then went on to highlight some of their concerns with this process:

6624 These unique and tailored investments are paying off for artists.

6625 We invest in Canada’s cultural sector and ensure the discoverability of diverse voices because it is our core mission. However, we are concerned that the introduction of initial base contributions could damage the progressive work that we have been doing for almost a decade.

6626 We believe that the Commission is moving too quickly without key pieces of the puzzle, including foundational elements like how Canadian and Indigenous content is defined and the best tools to support Canadian music and audio content.

6627 Without a more holistic picture, it is impossible to properly quantify the unique and innovative contributions already made by online undertakings today.

We’ve already seen some legacy corporations say that platforms shouldn’t have a say in how the regulatory framework should be implemented. For them, it’s “platforms make money. Platforms give me that money” for the most part. Understandably, platforms might have a problem with that attitude.

In fact, it is precisely because there has been a lack of understanding on how the internet works that got us to this point in the first place. While the past can’t be changed, it doesn’t hurt to make this call again and ask that regulators should get an understanding of how the internet works today and implement a sound and reasonable regulatory framework for them to follow. The chances of having that forward looking concept put in place is pretty slim, but again, it doesn’t hurt to ask.

During the question and answer section, there was a question about potential unintended consequences. Spotify answered by talking about ensuring that Spotify continues to be financially viable in Canada:

6671 THE CHAIRPERSON: Thank you for that. That’s helpful.

6672 So on the issue of ‑‑ you know, we’re here to talk about the initial base contribution and, on the issue of that, you’ve said throughout your submissions and you talked about it this afternoon. You know, you used words like, you know, “jeopardizing our nine years of tailored investment”. You have said, you know, damaging ‑‑ we would risk damaging the progressive work that you have been doing.

6673 You’ve talked about, you know, serious unintended consequences. You’ve touched on some of those. You’ve talked about, you know, kind of lower investment, higher prices.

6674 Can you unpack that a little bit more?

6675 MS. REGNIER: Yeah, I will start and maybe Nathan can continue.

6676 So when we say that we have, you know, low to negative margin, this is confirmed by figures. It’s not just for Spotify. For all the services.

6677 For us, what we do is a long‑term investment. We believe in streaming. We see what it is bringing back, you know, to the sector, so we really believe in this model and its virtue.

6678 Now, the fact is that, currently, the margins are what they are and we have to be very careful in, you know, any additional burden that happens. So whenever we have additional burdens that do not always take into account first the investments we make and the economic situations, these mean these are costs and we have to look at our costs. And it means that you have to cut somewhere. You need to maintain financial viability.

6679 So without being specific, I think every company will look at what are the investments we are making, which of them have been more profitable, less profitable, what are the costs where we can diminish. And that’s where you look at the investment you make in promotion, in support, in other things. That’s where you look also at your pricing structure, do you need to change that.

6680 So all those elements would be reviewed to try to reach or to maintain financial viability.

This should be absolutely chilling for creators to hear. Taking a step back, a big component to the Online Streaming Act is to take revenues from platforms and funneling it towards legacy operations such as television broadcasters and radio broadcasters (among others). So, when we notice comments from Spotify about there being worries about financial viability in this country, that raises the prospect that Spotify leaving Canada is not entirely off the table. It will depend on how the law is implemented, of course, but the door isn’t shut on this prospect.

Indeed, as we’ve seen with Twitch leaving Korea, the prospect of a major streaming platform leaving a country is never something that is out of the question. What’s more, Facebook dropped news links in Canada. Had it not been for the government folding to Google, the same thing would’ve happened on Google by this time next week. So, the idea of platforms leaving Canada over ridiculous legislation isn’t out of the question.

If things were to get to the point where Spotify leaves the country, that would be absolutely devastating to Canadian music producers. It would be similar to the impact Facebook dropping news links had on the news sector. Yes, there are other options, but most won’t have the same reach as Spotify. This kneecaps the artists ability to reach much needed audiences so the artists can grow their careers.

Now, to be clear, the prospect of platforms leaving Canada over the Online Streaming Act are nowhere near as likely as what we saw with the Online News Act. With the Online News Act, the Canadian government, after conceding virtually everything, managed to avert the largest platform from dropping news links.

With the Online Streaming Act, however, the idea of platforms leaving Canada outright is simply a possibility at this point. The largest platforms have been generally OK with the prospect of being forced to promote certain kinds of content over content that users actually want to consume. The financial reasons for leaving are generally more at the theoretical stages. All of this is to say that it’s not impossible that the platforms might opt to leave, but at the moment, the chances of that happening are seemingly somewhat muted at this stage. Time will tell on that and things can very easily change of course.

Either way, Spotify’s comments does offer some insight into their position on all of this. We’ll try to continue to offer quick summaries of what was said as we move forward.

Drew Wilson on Twitter: @icecube85 and Facebook.

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