Canada - a land of lost opportunity?

John Kennedy, Chairman and CEO, IFPI

2nd March, Canada Music Week, Toronto

Thank you for coming. My name is John Kennedy.

I am Chairman and Chief Executive of IFPI and I represent the recording industry worldwide.

Before this role I ran record companies and before that I was a music business lawyer.

Once a lawyer always a lawyer - so I am told. So its okay for me to tell a bad lawyer joke to start the proceedings because its also about me.

I decided many years ago I needed to get out of practising law after my 12 year old daughter came home one evening looking very pleased with herself - I asked what had made her so happy -

Well she said, you know I like animals - yes I said - well our teacher told us today that scientists have stopped using rats in experiments.

Well that's good I said - but Ellie you know scientists need to experiment to find new drugs to make our lives healthier. Oh yes she said it's not a problem, instead of using rats they are going to use lawyers!

What I said - yes she said the scientists had found:

1. There were many more lawyers than rats.

2. The Scientists were getting emotionally attached to the rats but never the lawyers

3.There we some things the rats simply wouldn't do?

This morning I want to talk about the extraordinary changes that are happening in the international music industry; the transformation that is being driven by record companies as we adapt to the opportunities - and the threats - of the digital era; and how Canada, a country so proud of its technological innovation and which has appeared so misguided in aspects of its approach to copyright reforms, now risks being sidelined from the digital opportunities that are blossoming for our industry across the world.

Let me start with an overview of what is happening internationally. We have recently published the IFPI Digital Music Report, and today for the first time a Canadian version is being published and made available to this conference. The report gives a comprehensive overview of international trends - read it, and I believe you cannot fail but to see an industry defying its critics - albeit facing enormous challenges - and moving successfully into the digital age.

After a hesitant start we have embraced new technology.

Two years ago our industry, choked by an internet dominated by 100% piracy and pilloried by our critics, might have wondered if it would ever make money from digital formats. Today, as our report shows, we have moved to 6% of industry revenues more than a billion dollars of digital revenue and most expert commentators think we are on route to 25% within 5 years. Record companies have licensed their entire front line repertoire to digital services within just three years - more than 2 million tracks available. Ask any senior record company executive today what their key strategy is, and they will tell you it is aggressively to licence, licence licence music - in any format or channel as long as it is legitimate and properly paid for.

Ubiquity of music is our catchphrase. Some commentators cite ubiquity as our industry's greatest problem, but I think it is actually our greatest opportunity. Three years ago consumers had two basic ways of enjoying music - from the CD or on the radio. Today, as our report makes clear, there are at least ten channels to get music - and that means ten revenue streams for record companies. Artists and Publishers from online a la carte and subscription services to mobile ringtunes and downloads. Itunes have so far dominated the picture - and getting to the 1 billion download mark last week was an fantastic achievement - but diversification of digital channels is also a key trend. Let's not forget, for example that in Japan the digital music market is made up more than 90% by mobile music sales.

There are of course huge challenges in sustaining the digital success story - and I will come to those in a minute - but who can deny that, internationally, the music industry is successfully adapting to the digital age. And in doing so, we are benefiting not just our own stakeholders but a far wider economic community. Music is driving the digital economy. Last year music played a key role in a vast wave of commercial activity - in 2005 consumers bought over 60 million portable digital music players (worth an estimated US$9 billion), paid over $US 75 billion in broadband subscriptions and purchased $US 50 billion worth of mobile data services.

And meanwhile the environment in which we are trying to build this digital market is improving very significantly. For years we have engaged in a kind of guerrilla warfare first with pirate websites and then with unauthorised p2p services which cynically built a business on music while exploiting the unwieldy sluggishness of the courts in catching up with them. Well, in 2005 the courts did catch up. In a slew of decisions - from Grokster in the US, to Kazaa in Australia - suddenly the legal shape of the digital music world changed. After years of uncertainty, it became clear that unauthorised p2p sites can be held liable for their actions. These have proved a tipping point for the legal framework of our industry - and a huge boost to the development of a legitimate digital music business.

So IFPI's international overview is optimistic, albeit tempered with caution. Digital music is now in the mainstream. It is a viable business. It is a shot in the arm for the music industry. And we have defied our our critics, by making it easier to buy music than to steal it. The global music business is yes battered but by no means beaten. It is not on its knees it is on its feet fighting and there is cause for optimism.

What we do not yet have - but which I am confident will come - is digital growth compensating for the decline in our physical sales. Last year the overall market fell around 2%. This year, I am hopeful it will be flat and beyond that that digital will take our industry into growth. What I do know is that our industry has a very clear digital music strategy - it is about the ubiquity of music and diversifying into all distribution channels which the consumer wants and which are legitimate, properly licensed and paid for.

As an industry, music has taken its fair share of criticism over the years. Some of it is reasonable, much of it is misinformed. The music industry was the first industry to be hit by the technological revolution presented by the digital world and the internet. The music industry was the first to be in the trenches fighting - and we certainly won't be the last and are not the only ones. Many commentators around the world have told us that our approach to our problems has been flawed - but even with my million air miles a year, I can safely say that no one has told me what we should have done.

We have drawn media criticism - yet now the newspaper industry is going through what we went through, and perhaps more. The travel industry has changed dramatically with winners and losers. We for our part are battered, not beaten. We have already proved what many industries have not yet proved - that the internet is a real commercial opportunity and not just a threat.

But I am not here just to talk about the international scene. I want to talk about Canada. The good news - your astounding success in creating and exporting music - and the bad news - your apparent paradoxical determination to abandon your music community by rebuffing copyright reforms that have been embraced by virtually all the rest of the developing world.

But since what I am going to say is so much concerned with copyright and intellectual property rights, let me pause for just a minute to remind you of what our fantastic industry does:

• billions of dollars spent worldwide on developing new talent - more investment than any other industry worldwide, except pharmaceuticals
• billions of dollars more spent on marketing artists across the globe
• 100,000 albums produced worldwide.

And what does the the Canadian Music Industry do? Here are just some things:

• Employs
• Creates
• Innovates
• Pays taxes
• Invests
• Entertains
• Exports
• Drives broadband growth
• Contributes to cultural diversity AND
• Is a major contributor to the Information and Knowledge Society.

And all this without any state support whatsoever. On Monday this week I met with a government-appointed panel responsible for reviewing copyright laws for the digital era in the UK. I explained to the UK Government the global music industry doesn't expect protection from new technology just protection from abuse of new technology. I told them if Britain didn't have its vibrant music industry they would create committees to try and establish it. It would require resources, subsidies and tax credits to put the UK at the forefront of the global music industry. I told them they don't have to do any of those things - just give us some tender loving care - support us - don't abuse us.

And I can say exactly the same thing in Canada. You have one of the world's most consistently successful commercial music cultures. A roll call to be truly proud of:

Alanis Morrisette, Anne Murray Bryan Adams, Barenaked Ladies, Michael Buble, Leonard Cohen, Cowboy Junkies, Celine Dion, Diana Krall Avril Lavigne, Sarah McLachlan, Nickelback, Rush, The Tragically Hip, Shania Twain, Neil Young, Gordon Lightfoot, Nelly Furtado Arcade Fire, Billy Talent, Broken Social Scene, Feist, Simple Plan, Sum 41

You need no incentives or artificial sweeteners to tap this rich vein of talent - just good copyright laws, proper respect of intellectual property and an awareness of the difference between promoting technology and curbing the abuse of technology.

Those conditions I have described have, by and large, been met by most countries as they adapt their laws to the digital era; sadly, I cannot say the same of Canada.

My travels over the last few years have brought me to Canada a few times before, but never in the role I find myself in now. And I have to say in my new role I have found myself quite astonished by what has been going on here. Most of all I am amazed at the paradox - I would even call it schizophrenia - in a country which appears to put such a high value on technological progress and such a low value on its creative industries.

Canada can rightly be proud of its technological feats. For example:

• Canada has one of the most computer literate and wired populations in the world.
• 25% of the Canadian households have broadband - only South Korea is ahead in the World in terms of broadband penetration.
• Canadians have created some of the most important technology on the planet - In the world I inhabit people don't pay homage to God or Buddha or even Mohammed but rather sadly to their Blackberry - for which we have Canadians to thank.

And yet this forward thinking and forward looking is combined with a very different approach to Intellectual Property Rights. Canada remains FAR BEHIND virtually all its peers in the industrial world in respect of its efforts to bring copyright laws up to date with the realities of the global digital networked environment. Indeed most of the major developing countries have progressed further and faster than Canada in meeting this challenge.

I can't believe what I just said "Canada far behind virtually all of its peers." "Most of the developing countries have progressed further and faster than Canada."

It is no exaggeration to say that today, in the context of the emergence of the digital music business internationally, Canada feels like the land of lost opportunity.

I don't know why this is and I want to examine it today and try and make a plea for common sense to prevail. Let me take things point by point

First, proper respect of intellectual property is totally in Canada's own self-interest. Music is an economic motor - the most popular consumer product in the industrialised world.

Copyright in general is the economic motor of the 21st Century knowledge economcy. The copyright industries represent the third largest contributor to the Canadian GDP. In a Canadian Government report it not only said their copyright related sectors were responsible for 7.4 percent of GDP but said that these sectors could grow at double the rate of the rest of the economy.

Note this powerful comment by Alan Greenspan Ex Chairman of US Federal Reserve: (I realise Americans are not always popular in Canada)

"In recent decades the fraction of the total output of the US economy that is essentially conceptual rather than physical has been rising. This trend has, of necessity shifted the emphasis in asset valuations from physical property to intellectual property and to the legal rights inherent in intellectual property".

Music is not just entertainment it is a major driver of economic growth.

If the Canadian Government supports and protects the copyright industries this will be DIRECTLY help the Canadian economy.

Canada is defying international treaties, frameworks and principles that have been accepted almost everywhere in the world as essential to securing creative content in the digital era.

Canada is still the the developed world's most laggardly country in ratifying the 1996 WIPO Treaties adapting copyright rules to the digital age. At the same time in recent years it has provided respite and relief to the perpetrators and beneficiaries of internet piracy.

The Western World realises that it has lost its manufacturing industry to Asia and realises that it relies on the knowledge economy instead of the manufacture economy the European Union has put the Intellectual Property Industries at the forefront of their strategy for economic growth and development. AND yet the previous Canadian Government was being encouraged to be anti intellectual property and to take an isolation position on intellectual property protection.

When I first learned that Canada hadn't ratified the WIPO treaties I was shocked but assumed that, like the European Union, Canada would be committed to ratifying them and the delays were just technical and procedural. However, it has become clear that this was not the case - the previous Canadian Government was actively resisting ratifying the WIPO Treaty.

They wanted to be different they wanted to be unique but why, to coin a phrase - why reinvent the wheel, global harmonisation in any field involves everyone copying everyone to everyone's mutual advantage why not see it as imitation being the sincerest form of flattery.

Canada now has a new government, and I am hoping this is the opportunity to get things straight. I want to appeal directly to the new Canadian government - PLEASE RATIFY THE WIPO TREATIES. - Canada AGREED these treaties ten years ago. No fewer than 82 countries have ratified WIPO treaties including the European Union and a long list of other countries including: Albania, Armenia, Azerbaijan, Botswana, Bulgaria, El Salvador, Indonesia, Latvia, Serbia and Togo.

How can countries like these have more sophisticated intellectual properties than Canada - I do not demean these countries I praise them for forward thinking and am just left bemused by Canada's absence from the list.

Critics of Canada's ratification process have misrepresented the WIPO Treaties as threatening to undermine Canada's status as a home for technological innovation. This is a totally misplaced fear - the Treaties have done nothing of the kind in the rest of the World. And research shows that technological innovation flourishes in climates which protect and reward creation rather than leaving it to the mercy of pirates.

Third - whilst Canada waits for Canada to evolve into some sort of technological utopia it is also evolving into a piracy haven.

Every year at the IFPI we prepare a commercial Piracy report, one of its big features each year is the Top 10 worst countries - and this year Canada was a real contender but just look at the list that edged them out

Brazil
China
India
Indonesia
Mexico
Pakistan
Paraguay
Russia
Spain
Ukraine

What on earth is Canada doing NEARLY getting on that list? Spain was a surprise but Canada? Why is Canada also on the USA special watch lists? And why, in July 2005, did the OECD cite Canada as having the largest per capita online piracy in the world?

It is also worrying to me that the Canadian Judiciary legislators and public seem more tolerant of illegitimate file sharing than any other sophisticated country in the world.

And it's not just the music industry.

Canada already has one of the highest business software piracy rates in the world. Research showed that if the Canadian software piracy rate was reduced to the level of such piracy in the UK and the USA nearly 14,000 new Canadian jobs would be created and a staggering $8.1 billion in economic growth.

Finally, what does this mean for the future of Canada's music sector. I come back to my central theme - that of wasted opportunity. I worry that Canada risks leaving itself in the slow lane of the digital music highway. There are signs of this already. IFPI's Digital Music Report shows digital music accounting for 6% of industry revenues - yet in Canada, the seventh market in the world, that digital share is only 2%. Already this had an impact on last year's music market where sales fell 4%, continuing the downward spiral of the last decade. In the digital world Canada appears to be doing 5 to 10 times worse, than it should be.

The UK and Germany are Canada's competitors in the International Music world but they have flourishing online musc markets which are strengthening their position as Canada's competitors. And those countries now have as many people buying music online legally as there are stealing music online - Please have a read of The Digital Music Report.

The policy of neglect will hurt Canada's music community and the development of new talent - Careers of home grown Canadian artists are going to be strangled at birth - that is bad for the economy, bad for culture, bad for creation and bad for entertainment.

Canada will no longer punch above its weight in the Global Market.

The problem for Canadian music is not one for tomorrow - we are seeing it in evidence today. Since the advent of illegitimate file swapping on the internet in 1999 the Canadian music industry has lost $525 million in annual sales and 20% of the jobs in the Canadian music industry.

My colleague Graham Henderson put it succinctly when he said Artists that are household names won't be able to buy a house. You have Artists that cannot live by the fruits of their labour, music will no longer be a career and living for many but a hobby for many and a profession only for the few.

Look at Jully (Julie) Black a new artist, for example - and compare 1.5 million illegitimate unpaid for downloads of tracks with only 30,000 legitimate sales of her CD. Or Tragically Hip - an established act 2.8 million requests for tracks on their album during a 6 weeks period and only 1,000 online purchases during the same period - free is a compelling proposition.

Today's music industry debate in Canada involved different parties with different agendas. Let me start my conclusion to this speech with the simple statement: I want to see a healthy, prosperous Canadian music industry, punching above its weight in the future as it has done in the past. And let me follow that with these questions:

Is that what the Government wants?
Is that what the media wants?
Is that what the creative community wants?
Is that what the Law Professors want?
Is that what the public wants?
OR does Canada want to be an apologist for copyright protection.

My request to Canada today is this:

• Remember the importance of Intellectual property to your economy.
• Respect your music industry
• Try and make your music industry stronger not weaker
• Properly ratify the WIPO Treaties.

The laws contemplated by the last Canadian Government would have resulted in some of the weakest protection for Copyright in the world. I expect that of Russia and the old Chinese environment but not Canada

Remember, this is not just about the music industry - but creative industries and the future of the knowledge economy

I am told that the new government is supportive of Intellectual Property Rights

• They need to make sure their bureaucrats don't put too many hurdles in their way.
• The Canadian Government like all new Governments needs to be wary of Government by unelected officials

If I were able to return to this stage in year's time, I would like to be complimenting Canada on the following:

• On a new legislative environment in harmony with the rest of the world.
• On a flourishing Canadian digital music business
• On ISP's that protect copyrights from piracy.
• On an Intellectual Property Environment that encourages innovation and investment.
• Perhaps I could be complimenting Canada on a society that has converted their leading edge position in broadband penetration into opportunities for cultural and economic growth to enhance Canada's position in the world economy.
• Perhaps most importantly, on a sustainable increase in GDP.

Do all this not for me or anyone else but in Canada's own self interest.

This is a crucial time in the debate over the future of music in Canada. There are fantastic opportunities out there. I hope very much that Canada will be known for opportunities taken and NOT opportunities lost.. There is music and money and careers to be made AND IT IS one of those most perfect of opportunities. THERE IS NO DOWNSIDE!

PLEASE don't let Canada be known as the land of lost opportunity

THANK YOU FOR LISTENING