Canada’s broadcasting regulator is arguing that internet service providers, wireless companies and foreign streaming services should be forced to fund the production of Canadian cultural content to compensate for the declining contribution of cable and satellite providers.
In a report released on Thursday, the Canadian Radio-television and Telecommunications Commission (CRTC) said the current legislative and regulatory model is “unsustainable” as traditional services lose customers and market shares to growing digital players. While subscriptions to traditional cable television are in decline, Netflix has become the highest-rated video service in Canada among kids and young adults, the CRTC said.
“The legislation should capture everyone, and everyone who participates in the market should contribute,” CRTC chair Ian Scott said in an interview. “The old rules don’t fit.”
The CRTC proposal, however, flies in the face of Ottawa’s previous rejection of a sales tax on services such as Netflix or a new levy on internet service providers.
“We’re not going to be raising taxes on the middle class through an internet broadband tax,” Prime Minister Justin Trudeau said a year ago.
However, there are widespread calls from various groups to level the playing field and ensure that foreign companies do not benefit from a fiscal or regulatory advantage over domestic players. In response, Heritage Minister Mélanie Joly, who commissioned the CRTC report, has launched a review of the Broadcasting Act and the Telecommunications Act in co-ordination with Innovation Minister Navdeep Bains. Further details on the review are expected to be released next week.
Mr. Bains said the government will review the report, stating a key factor will be the impact on the cost of the various services.
“How are consumers going to be impacted by this? What are the cost implications for consumers? And that’s going to drive a lot of our decision-making,” he told reporters at a military trade show in Ottawa.
The CRTC report, titled Harnessing Change: The Future of Programming Distribution in Canada, has increased pressure on Ottawa from broadcasters, creators and opposition critics to find new sources of revenue for Canada’s cultural industry.
“Companies like Netflix are making very good profits in Canada, because they have good products. But there’s no reason why they should contribute any less than, say, CTV,” said Daniel Bernhard, executive director of advocacy group Friends of Canadian Broadcasting.
While Mr. Bernhard applauded the CRTC proposal, he said there is a risk the government might respond by reducing the obligations for all players in the production of cultural content.
Michael Geist, who teaches internet and e-commerce law at the University of Ottawa, criticized the fact the CRTC is adopting a “regulate-everything” approach to the digital economy.
“This is a major win for some cultural groups that have been lobbying for internet regulation for decades,” he said.
Last year, in an deal it struck with the Heritage Minister, Netflix promised to invest more than $500-million in Canadian content over five years. However, the deal riled critics who complained the company still does not pay GST in Canada.
Mr. Scott said it is time for such streaming services to be governed by Canadian laws and forced to contribute in Canadian creation through binding agreements.
“It should be on par with what a Bell puts in and a Quebecor and a Shaw puts in and an Amazon. It should be proportional and equitable. We don’t know what that amount is today, but those would be the key regulatory principles,” he said.
The CRTC report said that sticking with the status quo or applying existing regulations to new players would be “short-sighted.” Under its proposed regime, the government would regulate “all video and audio services offered in Canada and drawing revenue from Canadians.”
The CRTC said the new model would be “revenue-neutral,” in the sense that it would not bring greater amounts of money into the production of cultural content. However, it would redistribute the cost currently borne by the private sector to more contributors, including digital firms based inside and outside Canada.
The objective is to prevent the government from having to continue to top up the Canada Media Fund and the Canada Music Fund as contributions from private-sector players decline. In the proposed model, companies such as internet service providers would be asked to pitch in a percentage of their revenue to the production of Canadian cultural content.
Mr. Scott said it is important to note that Canada’s traditional broadcasting industry is not facing collapse, but he said trends are worrying and need to be addressed.
“The bus may be heading downhill, but not over a cliff,” he said.
Mr. Scott said the current regime is akin to a “walled garden” with the CRTC acting as a gatekeeper, but he added it is not equipped to deal with the actions of internet-based services.
“If you want to deal with both new and old players, you need a new regulatory framework … that is predicated on incentives and binding agreements reflecting what they can bring to the system rather than a narrow set of rules,” he said.
Several media companies, including Rogers Communications Inc., BCE Inc.-owned Bell Media and Corus Entertainment Inc., said they were taking time to review the document before commenting on its recommendations.
With a report from The Canadian Press