What Is it to Be Human in the Fourth Industrial Revolution? by World Economic Forum / Ciaran McCrickard, 2017 (CC BY-NC-SA 2.0) https://flic.kr/p/R5UoT7

What Is it to Be Human in the Fourth Industrial Revolution? by World Economic Forum / Ciaran McCrickard, 2017 (CC BY-NC-SA 2.0) https://flic.kr/p/R5UoT7

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Good Politics, Bad Policy: Melanie Joly Sends TV Licensing Cancon Decision Back to the CRTC

Canadian Heritage Minister Melanie Joly announced via Twitter yesterday that the government has asked the CRTC to reconsider its TV licensing decision from earlier this year that established a uniform broadcaster spending requirement of 5 percent on programs of national interest (PNI, which includes dramas, documentaries, some children’s programming, and some award shows). The decision, which would lead to a reduction of mandated spending for some broadcasters, sparked a strong lobbying campaign from various cultural groups who claimed the decision would result in hundreds of millions in reduced spending on Canadian content. While the government’s decision should not come as a surprise – siding with the creator groups against the CRTC makes political sense – no one should confuse it with good policy. Indeed, the reality is that the CRTC’s belief that the digital market would create the right incentives for investment is increasingly borne out by recent developments that suggest Canadian broadcasters have few alternatives other than to develop their own original programming.

Reports of the decision have emphasized that CRTC broadcast rulings are rarely sent back by the government for reconsideration, but this particular case was a political no-brainer. The creator groups mobilized effectively and faced practically no opposition. The public had little reason to engage on an insider issue, the broadcasters offered only a tepid response months after the momentum for a reconsideration had been established (Bell, Canada’s largest broadcaster, presumably preferred to use its political capital on the Super Bowl simsub issue), and the CRTC changed chairs weeks after the decision was released making it unlikely the Commission would publicly or privately defend the ruling as the campaign against it unfolded.

Moreover, Joly needed a policy win for the cultural groups. Her digital Cancon policy is set to be unveiled next month and many of the groups applauding this ruling (Joly’s twitter feed is filled with dozens of such tweets) may be left disappointed. Joly launched the digital Cancon consultation in 2016 with talk of an export-led, digitally-relevant policy.  That was the right vision, but she quickly found that many established creator groups were more interested in Netflix taxes, ISP taxes, and digital sales taxes. The government has largely taken those proposals off-the-table (a digital sales tax remains a possibility but revenues would go to Finance, not Heritage), meaning the strategy will likely emphasize promotion, cultural exports, administrative improvements, and long-term legislative reform of communications and copyright. That’s a reasonable formula (short term copyright reform will focus on the Copyright Board, which helps ensure that creators get paid), but it isn’t quite what some groups have in mind.

While the decision to refer the ruling back to the CRTC might make for good politics, it does little to address the issue of the creation and competitiveness of Canadian content in a digital world. As I noted earlier this year, industry data confirms that private broadcasters are relatively minor players when it comes to the financing of Canadian drama. The most recent CMPA report states:

With fiction productions, the largest share of financing came from provincial and federal tax credits; the fiction genre also attracted the most foreign financing among all genres. Children’s and youth productions also derived the largest share of their financing from tax credits, followed by broadcaster licence fees. Distributors also accounted for an important part of the financing picture for the fiction, and children’s and youth genres. In the VAPA and lifestyle and human interest genres, most financing came from broadcaster licence fees.

Indeed, private broadcasters contribute only 9 percent of the financing for fictional programs, less than federal and provincial tax credits, Canadian distributors, foreign financing, and the CMF.  Private broadcasters allocate much of their money toward variety and performing arts as well as “lifestyle and human interest” programming, which including magazine style shows. In other words, financing and the success or failure of Canadian programming such as dramas do not depend upon private broadcaster spending, regardless of where the CRTC sets the mandated percentage.

Moreover, recent events highlight why this is a fight over yesterday’s broadcasting world. The upcoming entry of new streaming services from U.S. giants such as CBS and Disney will continue to reshape the Canadian broadcasting landscape as U.S. content increasingly streams directly to Canadian viewers. Canadian broadcasters may still license those programs since they need to fill their schedules, but the programming will be available on a non-exclusive basis, giving consumers the real choice they have long been denied. The changes are not limited to dramatic programming as the sports world is also undergoing a massive transformation. For example, the exclusive rights to NFL Sunday Ticket now rests with DAZN, which is only available via Internet streaming. The Canadian cable and satellite companies will lose millions in revenue, while consumers can purchase the service for less than half of what they previously paid.

Fighting over mandated Cancon spending does little to address the emerging broadcast world in which consumers have far more choice and are no longer locked into the regulated broadcast system. The CRTC decision was developed with this future in mind as the changes were primarily designed to level the playing field for Canadian broadcasters in a market where success is determined by controlling original content. The CRTC ruling hoped to make it easier for Canadian broadcasters to compete with Netflix and the many other streaming services that operate without mandated content requirements.

The shift away from mandated spending is not a shift away from investment in Cancon, however. Netflix spends millions on production in Canada not because it faces a regulatory requirement (it doesn’t), but rather because the entire package – innovative creators, tax credits, good partners – offers a compelling reason for doing so. Indeed, the data shows that the Canadian industry has thrived in recent years for reasons that have little to do with pre-digital regulations with a huge shift in Canadian television production from domestic funding to foreign investment.

For Canadian broadcasters, the battle over mandated spending is premised on the notion that they will only invest in domestic programming if required to do so. Licensing cheaper foreign programming is understandably attractive, yet as that programming becomes available from multiple sources, the benefits of relying heavily on licensed U.S. content will diminish (and older regulatory rules such as simultaneous substitution will become less and less relevant). That means the long-term success of Canadian broadcasters will depend upon controlling original content that can be delivered through multiple channels and markets. Policy fights over mandated spending therefore miss the point. The market now encourages investment in original programming and it is up to Canadian creators and broadcasters to compete in a global market that offers new opportunities without the security blanket of outdated regulations that once typified the Canadian system.

One Comment

  1. Fortinbras says:

    One step forward, two steps back?

    As with all of his recent posts on Canadian broadcasting policy, Michael Geist is mis-informed and misguided. The reality is much more complicated that he seems to believe. That said, his view of the politics of Minister Joly’s announcement may be accurate.

    To begin, in its recent television licence renewal decisions, the CRTC did not establish a uniform Canadian spending requirement of 5% on programs of national interest (PNI – dramas, documentaries, some children’s programming, and some award shows) for the major ownership groups. That particular rule of thumb applies only to the English-language groups. For French-language services, the Commission proceeded on a case-by-case basis, requiring 18% from Bell Média, and 15% from each of Québecor Média and Corus Entertainment. In his post, Michael Geist writes as if Canadian broadcasting in the French language does not exist. Mélanie Joly’s declaration is careful to make the distinction between the two sectors.

    The CRTC licence renewal decisions under Jean-Pierre Blais’ tutelage did little to address positively the issue of the creation of Canadian content in a digital world. Contrary to Michael Geist’s assertions, digital media are doing almost nothing to create original Canadian programming in the underrepresented categories (aka PNI). Netflix, an unlicensed digital broadcasting undertaking available in Canada, produces no more than a few dozen hours of Canadian drama a year. All of the heavy lifting in this area is left to licensed Canadian broadcasters, particularly the conventional networks. The CRTC group licence renewal decisions announced three months ago managed to significantly reduce their regulatory obligations.

    English-language private sector Canadian broadcasters (unlike their French-language counterparts) are relatively minor players when it comes to the financing of Canadian drama because it is so expensive. High quality television program production is characterized by huge economies of scale. Relatively small atomized units cannot realize the cost, distributional and promotional savings of giant multinational corporations. The scale economies available to the U.S. networks are not available to Canadian services that broadcast in two official languages targeting a total population one-tenth the size of that in the United States. It is difficult for Canadian companies to compete with the U.S. motion picture studios, the U.S. television networks, HBO, Netflix, YouTube, etc. without regulatory intervention. Digital technology is irrelevant to this issue.

    The absence of scale economies is why Canadian drama is in the PNI category of programming and is heavily subsidized by governments through tax credits and the Canadian Television Fund (CTF). Even Anne with an E, though aired and partly financed by Netflix using a Canadian producer, benefited from government subsidies, that is, the CBC’s parliamentary appropriation (in the form of licence fees) and financing from the CTF.

    Michael Geist laments that private broadcasters contribute only 9 % of the financing for fiction programs which is less than federal and provincial tax credits, Canadian distributors, foreign financing, and the CMF. Again, he ignores the significant differences between French- and English-language broadcasting. In the French-language sector, private broadcasters contributed 51% of the financing of Canadian fiction while in the English-language sector, private broadcasters contributed only 7%. Why the difference? Because French-language production budgets are much lower: French-language broadcasters do not have to meet the production standards set by the U.S. network programming shown on English-language television services. Having a partially captive audience also means that Canadian French-language fiction attracts more viewers and advertising dollars than its English-language counterpart.

    How do Canadian English-language fiction producers complete their financial structures? Basically, with foreign sales, something French-language drama cannot do. According to the CMPA’s Profile 2016, “the largest source of financing for English-language fiction productions was foreign (22%). With Canadian distributors adding another 15% of the financing to this genre, it is clear that English-language fiction productions are exportable…” (p. 56) Canadian television program distribution advances are basically proxies for foreign sales so what is identified as distributors’ contributions comes overwhelmingly from foreign pre-sales or anticipated foreign sales of shelf product. In 2015-16, exports therefore accounted for about 37% of the financing of English-language fiction. Attaining a more export-oriented outcome than this can only come by lowering Canadian content requirements. And this is what Jean-Pierre Blais’ CRTC tried to accomplish.

    The CRTC licence renewal decisions make it easier for Canadian broadcasters to compete with Netflix and the other streaming services (that operate without mandated Canadian content requirements) by lowering the requirements for licensed Canadian services. The result will be an increase in U.S. program acquisitions. Canadian broadcasters will invest only minimally in domestic programming in the PNI categories unless they are regulatory requirements to do otherwise. The CRTC’s shift away from spending requirements will result in a shift away from spending on Canadian content, particularly in the underrepresented categories of programming. Coming only two or three days after the CRTC’s licence renewal decisions in May, Corus’ choice to cancel three Canadian drama projects in development is an indication of where we are headed. (See http://www.journaldemontreal.com/2017/05/18/series-bientot-sans-contenu-quebecois)

    As was discovered in the late 1970s and early 1980s (during the capital cost allowance years) and in the 1990s (with television series) when the search for international audiences and partnerships was extensively explored, this strategy results in pale imitations of U.S. audiovisual products relying on a minimum of Canadian creative input. This is the most we can expect from the Talk-TV policy determinations and ensuing group television licence renewal decisions. The market discourages investment in original Canadian programming and it is up to Canadian Heritage and the CRTC to establish an equitable regulatory system that will ensure a presence for Canadian drama and other underrepresented programming in our broadcasting environment.

    Contrary to what Michael Geist says, the Cabinet’s decision to refer the group television licence renewal decisions back to the Commission for reconsideration and hearing was taken despite a vigorous campaign by Jean-Pierre Blais to defend them. (See http://www.ledevoir.com/culture/actualites-culturelles/500015/le-crtc-se-defend-de-nuire-a-la-production-de-contenu-original-francophone; and http://www.ledevoir.com/non-classe/500069/lettres-la-parole-a-nos-lecteurs; and http://www.ledevoir.com/culture/actualites-culturelles/500045/le-crtc-repond-a-ses-detracteurs-sur-la-nouvelle-reglementation.) Of course, as it has done in the past, the CRTC may simply reconfirm its earlier decisions or tweek them in a benign way…

    The danger in Minister Joly’s announcement to refer the CRTC’s decisions back to the Commission is that it will serve as cover for her new Canadian content policy to come. This long awaited policy declaration may very well emphasize more promotion, more exports, more administrative cutbacks, more market-oriented solutions and a legislative review of the Broadcasting Act with a view to emphasizing economic over cultural objectives. If this is the case, it will be out of the frying pan and into the fire for the creative community.

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