The Internet is the Problem by Alex Pang (CC BY-NC-SA 2.0) https://flic.kr/p/dvKhNb

The Internet is the Problem by Alex Pang (CC BY-NC-SA 2.0) https://flic.kr/p/dvKhNb

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Building a Digital Wall: What Lies Behind The Emerging Battle Over New Taxes to Support Canadian Content

The battle over the future of Canadian broadcasting and telecommunications is quickly emerging as a hot-button policy issue, with a government-mandated review of the law recently garnering thousands of public responses. My Globe and Mail op-ed notes that while recommendations from an expert panel are not expected for months, Canada’s broadcast regulator, the CBC, and several high-profile cultural groups are lining up behind a view that Canadian culture is facing an existential crisis. Among the ideas being proposed are new taxes on internet and wireless services, mandated Cancon requirements for Netflix and the prioritization of Canadian content in search results from online services to enhance its “discoverability.”

There are unquestionably real communications policy issues in Canada for Innovation, Science and Economic Development Minister Navdeep Bains and Canadian Heritage Minister Pablo Rodriguez to grapple with: Some of the world’s highest wireless prices hamper adoption and usage, privacy safeguards have failed to keep pace with online threats and public-interest voices say they don’t feel heard at the Canadian Radio-television and Telecommunications Commission (CRTC) under chair Ian Scott.

At the same time, Canadian cultural groups are raising dystopian fears that if Canada maintains an open market for online video services, it could mean the end of Canadian content and bankruptcy for Canadian broadcasters.

These fears are not new. For decades, the prospect of U.S. content flowing across the Canadian border has been viewed as a threat, leading to policies that amounted to creating a Canadian broadcast wall. Canada adopted rules that permitted replacing U.S. television signals with Canadian ones (so-called simultaneous substitution), the blocking of U.S. satellite television services and tight restrictions on foreign investment in the broadcasting sector.

Many of those same arguments for protecting the domestic industry are today repackaged for the internet, with Netflix viewed as an unregulated behemoth that threatens to overwhelm the Canadian broadcasting sector and destroy some of the funding mechanisms that have been used to support Canadian film and television production.

Yet the data indicate that there is no Cancon funding crisis. According to the most recent numbers from the Canadian Media Producers’ Association, the total annual value of the Canadian film and television production sector exceeds $8-billion, its largest amount ever. Spending on Canadian content production has hit an all-time high at $3.3-billion. In fact, the increase in foreign investment in production in Canada has been staggering. Before Netflix began investing in original content in 2013, total foreign investment (including foreign location and service production, Canadian theatrical production, and Canadian television) was $2.2-billion. That number has more than doubled in the past five years to nearly $4.7-billion.

Not only is there no crisis, but much like U.S. President Donald Trump’s pledge that someone else will pay for his border wall, Canadian creator groups similarly posit that their new funding proposals will be paid for by big telecom companies or foreign internet giants. Their recommendations are replete with plans to regulate online video services and require that they contribute millions toward Cancon creation funding. They also want a new tax imposed on both broadband and wireless services to fund Cancon, arguing that those taxes would replace the declining support from Canadian broadcasters, as well as direct financial support for the CBC from companies such as Google and Facebook.

There surely remains an important role for public support of Cancon, but the subsidization model of the past in which cable companies and broadcasters paid to support Canadian content production was at least premised on the fact that a cable subscription provides no more than access to broadcast content. Yet the internet offers a limitless array of possibilities that have nothing to do with broadcasting, making it difficult to justify a levy on service providers.

Plans for the government’s assistance to the news-media sector remain controversial, but they rightly adopt the position that if the media need public support and the government believes it is in the public interest to do so, funding should come from general revenue as part of broader government policy, not through a myriad of taxes and levies that run counter to other policy goals.

The unsurprising reality is that the new tax and regulation proposals will ultimately leave Canadian consumers paying the bill. New digital sales taxes would be paid by consumers, not companies that merely collect the applicable taxes. New taxes on Netflix to pay for Cancon would invariably lead to increased monthly subscriber costs and/or smaller content libraries to meet the new Cancon quotas. New taxes on ISPs or wireless services would lead to even higher prices and reduced affordability.

In other words, rather than embracing the opportunities that come from unprecedented global demand for scripted television programming and competing for the attention of Canadian viewers, some prefer to place their bets on a digital wall consisting of new taxes and regulations. And Canadian consumers are going to pay for it.

14 Comments

  1. Canada has one of the most open media landscapes in the world and there has never been an attempt to build a wall around Canadian broadcasting, only attempts to offer Canadian alternatives in the face of the enormous economies of scale enjoyed by the American media giants. While Michael Geist would like to reduce the broadcasting and telecommunications legislative review to wireless telephone prices and Internet privacy issues, there is more at stake.

    Yes, Canada has adopted rules that permitted replacing U.S. television signals with Canadian ones (simultaneous substitution), the blocking of U.S. satellite television services and restrictions on foreign investment in the broadcasting sector. But the replacement signals must be at least 95% identical to the original, thus ensuring that all simulcast U.S. television programs reach Canadians, if they want them. Canadian policy also requires the retransmission of U.S. television programming services via Canadian satellite services to help maintain Canadian sovereignty over its broadcasting system. For the same reason, Canadian policy ensures Canadian control of the ownership of broadcasting services operating in our country, and rightly so. Is Michael Geist seriously proposing that Canadian sovereignty and cultural identity would be better served by, for example, U.S., Chinese or Saudi Arabian control of Canadian broadcasting and telecommunications infrastructure?

    While it is true that film and television production in Canada exceeded $8 billion in 2016-17, only $3.3 billion of this consisted of Canadian content. This $3.3 billion of Canadian content production in 2016-17 represents a total increase of a very modest 9.7% over the five years since 2011-12. Foreign financing of English-language production taking place in Canada has increased considerably over this period, but Michael Geist mistakenly refers to this phenomenon as foreign “investment”. In fact, the bulk of the increase is spending on location shooting by U.S. media giants and service production for US television and film in Canada. What is more, of the $381 million in foreign financing of Canadian television production in 2016-2017, only $2 million was attributable to French-language programs. 48% of French-language television production financing came from Canadian broadcasters. There is a serious crisis in Canadian television drama production which has resulted in lower average budgets (in current dollars) than ten years ago. Because of the costs associated with drama, we see fewer and fewer big budget television productions, such as historical dramas, and more and more low budget web series.

    To say, as Michael Geist does, that the internet offers a limitless array of possibilities that have nothing to do with broadcasting, making it difficult to justify a levy on service providers (ISPs) is incorrect. It is entirely reasonable and feasible to design a levy based solely on the broadcasting and/or telecom revenues of ISPs, just as broadcasting distribution undertakings (BDUs) contribute to the Canada Media Fund solely on the basis of their broadcasting activities, not their other activities.

    Yes, extending existing sales taxes to exempted foreign (overwhelmingly American) digital services would be paid by consumers, thereby leveling the playing field in regard to their Canadian digital counterparts. New Cancon contributions by exempted digital broadcasting programming undertakings, such as Netflix, would lead to small monthly subscriber cost increases and more original Canadian production. New regulatory charges on ISPs or wireless services would lead to slightly higher prices, much as sales taxes do, and also lead to more and better original Canadian production. Modestly higher taxes and levies are one of the prices we must pay to live in a sovereign nation beside the U.S. juggernaut, an elephantine market with huge economies of scale that shares the same language as many Canadians.

    Finally, while the review panel has garnered thousands of public responses, according to its secretariat only about 180 of those are individual responses, the rest consisting of copies of a form letter. The thrust of Canadian broadcasting policy has been to offer the possibility that Canadians see themselves on Canadian screens, if they so choose, and this is the objective of most of the submissions by the Canadian cultural community to the legislative review panel.

    • Taxpaying Canadian says:

      BS

    • When Mr. Musk has his satellites in orbit I hope you remember how you all tried to screw the average Canadian when we circumvent you entirely. Don’t think we won’t either, if people feel you are ripping them off, well just like now they will find away around you as they always have.

    • Good comment Fortinbras and interesting points, however, this one:

      “It is entirely reasonable and feasible to design a levy based solely on the broadcasting and/or telecom revenues of ISPs, just as broadcasting distribution undertakings (BDUs) contribute to the Canada Media Fund solely on the basis of their broadcasting activities, not their other activities.”

      is questionable as it is likely a) entirely unreasonable to expect ISPs to monitor what their customers are transferring over their Internet connections without major changes to present CRTC decisions on packet inspection and be possibly a breach of privacy and constitutional rights of internet subscribers; and b) completely unfeasible as consumers circumvent this idea with VPNs, etc. Now if you pass laws to a) allow ISPs to monitor traffic and b) outlaw VPNs, you can do that, but we then look a lot like a totalitarian state. And all this simply to support the cultural sector in broadcasting?

      Also the small costs you speak about tend to get bigger and bigger, so people already paying high internet access costs may be sensitive to more fees and where does it end?

      Why not a straight up tax on Canadians to pay for CanCon? That’s a clear choice for Canadians.

      • Greed, they want total and complete control anything less is a non starter. Decades of crtc hearing prove this. And I love how they throw canadian content in our faces to arm twist us into going along or using it to force us to go along as you must me anti canadian if you won’t watch that garbage and fact is most of it is complete garbage or we wouldn’t be trying so desperately to access all these US services would we? You only need ask real consumers, don’t listen to this company bs they don’t speak for the average Canadian, your neighbors or friends.

      • Thank you, John Lawford, for your thoughtful comment. When you speak of a “straight up tax”, what do you have in mind – an income tax, a general sales tax, a tax on mobile devices with screens, or a regulatory charge on the revenues of subscription-based or VOD digital programming services? Why not a regulatory charge on 50% of the gross revenues of ISPs, given that video transmission occupies more than half of broadband traffic to the home?

    • “To say, as Michael Geist does, that the internet offers a limitless array of possibilities that have nothing to do with broadcasting, making it difficult to justify a levy on service providers (ISPs) is incorrect. It is entirely reasonable and feasible to design a levy based solely on the broadcasting and/or telecom revenues of ISPs”

      You sound unfamiliar with internet, perhaps deliberately so.

      I don’t watch movies or use those kinds of services on the internet. This discussion has nothing to do with me, other than it is an attempt to get money from me. I am just a little guy with servers and websites and a general love of world wide communication – often using protocols that you probably haven’t even heard of. And I have no interest in monetizing anything on the internet. Since I can’t afford my own upstream data center, I am doomed to use an ISP. Yes, I could easily ignore a small increase in cost there, but on principle it is just plain wrong that I should pay more in order to subsidize others. Artists should be paid (I am one) but this is the worst way possible to do that. I would call it immoral.

  2. The glorified welfare bums are at it again, trying to block and or grab as much cash as possible from the successful players leaving us with a hole in our wallets and less choices.

  3. Andreas Krebs says:

    Question: what about requiring all “broadcasters” in Canada, including so-called over the top services like Netflix and Amazon to comply with Broadcasting Regulatory Policy CRTC 2016-224, which says if you broadcast somewhere, you need to produce programming that is relevant to the local people, including local news…No tax, no payments into a media fund, just a requirement that if you are making money off Canadian eyeballs, you need to contribute to our democracy.

    • Netflix and Amazon aren’t “broadcasters” any more than you and I are now. But yes, we all need to contribute to our democracy.

  4. CanCon, can you do the CanCon says:

    Production in Canada is very different from the production of Canadian content. Conflating the two is inaccurate and deceiving. Suicide Squad, filmed throughout the streets of Toronto, is a classic Canadian tale of misfits and outcasts. Yeah, I don’t think so Michael.

  5. How are they not broadcasters? that makes no sense its just changing to an online platform. whats the difference between that and satellite .

    https://www.corepropertysolutions.ca

  6. Pingback: News of the Week; January 30, 2019 – Communications Law at Allard Hall

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