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Flawed Arguments and Inappropriate Analogies: Why Netflix Taxes and Cancon Requirements Should be Rejected

CBC President Catherine Tait recently sparked a firestorm with comments to an industry conference that likened Netflix, the popular online video service, to the British Raj in India and French in Africa, warning about “imperialism and the damage that it can do to local communities.” The comments were rightly criticized as shockingly inappropriate, as if any video service can be reasonably compared to the subjugation of millions.

My Hill Times op-ed notes that some in the Canadian creator community rushed to defend Tait, however, viewing the comments as a strong assertion for Netflix regulation, the creation of a “level playing field”, and the need for all stakeholders to contribute to the broadcast system. Supporters of Netflix taxes and content requirements – who were joined in the Hill Times last week by Sheila Copps – present a vision of Canadian content at risk without regulatory intervention, leading to the loss of Canada’s “authorial voice” from film and television production.

Industry leaders promised that regulation will come, yet a closer examination of the arguments for Netflix taxes and Cancon requirements reveal that they are based on five deeply flawed premises.

First, there is no existential crisis for Canadian content film and television production. 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 sector has experienced a huge increase in foreign investment in Canadian production. 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 since more than doubled to nearly $4.7-billion.

Second, Cancon regulations are a poor proxy for Canada’s “authorial voice”. The not-so-secret reality of the Canadian system is that Canadian authors are often missing entirely from productions. Films and shows based on Canadian fiction do not count toward meeting the necessary points for Cancon accreditation and even Canadian screenplay writers are not a mandatory requirement.

Unlike many other countries, which adopt flexible standards to determine domestic content, Canada’s rigid approach means that generic police or courtroom dramas may qualify as Canadian content while the television adaptation of Margaret Atwood’s Handmaid’s Tale does not. Moreover, co-production agreements with dozens of countries ensure that many productions qualify for Canadian support despite limited Canadian participation.

Third, if the playing field lacks balance, it is the regulated sector – not Netflix – that is the prime beneficiary. The broadcasting and broadcast distribution sectors receive a wide range of regulatory benefits, making their mandated contributions effectively a quid pro quo for policies such as simultaneous substitution rules, which allow Canadian broadcasters to replace foreign signals and advertising with their own, and copyright retransmission rules, which allow for the retransmission of signals without infringing copyright.

Unlike Netflix, the regulated sector also benefits from must-carry regulations, which mandate the inclusion of many Canadian channels on basic cable and satellite packages; market protection, which has shielded Canadian broadcasters from foreign competition such as HBO or ESPN for decades; and eligibility for Canadian funding programs and tax credits, for which many foreign services are frequently ineligible.

Fourth, notwithstanding the oft-heard insistence that everyone must contribute the system – Canadian Heritage Minister Pablo Rodriguez has declared “there is no free ride” –contributions to the system stem from an era of scarcity, in which broadcasting featured limited channels using public spectrum with licences granted to a handful of companies. It was that privileged access that led to contributions, not mere participation in the Canadian market.

That is why broadcasters must feature Canadian programming, but movie theatres do not. Or why broadcast distributors contribute a percentage of revenues to support Cancon, but book stores face no such requirement. Indeed, mandated contributions to an economic sector is the exception, not the rule: Canada does not require McDonald’s to contribute a portion of its revenues to support Canadian farmers or Nike to sell a certain percentage of Canadian-made shoes. In an era of abundance in which Internet streaming does not rely on scarce spectrum, the justification for a mandated contributions falls apart.

Fifth, Canadian content is already readily available and easily “discoverable” on the Netflix service. Alongside “official” Cancon, there are programs filmed in Canada, starring Canadian actors, or featuring Canadian stories. Some might argue that only official Cancon counts. Regardless of how it is measured, however, the reality is that Netflix already has a sizeable Canadian library, giving subscribers the option to watch hundreds of hours of Canadian content with little more than a simple search for “Canada.”

Cancon support remains an important ingredient in a vibrant Canadian cultural sector. Yet support such as grants, tax benefits, and other measures should come from general revenues as a matter of public policy, not through cross-subsidization models grounded in flawed arguments and inappropriate analogies.

4 Comments

  1. Kelly Manning says:

    I remember Shaw cable dropping NASA TV, even though there was no Canadian Content equivalent. Thank goodness for the Internet and Video Streaming.

    Print copyright used to be divided up geographically, with attempts to ban the import of cheaper foreign editions of works.

    The economy of scale of the USA English Language TV market is quite influential here in Canada. If you watch French Language Media, such as TV5, SRC, TVA, … you often get a very different viewpoint on events such as the war in the Falklands / Malouines. By the time I got to the bottom of my SRC referred to islands as the Malouines I had learned a lot about what happened to the displaced Acadians. European French coverage of the war in the Balkans had a much different air than English North American coverage, as though it was something really important happening next door.

  2. Dear Dr Geist:

    Here are 2 items I haven’t seen addressed before.

    1) Can Con requirements and “all participants must contribute to Canadian Culture” is a back-door attempt to outright ban foreign for-pay streaming sites. Even the strongest content xenophobes know that a direct and explicit outright ban on foreign for-pay streaming sites would trigger a wide public backlash.

    Instead the content xenophobes are attempting an indirect and implicit ban on foreign for-pay streaming sites. Here’s their strategy…
    * Turn the web into a heavily regulated “TV 2.0”
    * Require protracted extensive hearings to obtain a “Canadian Internet Broadcasting Licence” to stream to Canadians
    * Require a specific percentage of Can Con as a condition of that licence
    * Require production facilities in Canada employing Canadians

    99% of foreign streaming websites can’t meet this red tape, and would be barred. The Can Con producers would say… “gosh darn golly gee willikers… what a co-incidence”.

    2) Regarding the fact that the legacy media regulates the CRTC (YES!).
    * In the early 1990’s Mme Francoise Bertrand was president and CEO of Tele Quebec
    * She was appointed as CRTC chair in 1996
    * She immediately showed what kind of a Can Con Control Freak she was… http://www.efc.ca/pages/media/ottawa-sun.18nov96.html
    * During her tenure as head of the CRTC, the CRTC unilaterally decided in May 1999 that they could control the web https://crtc.gc.ca/eng/archive/1999/pb99-197.htm and require Can Con etc
    * Mme Bertrand now sits on the board of Quebecor, which owns TVA Films and TVA Productions, both of which would stand to gain financially as a result of Can Con quotas on the web

    How is this even legal???

  3. In this post, Michael Geist had trotted out his standard arguments in regard to Canadian content requirements and Netflix “taxes”. As usual, a closer examination of his arguments and inappropriate analogies advocating Internet exceptionalism reveals they are based on deeply flawed premises that are not consistent with the facts. Let’s separate out the facts from the fiction.

    First, Canadian content film and television production budgets are in decline and the long term trend indicates a form of structural production funding crisis. Due to the increase in the number of licensed Canadian pay and specialty television services (from 189 in 2008 to 292 in 2017), there has been more Canadian production over the last decade – essentially because of the unusually high level attained in the last year for which data are available, 2016-2017. However, the modest increase in total financing combined with the increase in the number of services requiring programming over this decade has reduced average production budgets for English- and French-language television drama, children’s and youth, and documentary production – the heart of Canadian identity and distinctiveness.

    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. The $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. In fact, the bulk of this increase was spending on location shooting and service production in Canada by U.S. film and television giants, including Netflix. The value of this location shooting and service production in Canada, which Michael Geist mistakenly refers to as foreign “investment”. increased by 123% over the period, from $1.7 billion to $3.8 billion. Location shooting and service production is where the U.S. media giants, such as Netflix, have been active.

    Second, a film or television production is a collaborative effort of which the courts have never determined who is the “author”. Many screen adaptations of published works are so transformed that the author of an original book can hardly be called the “authorial” voice of the derived audiovisual product. But it is completely wrong to say, as Michael Geist does, that films and shows based on Canadian fiction do not count toward meeting the necessary points for Cancon accreditation. CRTC accreditation rules specify that all of the writers must be Canadian or that “the principal writer must be Canadian, and the screenplay must be based on a work authored by a Canadian and published in Canada” (PN CRTC 2000-42).

    What Michael Geist calls “Canada’s rigid approach” to determine domestic audiovisual content is in fact an objective approach which largely takes decision-making out of the hands of civil servants in favour of a points system that everyone can understand. Of course, it is not enough to have one Canadian element in a production for it to be qualified as Canadian. Given the collaborative nature of audiovisual works, there must be several elements, all well-defined, for a given work to be certified as Canadian. The tv series based on Margaret Atwood’s Handmaid’s Tale was produced by MGM Television, created and directed by an American writer-producer, and takes place in the United States. It is no more a Canadian production than was Rambo: First Blood or The English Patient. As meritorious as these productions may have been, none can be considered Canadian audiovisual content, although they were adapted from Canadian literary works. A Canadian audiovisual production is distinct from any underlying literary work, no matter how distinguished that literary work may be.

    Third, if the Canadian regulatory environment is so favourable, why does Netflix not arrange to have its service offered through Canadian distributors? This is what the US services, Disney, HBO and AMC, have done. The answer is that Netflix benefits immeasurably from its status as an exempted digital programming service and is able to compete with similar Canadian services without the burden of making comparable contributions to Canadian cultural identity, and without its subscribers having to pay GST or PST!?

    Fourth, contrary to what Michael Geist asserts, it was that not privileged access by a handful of companies to licences for limited channels using public spectrum that led to regulatory charges being placed on nearly all elements of the Canadian broadcasting system. The primary explanation was the perceived need of these elements to contribute to the maintenance and enhancement of national identity and Canadian sovereignty. Movie theatres and book stores are not regulated by the federal government because it has little or no constitutional authority to do so. These activities lie largely under provincial authority, whereas in 1932 the Supreme Court of the time determined that broadcasting lies within federal jurisdiction. Of course, Macdonald’s hamburgers and Nike’s running shoes are not expected to contribute to Canadian cultural identity, and so much the better. Michael Geist apparently considers Canadian cultural products no different from any other products (as does the US government). He should take a look at UNESCO’s Convention on the Protection and Promotion of the Diversity of Cultural Expressions 2005, of which Canada was the first signatory.

    Fifth, Michael Geist says that alongside certified Canadian content, there are programs filmed in Canada, starring Canadian actors, or featuring Canadian stories. For him, Netflix’s sizeable Canadian library undoubtedly includes, not only Rambo: First Blood, but any reference to Leslie Nielsen, Pamela Anderson, Jim Carrey, Michael J. Fox, Mike Myers, Rick Moranis, Lolita Davidovitch, Keanu Reeves, Alan Thicke, Neve Campbell, Jason Priestly, Seth Rogan, Ryan Reynolds, Ellen Page, Rachel McAdams or Ryan Gosling. As laudable as the careers of these Canadian-born actors may be, much of it has little to do with Canadian content or identity.

    The idea that support for Canadian cultural identity and national sovereignty should come uniquely from grants, tax benefits, and other measures financed by general revenues is grounded in flawed arguments and inappropriate analogies. Experience has shown that the best results flow from both the carrot and the stick, and that mandated obligations form an important part of audiovisual regulation in the public interest.

    • > First, Canadian content film and television production
      > budgets are in decline and the long term trend indicates
      > a form of structural production funding crisis.

      A century ago, there was a structural decline in the production of buggies and horse whips, due to them new-fangled horseless carriages. Fortunately, the horse-and-buggy lobby did not manage to convince the government to pass legislation requiring the horseless-carriage industry to support the horse-and-buggy industry. The horse-and-buggy industry died. Newspapers are dying out and will soon cease to exist. Broadcast TV is dying out, and will eventually cease to exist. Please, don’t allow TV to take over the web, and turn it into “TV 2.0”. The reason people are fleeing to the web in the first place is that TV is so pathetic.

      > Fourth, contrary to what Michael Geist asserts, it was
      > that not privileged access by a handful of companies to
      > licences for limited channels using public spectrum that
      > led to regulatory charges being placed on nearly all
      > elements of the Canadian broadcasting system. The primary
      > explanation was the perceived need of these elements to
      > contribute to the maintenance and enhancement of national
      > identity and Canadian sovereignty.

      You’re assuming that there is a “Canadian Culture” to protect in the first place. There isn’t. There’s no core identity, no mainstream in Canada. If you don’t believe me, ask the Prime Minister…
      https://www.theguardian.com/world/2017/jan/04/the-canada-experiment-is-this-the-worlds-first-postnational-country
      Given that there’s no Canadian Culture, there’s nothing to “protect”, and no point in using it as an excuse for hampering Canadians’ enjoyment of the internet.

      > Movie theatres and book stores are not regulated by the
      > federal government because it has little or no constitutional
      > authority to do so. These activities lie largely under
      > provincial authority, whereas in 1932 the Supreme Court of the
      > time determined that broadcasting lies within federal jurisdiction.

      Given the fact that electromagnetic transmissions like TV cross the US/Canada border, and shortwave radio goes worldwide, there has to be international co-ordination e.g. under an international treaty such as “International Telecommunications Regulations” (ITRs)…
      http://www.dubaichronicle.com/2012/12/14/new-global-telecoms-treaty-agreed-in-dubai/
      And international treaties are the jurisdiction of the federal
      government. Full stop.

      > The idea that support for Canadian cultural identity and
      > national sovereignty should come uniquely from grants, tax
      > benefits, and other measures financed by general revenues
      > is grounded in flawed arguments and inappropriate analogies.
      > Experience has shown that the best results flow from both
      > the carrot and the stick, and that mandated obligations form
      > an important part of audiovisual regulation in the public
      > interest.

      Let’s call a spade a spade. Admit it; you’re trying to ban foreign streaming websites. As I pointed out in my previous post, this is a *BLATANT* backdoor attempt to ban foreign streaming services. The strategy is…

      * Turn the web into a heavily regulated “TV 2.0”
      * Require protracted expensive hearings to obtain a “Canadian Internet Broadcasting Licence” to stream to Canadians
      * Require a specific percentage of Can Con as a condition of that licence
      * Require production facilities in Canada employing Canadians

      Aside from big outfits like Netflix, the vast majority of foreign streaming sites can’t meet such requirements. If “Canadian Culture” is so pathetically weak that it requires effectively banning foreign streaming websites to survive, then it’s not worth saving.

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