For two decades, a small collection of cultural groups have been pressing the CRTC to regulate and tax the Internet. As far back as 1998, the CRTC conducted hearings on “new media” in which groups argued that the dial-up Internet was little different than conventional broadcasting and should be regulated and taxed as such. The CRTC and successive governments consistently rejected the Internet regulation drumbeat, citing obvious differences with broadcast, competing public policy objectives such as affordable access, and the benefits of competition. That changed today as the CRTC released “Harnessing Change: The Future of Programming Distribution in Canada“, a difficult-to-read digital-only report (as if PDF is not digital) in which the CRTC jumps into the Internet regulation and taxation game with both feet.
The report is the Commission’s response to Canadian Heritage Minister Melanie Joly’s report on Canadian content in a digital world, released less than a year ago which asked for a CRTC review. That report – as well as the Commission’s own Let’s Talk TV report – emphasized the benefits of the Internet and sided primarily with an export-oriented, competition focused strategy in which Canadian content and broadcasters would succeed based on the quality of their programming, not regulatory schemes designed to provide millions of dollars in support.
The CRTC has reversed that approach with a regulation-first strategy that envisions new fees attached to virtually anything related to the Internet: Internet service providers, Internet video services, and Internet audio services (wherever located) to name a few. The CRTC’s report now goes to the government, but this has the feeling of theatre with a review of telecom and broadcast legislation set to get underway with a panel that will undoubtedly include several proponents of an Internet regulation strategy. In fact, one wonders if the CRTC would not have embraced prioritization of Cancon on in the Internet if not for the government’s clear support for net neutrality.
The foundation of the CRTC report is fundamentally flawed in at least four respects. First, Canadian broadcasting regulation is essentially regulation on speech. In a world of scarcity – limited channels or spectrum – that regulation is viewed as necessary to ensure that a scarce resource is well-used. In the Internet world of abundance, the rationale for conventional broadcast regulation withers away as there are few limits to the ability for anyone to use the Internet to express themselves, whether with text, audio or video.
Yet in the CRTC’s worldview, much of this is “broadcasting” that requires regulation. The potential scope of CRTC regulation is dizzying as it states:
if legislative change is to take place, it should clearly and explicitly make any video or audio services offered in Canada and/or drawing revenue from Canadians subject to the legislation and incorporate them into the broadcasting system. This should apply to traditional and new services, whether Canadian or non-Canadian.
Is the CRTC suggesting that all podcasters that draw revenue from Canada are now subject to its regulation? All news organizations that invariably include audio and video? Where is the line on CRTC regulation when your scope is the Internet?
Second, there is no Canadian content emergency. Notwithstanding the doomsayers who fear that the emergence of digital services such as Netflix will result in less money for production in Canada, the most recent annual report by the Canadian Media Producers Association on the state of screen-based media production in Canada confirms that financing of Canadian television production continues to hit new heights. Last year, the total value of the sector exceeded $8 billion, over than a billion more than has been recorded over the past decade. In fact, last year everything increased: Canadian television, Canadian feature film, foreign location and service production, and broadcaster in-house production. Canadian television, which some claim is at risk due to services such as Netflix, posted the largest expenditure ever (or least over the past two decades looking back at older annual reports).
In fact, the increase in foreign investment in production in Canada is staggering. When Netflix began investing in original content in 2013, the total foreign investment (including foreign location and service production, Canadian theatrical, and Canadian television) was $2.2 billion. That number has doubled in the last five years, now standing at nearly $4.7 billion. While much of that stems from foreign location and service production that supports thousands of jobs, foreign investment in Canadian television production has also almost doubled in the last five years. The data makes it clear that Netflix isn’t a threat, it’s an opportunity with new money entering the sector.
The CRTC report isn’t based on this reality, however. Instead, it provides a handy interactive slider that shows the reduction in mandated funding for Cancon depending on how much spending drops on cable and satellite services. Its own chart shows how that aspect of funding is a small part of the overall ecosystem, but nevertheless it calls for taxation of the entire ecosystem.
Third, an Internet tax is largely premised on the argument that ISPs and Internet companies owe their revenues to the cultural content accessed by subscribers and they should therefore be required to contribute to the system much like broadcasters and broadcast distributors. In fact, the CRTC says exactly that in the report:
there are numerous services in Canada that connect Canadians to content, whether through the Internet or broadcast networks, such as cable or satellite. Demand for these services is almost wholly driven by demand for audio and video content, yet the Canadian market for this content is only supported by BDUs, television programming and radio services.
The reality, however, is that Internet use is about far more than streaming videos or listening to music. Those are obviously popular activities, but numerous studies (CIRA, Statistics Canada) point to the fact that they are not nearly as popular as communicating through messaging and social networks, electronic commerce, Internet banking, or searching for news, weather, and other information. From the integral role of the Internet in our education system to the reliance on the Internet for health information (and increasingly tele-medicine) to the massive use of the Internet for business-to-business communications, Internet use is about far more than cultural consumption. Yet the CRTC envisions the Internet as little more than cable television and wants to implement a taxation system akin to that used for cable and satellite providers.
Fourth, the CRTC suggests that the new fees will be consumer-cost neutral, with reduced broadcast fees offsetting new Internet access fees. In other words, it believes that the current consumer costs are a benchmark against which future fees can be measures and that consumers don’t get to retain the benefits of lower costs and more choice from the Internet. Rather, the CRTC views this as an opportunity to impose new fees or taxes.
There is little reason to believe that the costs won’t have an impact on Internet and wireless pricing that is already some of the highest in the world. Indeed, there is no way around the fact that an Internet tax would make access less affordable, expanding the digital divide by placing Internet connectivity beyond the financial reach of more low-income Canadians. The tax would be particularly damaging in indigenous communities.
The government itself rejected this proposal just last year on precisely the same affordability grounds:
The Committee’s recommendation to generate revenue by expanding broadcast distribution levies so that they apply to broadband distribution would conflict with the principle of affordable access. The open Internet has been a powerful enabler of innovation, driving economic growth, entrepreneurship, and social change in Canada and around the world. The future prosperity of Canadians depends on access to an open Internet where Canadians have the power to freely innovative, communicate, and access the content of their choice in accordance with Canadian laws. Therefore, the Government does not intend to expand the current levy on broadcast distribution undertakings.
The CRTC believes that there is no difference in taxing the same connection, whether used for cable broadcasts or to access the Internet. However, the two can be very different. Cable contributions can be rationalized because the only thing you can do with cable is watch programming. Not so with the Internet, yet the CRTC wants to impose taxes on both in much the same manner.
The CRTC report seemingly views the Internet as an ATM with the ability to withdraw cash from providers and services to fund Cancon or other social programs. It acts as if a reduction in mandated support from broadcasters is the end of Cancon and as if the Internet is little more than cable television rather than the most important communication system ever created. As the title of the report suggests, its recommendation to the government is that the Internet can be “harnessed” from Gatineau for its own policy purposes. The CRTC wants to convince the public it understands the digital world with its digital-first report, but as Canadians struggle to parse through the myriad of links and an unreadable presentation they find a Commission with its gaze firmly fixed in the rear view mirror.