In the months leading up to the release of the Broadcast and Telecommunications Legislative Review Panel report, there was considerable focus on whether it would recommend a “Netflix tax”, a catch-all term that has come to mean digital sales taxes, corporate taxes, and mandated contributions to support the production of Canadian content. The report contains a curious paragraph in its overview in which it claims that the panel is not recommending a Netflix tax. It states:
We want to be clear that we are not recommending that Canadian content be supported by the so-called ‘Netflix Tax’ – charging consumers an extra levy on subscriptions to such services as Netflix. It is more appropriate to establish a regime that requires such online streaming services that benefit from operating in Canada to invest in Canadian programming that they believe will attract and appeal to Canadians. This approach would ensure a meaningful contribution to Canadian cultural policy objectives and the production sector. It need not result in higher prices for consumers.
The reference to a Netflix tax in the overview is the only such reference in the 235 page report. It was likely included in the overview in the hope that media coverage would jump on the claim and seek to re-assure Canadians that there was no Netflix tax or higher prices likely for consumers as a result of the report’s recommendations.
Yet the reality for anyone that reads beyond the overview is that the panel’s report not only recommends what would widely be considered a Netflix tax but proposes perhaps the biggest Internet cash grab in the OECD with mandated payments and levies on thousands of Internet services with Canadian users. This includes online streaming services, social media companies, news aggregators, and online communications services such as Skype, WhatApp, and Viber. In the view of the panel, any service or site with Canadian users is part of the “Canadian system” and should be expected to contribute to the development of Canadian content, Canadian news organizations, or building broadband connectivity. Note that all of this is above and beyond sales taxes, which the panel also recommends should be implemented with respect to foreign services.
Some of the panel’s plans are admittedly somewhat confusing. For example, the panel states:
Media curation undertakings brought under the regime – including Netflix and other online streaming services – would be required to devote a portion of their program budgets to Canadian programs.
That statement, along with chair Janet Yale’s comment at the opening press conference that there was no need for Netflix to spend additional money on Cancon but rather merely divert existing on foreign location and service production spending in Canada, has been interpreted by some to mean that Netflix would not have to increase its Canadian programming budget. But that is apparently not what the panel means. I spoke with Yale who confirmed that the panel expects the CRTC to establish a minimum Cancon spend requirement on Netflix based on its Canadian revenues. In other words, the requirement has nothing to do with its existing spending on production in Canada. For Netflix, that could certainly represent an increase in spending costs in Canada with those costs likely passed along to consumers.
Yet the panel’s plan extends far beyond just online streaming services such as Netflix. It also envisions mandatory levies against social media services and news aggregators that would be used to fund Canadian news services. It similarly targets a myriad of communications services that would pay into funds to support broadband development.
This ambitious and costly plan raises at least three points. First, the panel’s reach is literally the entire world. For telecommunications, it recommends:
We recommend that the Telecommunications Act be amended to establish explicit jurisdiction over all persons and entities providing, or offering to provide, electronic communications services in Canada, even if they do not have a place of business in Canada
This is coupled with:
We recommend that the Telecommunications Act be amended to enable the CRTC to draw from an expanded range of market participants – all providers of electronic communications services – in designating required contributors to funds to ensure access to advanced telecommunications
A similar approach is adopted for broadcasting and the Internet:
We recommend that for greater certainty, the Broadcasting Act be amended to establish that the legislation applies to undertakings carried on in part within Canada, whether or not they have a place of business in Canada. This would include undertakings, persons, and entities that disseminate media content by telecommunications to Canadians or make media content available to Canadians for compensation. We further recommend that the reference to the sector as a single system that shall be owned and controlled by Canadians be removed from the Act.
Second, there are real costs here: mandated payments or spending, licensing or registration requirements, and a new regulatory burden on sites from around the world. The panel implausibly argues consumers will not bear the brunt of those costs. Indeed, I asked Yale about the consumer costs and whether any economic analysis had been conducted on the issue as part of our conversation on this week’s Lawbytes podcast. Yale argues that consumers will not be affected, but someone is going to pay for fees that are projected to run into hundreds of millions of dollars and the safe bet is that it is going to be Canadian consumers. The Canadian digital market will garner a red flag for would-be entrants, who may either increase subscription costs to offset the cost of doing business or block Canadian users to simply eliminate the regulatory hassle. Either way, Canadian consumers pay with higher fees or less choice.
Third, the likelihood of higher subscription costs runs counter to comments from Prime Minister Justin Trudeau in the House of Commons in 2018. When asked about making “web giants pay their fair share” he responded:
Mr. Speaker, once again, the NDP is claiming that Netflix and other web giants are the ones who will pay these new taxes. The reality is that taxpayers will be the ones to pay those taxes. We, on this side of the House, promised not to raise taxes for taxpayers who are already paying enough for their digital subscriptions and Internet.
Trudeau was right in 2018. Canadians already pay too much for Internet and wireless access and increasing the cost of Internet services will render those services less affordable with reduced choice for millions of Canadian consumers.