As Canadian Heritage Minister Steven Guilbeault prepares an Internet regulation plan that features the prospect of licences for linking, undermining net neutrality, and trade sanctions, he has typically argued that “it’s about fairness”, suggesting that foreign companies unfairly benefit from the Canadian market at the expense of domestic companies. Yet when Guilbeault appeared at a production sector town hall last week, he was far more candid. Guilbeault told the sector that in a minority government situation, his department had to choose between a massive bill changing “everything under the sun” or to slice it up into smaller pieces. Having chosen the piecemeal approach, Guilbeault pointed to his top priority: get money from the foreign Internet companies (his exact words at 47:58 were “the most pressing thing we needed to do was to get oxygen into the system, which is money. And go and get that money where that money is. Which is web giants.”)
In certain respects, the acknowledgement that this amounts to little more than a shakedown makes sense. CRTC Chair Ian Scott has said that Netflix is now probably the largest contributor to film and television production in Canada and the sector enjoyed record production numbers pre-COVID-19, so the data simply does not support claims that the streamers are hurting the industry. As for the news sector, the Minister has failed to deliver millions in promised tax credits and seemingly now wants an alternative that involves creating a licensing regime for linking to content.
Yet if the goal is simply a matter of wanting more money from Internet companies that can be used to support Canadian cultural policies, it is not clear why this is a matter for the Heritage Minister. Everyone wants more money from the Internet companies and countries around the world have a credible argument that the huge global Internet revenues should be more equitably apportioned among them. In other words, the way to “get money from web giants” is for Finance Minister Chrystia Freeland to tax them on their revenues. Those tax revenues would go into general tax revenues and can be spent in an transparent manner without the need for specialized subsidy programs. This isn’t easy. The U.S. unsurprisingly objects to a potential reduction in its tax revenues, which means that Canada must find allies with other countries in seeking global solutions on tax. Further, Guilbeault candidly recently told a publisher town hall that changes to the tax code is far more difficult than direct program spending.
The problem with Guilbeault’s preference for direct program spending subsidized by Internet companies is that it raises a host of complications and negative effects. For example, mandated Canadian content spending for companies such as Netflix could require the companies to pay into a fund that supports Canadian content production. However, the current rules make it challenging for those same companies to access those funds for their own productions. That leads to either a trade challenge (and the possibility of tariffs against key Canadian sectors such as dairy and steel) for being forced to pay into a system that is inaccessible to foreign providers or a reform to the system that would open things up to foreign providers and in the process undermine the competitiveness of domestic producers and broadcasters who are more reliant on tax credits and funding programs.
Alternatively, the government may require these companies to spend a percentage of their domestic revenues on Canadian content. Leaving aside the need to update Canadian content rules (my Cancon quiz highlighted how the rules bear little connection to actual Canadian content), this would significantly increase the domestic demand for Cancon in order to fulfill regulatory obligations. That is a benefit to some Canadian producers, but could leave Canadian broadcasters – including the CBC – priced out of their own market. Left unable to compete for the very best Canadian content, the Internet giants such as Netflix and Amazon would be left as the de facto custodians of Canadian content.
Of course, those same companies might decide that these rules – especially if combined with mandated discoverability rules in which the government or the CRTC dictates what is promoted on their services – are too onerous and the Canadian market isn’t worth the hassle. If so, Canadian consumers would be left with fewer choices due to government regulation and Canadian producers would lose a top source of financing.
The discoverability rules could have an additional negative effect on Canadian content. If a company like Netflix is required to continuously display Canadian content based not on what a user’s preferences suggest but rather in compliance with CRTC regulations, that content is likely to get down-voted by many of the company’s subscribers. That will not have an impact on the Canadian display of the content (which is there due to the CRTC, not subscriber preference), but it would impact the content on the global stage as the algorithms would account for the down-voting in minimizing display of the same content outside of Canada. In other words, the discoverability mandates could create a reversal of Schitt’s Creek. Rather than promoting the program to the world, the platforms would try to hide them given a negative feedback loop that pushed unwanted content at their subscribers in Canada.
Finally, Guilbeault has oddly suggested that his proposed measures to get money from web giants is the fastest way to inject money into the system. Yet anyone with even a passing familiarity with CRTC process knows that the opposite is true. Assuming the government introduces legislation empowering the CRTC to regulate Internet services and issues a policy direction pushing it toward mandated Cancon support, the resulting regulatory process will take years to unfold with a call for public comment, a lengthy hearing, the initial decision, applications to review and vary the decision, judicial reviews, cabinet appeals, and potential judicial appeals. If any of the appeals are successful, the CRTC would be required to re-examine its decision and the process starts anew. Indeed, the telecom equivalent is criticized specifically because it takes so long to arrive at a final decision.
Guilbeault told the producer town hall that the Internet companies don’t like him very much, but that he didn’t become a politician to become popular. That may be so, but as the public learns more about policy proposals that will increase costs for Canadians, undermine the competitiveness of the Canadian broadcast sector, hurt net neutrality, threaten trade sanctions against Canadian sectors such as dairy and steel, and leave U.S. companies as the guardians of Cancon, Guilbeault may find that it is Canadian voters who don’t like him very much.