With the introduction of the government’s plan to regulate Internet streaming services, Canadian Heritage Minister Steven Guilbeault has touted new rules that will require companies such as Netflix and Spotify to make mandatory payments in support of Canadian content. The government’s bill also paves the way for the companies to both tinker with what they show to subscribers, so as to increase the “discoverability” of Canadian content, and open their books to Canada’s telecom and broadcast regulator by granting access to confidential corporate information.
The Broadcasting Act blunder series continues today with my recent Hill Times op-ed which notes that although Mr. Guilbeault argues that the changes are long overdue and merely establish a level playing with conventional broadcasters, much of the policy that underlies the new bill rests on shaky ground ((prior posts in the Broadcasting Act Blunder series include Day 1: Why there is no Canadian Content Crisis, Day 2: What the Government Doesn’t Say About Creating a “Level Playing Field”, Day 3: Minister Guilbeault Says Bill C-10 Contains Economic Thresholds That Limit Internet Regulation. It Doesn’t, Day 4: Why Many News Sites are Captured by Bill C-10), Day 5: Narrow Exclusion of User Generated Content Services, Day 6: The Beginning of the End of Canadian Broadcast Ownership and Control Requirements).
For example, the current contributions from conventional broadcasters to various Canadian-content funds are effectively a regulatory quid pro quo: they enjoy a host of regulatory advantages worth hundreds of millions of dollars annually that are not available to Internet streamers. And their contributions are increasingly outpaced by voluntary investments from foreign sources. Mr. Guilbeault concedes that foreign streamers have made significant contributions to film and TV production in Canada in recent years, but he says he wants to ensure they become mandatory.
“Free” money in support of government policy may be hard to resist but Bill C-10 involves at least three potential unintended consequences: less investment in Canadian film and TV production; shrinking competition that results in reduced consumer choice and higher costs and prices; and a trade battle with the United States that could prompt retaliatory tariffs in the billions of dollars.
Reduced spending on production could result from uncertainty about what counts toward the new mandated Canadian-content contributions. The bill contains few specifics about how much spending will be required or what constitutes Canadian content for the purposes of the new rules. With those issues left to the Canadian Radio-television and Telecommunications Commission (CRTC) to decide, it may be years before would-be producers find out.
Mr. Guilbeault has suggested everything could be finalized by the end of 2021, but this is Ottawa: parliament has to approve, the CRTC will have to hold hearings, and there may well be judicial appeals, so a more realistic timeline is 2023, at the earliest. In the meantime, companies that invest in the Canadian market won’t know whether their current spending will meet the regulatory requirements or hundreds of millions more will be required. The uncertainty could lead to lengthy delays in Canadian production and lost jobs during what is obviously a particularly difficult time for the industry.
Although companies such as Netflix are likely to stay engaged in the Canadian market, a myriad of smaller streaming services may not. Britbox, Spuul, Kocowa, and Crunchyroll may not be household names, but they are among dozens of streaming services that have emerged in recent years to serve a global audience via the Internet. Unless the CRTC provides specific exemptions for these niche services, many are likely to forego the Canadian market entirely, given all the new regulatory costs and the implausibility of meeting Canadian-content requirements.
The end result will be less competition in Canada, with multicultural markets especially hard hit by what will amount to a Canadian regulatory firewall. Streaming companies may instead choose to license their content to existing Canadian providers, so as to avoid dealing with the CRTC at all. The new regulations will be a boon to companies like Bell, whose Crave streaming service already promotes exclusive access to foreign content from services such as HBO and Showtime, which it makes available at a premium to subscribers. That may become the model in Canada, with blocked foreign services giving way to content-licensing domestic Internet streaming services indistinguishable from cable television.
On the other hand, if the CRTC decides to exempt these smaller services and instead use its new power to single out specific companies (e.g., Netflix, Amazon Prime, and Disney+), such an approach could lead to another unintended consequence: big retaliatory tariffs under the USMCA.
Canada did negotiate an exemption for the cultural sector in the new trade deal, but using it triggers the possibility of retaliatory U.S. tariffs aimed at any sector. The problem with company-specific regulation – or any regulation that provides advantages to domestic companies – is that it helps establish a credible case for a violation of Canada’s commitment to equal treatment of digital services. As a result, the $800 million that Mr. Guilbeault says he has found for the industry may ultimately be paid by Quebec’s dairy sector or Ontario’s steel industry.
There is no Canadian-content production crisis at the moment, but Mr. Guilbeault’s new bill may well create one.