One Billion Dollars by Matt Brown (CC BY 2.0) https://flic.kr/p/pq2SsN

One Billion Dollars by Matt Brown (CC BY 2.0) https://flic.kr/p/pq2SsN

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The Broadcasting Act Blunder, Day 16: Mandated Payments and a Reality Check on Guilbeault’s Billion Dollar Claim

The Broadcasting Act blunder series has identified many of the negative consequences stemming from Bill C-10: the beginning of the end of Canadian broadcast ownership requirements, downgrading the role of Canadians in their own productions, risks to Canadian intellectual property ownership, trade retaliation by the U.S., potential capture of news sites and smaller streaming services, and less consumer choice as services work to avoid the costly Canadian regulatory requirements. Yet for some these costs will still be worth it since their singular goal is to mandate that foreign streaming services contribute funding toward Canadian film and television production. Indeed, Canadian Heritage Minister Steven Guilbeault has made this the centrepiece of his “get money from web giants” strategy claiming that this will result in a billion dollars a year by 2023 in new funding. As this post documents, those claims massively exaggerate the likely funding impact.

The mandatory payment system is established in Section 11.1(1) of the bill:

The Commission may make regulations respecting expenditures to be made by persons carrying on broadcasting undertakings for the purposes of

(a) developing, financing, producing or promoting Canadian audio or audio-visual programs for broadcasting by broadcasting undertakings;
(b) supporting, promoting or training Canadian creators of audio or audio-visual programs for broadcasting by broadcasting undertakings; or
(c) supporting participation by persons, groups of persons or organizations representing the public interest in proceedings before the Commission under this Act.

The government’s approach is therefore to leave it to the CRTC to decide precisely who contributes, how they contribute, and how much they contribute. When combined with the CRTC’s power to target individual companies with these regulations and require disclosure of detailed confidential information, that vests unprecedented power in the hands of the regulator.

Yet despite the fact that the CRTC will determine actual amounts, Guilbeault still clearly has a number in mind given the claims of $1 billion in new revenues. In fact, the number was $830 million when the bill was launched, but the Minister was soon claiming nearly a billion instead, stating “that means more quality jobs for our economy, more opportunities for our creators and talent in the production sector, for our artists, designers and authors, and for many other people who specialize in areas in which Canada is internationally renowned.” In fact, Guilbeault went even further in the House, suggestingit is actually more than $1 billion, because if nothing is done by 2023, Canadian productions and Canadian artists will miss out on $1 billion.” When asked by Members of Parliament for how he arrived at that number, he promised to provide the math but that has not happened publicly, if at all.

However, it does appear to simply represent a rough estimate on Canadians revenues from services such as Netflix with mandated payments of about 30 percent of those revenues. In the case of Netflix, its publicly stated revenues for Canada in 2019 were $780 million in revenue during the first 9 months, so about $975 million for the year. At 30 percent, Netflix contribution would be around $293 million or about 30 percent of the Minister’s projected billion dollars in 2023, a number that could grow as revenues climb.

That will sound tempting to many, but it isn’t the entire story. First, it isn’t a billion dollars of new money. In the case of Netflix, it committed in 2017 to spend $500 million on productions in Canada over the following five years. One year later, the company said it was on track to exceed that commitment. In other words, Netflix was already spending hundreds of millions of dollars on production in Canada. While it is uncertain how the CRTC will mandate spending, it seems likely that the lion share of spending will be re-allocated money, not new funding. The same will apply to many other services that are already producing in Canada with money being reallocated to meet the regulatory requirements. To suggest that this will mean one billion dollars per year in new funding is simply wrong.

Second, notwithstanding claims that there will be money quickly that grows to the billion per year by 2023, it is far more likely that the issue will still be the subject of litigation in 2023 without any  new money at that stage. The CRTC 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.

Third, given the likely timelines, Bill C-10 could reduce spending in the short-to-medium term. Since 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, many will delay Canadian productions until there is more certainty, leading to lost jobs during what is obviously a particularly difficult time for the industry.

Fourth, some services may avoid the Canadian market altogether and thereby reduce the number of available sources of contributions (and lessen consumer choice in the process). Streaming companies may instead choose to license their content to existing Canadian providers, so as to avoid dealing with the CRTC at all (not to mention the planned additional tax on technology companies). The result will be less direct Canadian revenue from foreign sources that could be the subject of mandated contributions.

The government could have generated more money for Canadian productions simply by using its taxation power to generate more tax revenues. Instead, its cross-subsidy model overseen by the CRTC carries significant trade retaliation risks and is unlikely to generate anywhere near the billion dollars per year in new money that Guilbeault claims.

(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, Day 7: Beware Bill C-10’s Unintended Consequences, Day 8: The Unnecessary Discoverability Requirements, Day 9: Why Use Cross-Subsidies When the Government is Rolling out Tech Tax Policies?, Day 10: Downgrading the Role of Canadians in their Own Programming, Day 11: The “Regulate Everything” Approach – Licence or Registration Required, Broadcast Reform Bill Could Spell the End of Canadian Ownership Requirements, Day 12: The “Regulate Everything” Approach – The CRTC Conditions, Day 13: The “Regulate Everything” Approach – Targeting Individual Services, Day 14: The Risk to Canadian Ownership of Intellectual Property, Day 15: Mandated Confidential Data Disclosures May Keep Companies Out of Canada)

5 Comments

  1. Michael Geist’s blunder series is becoming more and more farfetched as the posts continue. As I have pointed out in previous comments, Bill C-10 does not propose to downgrade the role of Canadians in their own production, there is little risk to Canadian intellectual property ownership, and little likelihood of trade retaliation by the United States whose Congress has its own issues with the web giants.

    The payment system in Bill C-10 to which Michael Geist refers is one the CRTC “may” introduce, and the Commission will probably proceed in this direction, but it is not “mandatory” because the bill simply sets out powers that the Commission may exercise. The current broadcast licensing regime allows the CRTC to vary its requirements to suit the nature of Canadian media conglomerates, and it is appropriate to apply the same kind of regime to US web giants. The information requirements for online undertakings in Bill C-10 are similar to those required of existing Canadian broadcasting undertakings, and the language in the bill is borrowed from the current Telecommunications Act. There is nothing original in this part of the bill. The CRTC’s rules for confidentiality are longstanding and, from all appearances, the existing rules would apply in roughly the same way to online undertakings.

    Michael Geist refuses to make a distinction between production in Canada and Canadian production, but the distinction is fundamental. Where the web giants, such as Netflix are concerned, Bill C-10 will require either new spending on Canadian productions, or a massive transfer from location shooting in Canada (with US stories and creative resources) to Canadian productions with Canadian stories using Canadian creative resources, including writers, directors, actors and other creative elements. Any transfer of the web giants spending on location shooting in Canada to bona fide Canadian production would be a net gain.

    The CRTC’s consultative process takes time because it allows for public input into its decisions affecting the use of public resources. In the period leading up to the passage of Bill C-10, there will no more uncertainty in regard to the regulatory requirements of the Commission than there has been in the recent past. Of course, it’s possible to imagine various apocalyptic scenarios, but the major online services are very capable of adapting to the evolving environmental issues raised by the foreign countries in which they operate

    With the Broadcasting Act, the government’s objectives are to maintain and enhance Canadian national identity and cultural sovereignty, not to increase tax revenues. Generating more tax revenue would be the objective of an eventual GST/HST levy on digital services and a digital media income tax.

  2. Pingback: ● NEWS ● #MichaelGeist #canada ☞ The #BroadcastingAct Blunder, Day … | Dr. Roy Schestowitz (罗伊)

  3. Where is the government’s economic analysis of the costs and benefits of this bill? There are basic economic questions that must be answered like how much money will it generate; how much of the money will be spent in Canada; how much will be spent on Canadian content, like Vikings, that is made in other countries; how much will be paid to foreign actors, non-resident Canadians, and foreign production staff; how much will be paid to Canadian contractors that are just fronts for foreign contractors; how much tax revenue will this spending generate; and what is the expected return on investment.

    Arguing that Canadian content is different than content made in Canada is a distinction without a difference. All content can have an impact on culture. American shows like Star Trek, All in the Family, and Seinfeld have had a positive impact on Canadian culture. Canadian shows, like Schitt’s Creek, that are not set in Canada (as per D. Levy) can have a negative impact on Canadian culture, as their implicit message is Canadians should hide who they are in order to be accepted by Americans.

    The cultural sovereignty argument is a jingoistic bait and switch technique. Distract Canadians by appealing to our baser nationalistic tendencies while picking our pockets for hundreds of millions of dollars.

    The Bill means higher prices and fewer choices for Canadians. In addition, consumers will be left wondering what comes next. Will there be mandatory subscriptions for Canadian services? Will there be mandatory ads for Canadian content at the beginning and middle of every show they stream? Will there be popups promoting a Canadian show every time a non-Canadian show is streamed?

  4. Geist is trying out Trump’s tactic: repeat a lie often enough, people may believe it. Or better yet, Steve Bannon’s publicly professed strategy: “flood the airwaves with sh**”, so that no one telling the truth is heard and the whole thing becomes so damn muddled that no one pays attention anymore. It’s putting your fingers in your ears and saying “la la I don’t hear you” loud enough to drown out the truth tellers.

    And, like Trump, it’s exhausting. That’s Bannon’s goal, and Trump’s. And Geist’s.

  5. Pingback: News of the Week; December 16, 2020 – Communications Law at Allard Hall

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