Canadian Heritage Minister Steven Guilbeault has frequently claimed that his legislative goal in Bill C-10 is to “get money from web giants”. As last week’s post on a Canadian Heritage departmental memo highlighted, Bill C-10 targets far more than just “web giants” as the bill adopts a far broader regulatory approach that targets podcast apps such as Stitcher and Pocket Casts, audiobook services such as Audible, home workout apps, pornographic sites, sports streaming services such as MLB.TV and DAZN, niche video services such as Britbox, and even broadcaster websites such as the BBC.
The effect of significant new regulatory costs on these services is likely to spark one of two responses: some services will simply pass along the costs to consumers in the form of new Cancon surcharges, while others will likely block the Canadian market altogether. The Cancon surcharges, when combined with the new sales taxes on digital services that take effect later this year, could lead to the costs of digital services skyrocketing by nearly 50 per cent in Canada. If that happens, Guilbeault will be getting money from consumers, not the web giants.
The application of sales taxes has already been confirmed and will take effect at the federal level starting in July. For consumers in Ontario, that means the cost of services such as Netflix, Disney+, DAZN, and Spotify will all increase by 13 percent. But that increase is small when compared to the potential Cancon surcharges that could run as high as 30 percent for some services should Bill C-10 become law. Given that the tax would apply on top of the surcharge, the combined consumer cost increase could hit 47 percent.
Regulatory surcharges are not uncommon in Canada. For years, wireless companies included a network system access fee. Today, Rogers maintains a Government Regulatory Recovery Fee, which it attributes to a wide range of regulatory costs. Satellite radio services such as SiriusXM feature a Music Royalty and Regulatory Fee. The same is likely to occur under Bill C-10. For months, creator lobbying groups have been arguing for mandated Canadian content spending of 30% of revenues for streaming services. For example, the Writers Guild of Canada told the BTLR:
CPE for large, English-language broadcast groups is currently 30% of their revenues, which was based on their historical spending levels on Canadian programming. Such a level provides a prima facie starting point for application to OTTs operating in Canada, while taking into account the fact that such amounts currently include news and some sports programming for traditional broadcasters while OTTs typically do not produce such programming now
Unifor argued for the same approach:
Assign digital media broadcasters that produce and deliver original programming, a 30 per cent Canadian Programming Expenditure requirement, as a share of annual revenue, per year.
That spending could come in the form of mandated payments to funding agencies such as the Canada Media Fund (for example, Bell recommended a 20 percent mandated contribution to the CMF for large streaming services) or from the diversion of spending toward Canadian-specific content. Either way, the government estimates that $830 million in new money will enter the system annually. Liberal MP Julie Dabrusin told the House of Commons earlier this year that figure is based on requiring online services to contribute at a similar rate as traditional broadcasters (ie. 30% of Canadian revenues). Assuming those services pass along the costs to consumers – the services are not simply going to eat the costs – Canadians could see their bills skyrocket as digital services in Canada would become among the most expensive in the world.
The higher costs for streaming services that continue to operate in Canada is only part of the story. While companies such as Netflix are likely to stay engaged in the Canadian market, a myriad of smaller streaming services may not. Molotov, Spuul, Kocowa, and Crunchyroll may not be household names, but they are among the hundreds 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. 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.
The fallout from Bill C-10 for freedom of expression and the regulation of user generated content has rightly garnered considerable attention given the unprecedented regulatory scope of the bill. From a consumer perspective, the bill will lead to services either passing along hundreds of millions in fees through regulatory surcharges or blocked foreign services that licence their content to domestic Internet streaming services, who will increasingly become indistinguishable from cable television.