Canada’s digital policy has seemingly long proceeded on the assumption that tech companies would draw from an unlimited budget to write bigger cheques to meet government regulation establishing new mandated payments. Despite repeated warnings on Bills C-11 (Internet streaming), C-18 (online news), and a new digital services tax that tech companies – like anyone else – were more likely to respond by adjusting their Canadian budgets or simply passing along new costs to consumers, the government and the bill’s supporters repeatedly dismissed the risks that the plans could backfire. Yet today the bill from those digital policy choices is coming due: legal and trade challenges, blocked news links amid decreasing trust in the media, cancellation of sponsorship deals worth millions of dollars that will be devastating to creators, and a new Google digital advertising surcharge that kicks in next week to offset the costs of the digital services tax.
While some argue this is big tech bullying, it is better viewed as a predictable response from companies whose existing contributions were greeted with false claims that they did not invest in Canada and whose suggested policy alternatives were simply ignored. It is no different than EV battery companies responding to government funding for competitors to seek similar support or entrepreneurs leaving Canada due to tax policy changes. Companies of all sizes seek to minimize tax obligations and new financial obligations invariably spark budget changes. The irrational actors were government and the policy supporters, who seemed to think there would be no consequences for costly legislation that sought to extract billions in payments for little, if anything, in return. Needless to say, it has not played out that way.
Earlier this year, the CRTC ruled that Internet streaming services must pay five percent of their Canadian revenues to support a variety of Canadian broadcasting programming. That decision came before the Commission completed work on foundational issues such as identifying what qualifies as Canadian content or determining how existing contributions from streaming services would be treated for the purposes of the regulation. The result: potential increased consumer costs, multiple legal challenges and now the cancellation of tens of millions of dollars in sponsorships by Netflix. The Netflix sponsorship cancellations will hit younger creators particularly hard since much of the sponsorship focused on new creative development. For example, the Globe reports that Netflix funded roughly 90 per cent of ImagineNATIVE’s year-round development programs with all of it now at risk due to the uncertainty associated with whether the contribution will count for regulatory purposes. The lost sponsorship was entirely predictable as critics (myself included) warned that millions in new mandated payments would come primarily from shuffling existing spending and result in little new money.
The disaster that is Bill C-18 is by now well known. Blocked news links on Meta platforms have had no discernible impact on Facebook traffic, but it has sharply reduced referral traffic to Canadian news sites and led to the cancellation of millions of dollars in previous agreements with publishers. Meanwhile, the Google money remains in limbo as the sector awaits CRTC approval over the governance of its distribution. With prior Google agreements folded into the new $100 million contribution, some organizations will garner less than they did prior to the legislation. Moreover, as demonstrated by the recent response to a controversial tweet from Heritage Parliamentary Secretary Taleeb Noormohamed or the backlash against a CTV report that stitched together comments from Conservative leader Pierre Poilievre to create a fake clip, the government’s policies have only exacerbated public mistrust of the media with every error viewed through the lens of government funding for the media. Far from preserving an independent press, the policies have actually placed them at greater risk.
As if those bills were not bad enough, the digital services tax is facing a trade challenge by the U.S. and next week Canadian digital advertisers will face a 2.5% surcharge for Google advertising to account for the costs associated with the DST. This too was predictable and predicted: Google levies similar charges in countries that have adopted DSTs and the U.S. made the it clear that it believed the DST violates Canada’s obligations under the USMCA. Canadian businesses now face higher advertising costs, which will likely passed along to consumers and lead to smaller ad budgets for print publishers at the very time that government policy is trying to increase advertising on those platforms. Moreover, Canadian business sectors could face billions in retaliatory tariffs since the U.S. can target whatever sectors it wants.
There is nothing wrong with regulating tech companies and ensuring that they pay their fair share. However, by demanding these companies bankroll government policy objectives through billions in new taxes and payments without fully fleshing out the regulatory frameworks or remaining open to alternative policy approaches, there was always risk that they would respond by hiking consumer prices or cancelling support to meet the new budget demands by redirecting funding elsewhere. The surprise isn’t that this is precisely what is happening but rather that the government ignored the repeated warning signs that this was the likely outcome.
Related posts:
Skillful Negotiation or Legislative Fail? Taking Stock of the Bill C-18 Deal With Google
Sour Grapes: Big Media Lobby Wants to Squash the New Collective Responsible For Administering Google’s $100 Million Online News Act Money
Government Court Filing on Bill C-11: “The Act Does Allow For the Regulation of User-Uploaded Programs on Social Media Services”
Who is surprised that the government ignored the repeated warning signs that this was a likely outcome?
I presume the government knew exactly what the risks were, or at least they were informed, but they prioritized politics over a rationale risk assessment
So I am curious who correctly predicted this outcome vs who exactly is surprised by it?
I was with you until this line “There is nothing wrong with regulating tech companies and ensuring that they pay their fair share.” You sound like the rest of the regulatory blood suckers. Just let me write the regulations and I will do it right. The problem isn’t these specific regulations, it is the idea that government should be involved in regulating what Canadian do and say online. Anyway you slice it is going to lead to negative unintended consequences. Government should stay out.
The response of Netflix and other US web giants to the Online Streaming Act (Bill C-11) has been big tech bullying. No one has suggested that these players “did not invest in Canada”, only that their investments have been very small relative to their earnings here, though perhaps increased a little recently to counteract impending legislation. (Wages are often increased by firms to forestall potential unionization.) As Michael Geist says, “companies of all sizes seek to minimize tax obligations” and new financial requirements induce new techniques of avoidance.
Last June, the CRTC decided that web giants earning more than $25 million annually in Canada will be required to contribute 5% of those earnings to funds designed to assist Canadian production. But the effective audio-visual contribution will be 3.5% since the outlay on Canadian programming they are themselves producing can be deducted from the base contribution up to a maximum of 1.5%. It may be that various developmental initiatives will eventually be recognized in the context of the web giants’ Canadian programming obligations, but these have yet to be determined by the CRTC. All in due course.
In an interview this week, Margrethe Vestager, the Executive Vice-President of the European Commission, reminded Canadians that regulations and fiscal obligations are necessary to protect small firms and consumers from the web giants. Giant corporations have market power and with that power must come responsibilities. https://ici.radio-canada.ca/nouvelle/2107421/geants-web-canada-vestager-champagne-ia
Who gets to decide if “their investments have been very small relative to their earnings here”. It doesn’t matter what companies they are or how big they are. When they make investments they expect a return. Companies and individual always seek to minimize their tax burden. How is this protecting consumers? Consumer will end up paying more as was already shown in the original posting. It protects the rent seeking Canadian cultural industries that the government keeps propping up.
The CRTC’s decision has introduced a new cost to Netflix, so Netflix has cut some existing costs. How is that bullying? It’s not. It’s a perfectly predictable and logical response to the CRTC’s decision.
By the way, the new tax is on revenue, not earnings. Earnings are revenue less expenses.
Also how does C11 protect consumers from web giants? Does it provide better privacy protection or mandate better terms of service? No, it doesn’t. All it’s going to do is increase prices, reduce content, and spam consumers will Cancon recommendations.
“Earnings” in the generic sense are something earned. “Earnings” in the financial world are net benefits or profits. The CRTC’s 3.5% contribution requirement is on revenues.
In broadcasting (and other industries), market power derives from imperfectly competitive markets dominated by quasi-monopolies. Consumers would benefit from the break-up of these companies. In the absence of competition, taxes can serve to redistribute the benefits of imperfect markets from the US quasi-monopolists to Canadians. More Canadian programming choice is a public good like national defense, in this case, national cultural defense.
Canadians are currently being subjected to Netflix’s hidden algorithms designed for profit maximization. The CRTC’s powers now extend to the ability to ensure these algorithms make viewers aware of Canadian alternatives. When in place, the new rules will be no more intrusive than Netflix’s current recommendations.
“More Canadian programming choice is a public good like national defense, in this case, national cultural defense.” — that’s written like an objective statement. It would be more accurate if it you prefixed it with “I think…” or “In my personal opinion” or perhaps reference a trustable poll on % of Canadians who agree with this.
Secondly, I think (but correct me if I’m wrong), you’re digressing from the point of the article. My understanding is that the government’s implementation was subpar: because of lack of expertise, lack of due diligence and/or hindered by bias and politicizing. The impact of which is that the government did not properly anticipate the current outcome and had no contingency plan.
Instead of preaching your intentions, maybe let us know how/why the conclusion of this article is inaccurate or incomplete.
You have not made a distinction between the Government of Canada and the CRTC? The Government of Canada passed the Online Streaming Act. The CRTC, an arms’ length agency, is required to put the law into effect, subject to a government direction of November 2023. The CRTC is responsible for implementation of the amended Broadcasting Act.
I think that both the Government and the CRTC foresaw the possible reaction of Netflix, with whom the CRTC, under a previous administration, had a conflict in 2014 (https://crtc.gc.ca/eng/archive/2014/lb140929.htm). Both the government and the Commission anticipated Netflix’s behaviour as one possible outcome among many, and are moving ahead to meet their objectives, which include Canadian cultural sovereignty. (Netflix’s director of public policy in Canada, Stéphane Cardin, resigned last July, perhaps in reaction to the moves that his company was planning.)
The CRTC is in the process of fleshing out the regulatory framework, but it cannot be done in one fell swoop, as if solving one big set of simultaneous equations. The framework must be put in place one step at a time. The government has been relatively open to alternative policy approaches, but not the libertarian approach favoured by Michael Geist and those who wish to impose a telecommunications type of regime on a cultural industry such as broadcasting. If the CRTC is allowed to pursue its current regulatory plan and does what it should (which, of course, is not assured), Netflix and the other web giants will fall in line, as have multinational corporations around the world. They can’t afford not to…
The government appoints the CRTC. Do you think they would appoint people who don’t think the same as them. I don’t know what type of regime Michael Geist favors, but a true libertarian approach would be NO regulation. Netflix, other streamers, and any other company should be allowed to offer Canadians whatever content they think Canadians want regardless of the county of origin. They can’t afford not to. That is insane. Canada is a rounding error for them. If the government pushes too hard or makes it unprofitable to operate in Canada, they will exit the market.
Thanks for clarifying, Fortinbras.
“You have not made a distinction between the Government of Canada and the CRTC? The Government of Canada passed the Online Streaming Act”
My recollection was that the government received a great deal of constructive criticism on OSA, and the government ignored or failed to integrate that feedback with due diligence.
I don’t know much about the CRTC’s capabilities, but give the above, I believe my statement above (“government’s implementation was subpar: because of lack of expertise, lack of due diligence and/or hindered by bias and politicizing”) is still plausible.
I guess the upcoming election may provide directional insights into what the majority of Canadians care about the most.
I can’t substantiate this, but I suspect the majority of Canadian would not have put the OSA on their top wish list of things they wanted the government to invest time, effort and tax payer dollars. That’s my two cents.
The streamers have brought far more competition to the Canadian TV market than we’ve ever had. They’ve provided more choice, better customer service, better technology, and a greater focus on viewer preferences.
Your claim that Netflix recommendations will be unaffected by the discoverability requirements is laughable, as no one knows what the requirements will be. But given the CRTC’s track record for consumer unfriendly requirements I’m expecting the worse.
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