Avoid ISP tax, tweak CanCon rules, companies say in Heritage review

There isn’t much disagreement between some of the country’s biggest media and telecom service providers over whether foreign entities, such as over-the-top providers like Netflix Inc., should be making a contribution to the country’s cultural sector. Submissions to Canadian Heritage’s broad cultural review from companies such as BCE Inc., Corus Entertainment Inc., and Shaw Communications Inc. generally dismissed the notion that Netflix and others should be paying into the existing system of Canadian content contributions as required of traditional broadcast distribution undertakings (BDUs). TekSavvy Solutions Inc., however, took a slightly different approach, recommending changes be made to the current CRTC exemption order for digital media broadcasting undertakings so that new Canadian entrants to the OTT market could re-broadcast over-the-air (OTA) networks and in exchange would be subject to “the ordinary requirement to contribute five percent of their gross revenues derived from broadcast activities in the broadcast year to Canadian and community programming (‘BDU contributions’).” The company highlighted the disparity between BDUs and their OTT counterparts, noting that “BDU undertakings have the right to retransmit the most popular over-the-air television networks without permission. OTT undertakings do not.” The company said “this disparity disincents efforts that would do much to help” further one of the department’s stated goals of building “exceptional cultural industries and the growth of new creative enterprises as part of Canada’s innovation agenda.” “The market for over-the-top and point-to-point mobile video content aggregators will not, after all, go away; the shift from BDU to OTT undertakings will continue. But enabling Canadian entrepreneurs to enter the market permissionlessly with a stable content base, by leveraging the already-existing Canadian broadcasting system, will drive innovation and new entry,” TekSavvy said. There was consensus that foreign digital providers should be making up some of the revenue shortfall by being subject to federal sales tax. As part of its participation in the public consultation phase of the review into Canadian cultural institutions in a digital world, Corus advocated for applying “GST/HST to all Digital Transactions,” decrying the “uneven playing field” that has been created “in which foreign suppliers enjoy a price advantage of up to 15 percent.” The country’s “entire creative community continues to suffer” as a result of a tax loophole that weakens Canadian producers in the global market, Corus said. This was the preferred model for many, instead of the oft-rumoured levy on Internet Service Providers (ISPs), which was as soundly rejected by the private sector as it was by consumer advocates. “By analogy, it would make no public policy sense to set tolls on highways to subsidize the productions of Canadian manufactured goods, to tax air traffic in order to subsidize Canadian tourist facilities, or to tax seaways and ports to subsidize Canadian fish products,” Cogeco Inc. said in its submission. Such a tax would “fracture the fundamental separation between the carriage of content, which is telecommunications, and the development and distribution of that content, which is broadcasting,” the Canadian Network Operators Consortium (CNOC) said in its submission. It would also hamper competition in the telecom market, CNOC said, because smaller ISPs would “find it difficult to pass the cost of an additional tax onto consumers and may have to internalize some or all of the cost” — a painful prospect when they already have smaller operating margins and smaller staffs to bear administrative burdens. Adding that extra charge would stand in the way of network innovation, Shaw said, stating that “no measure should be introduced that would increase the costs of connectivity to Canadians, create any disincentive to the expansion of networks and Canadians’ access, or divert resources needed by network companies to build capacity and drive innovation.” The company added: “Given the current maximum prices of $25 applicable to basic service, rate increases that would result from any increased BDU levy would be borne disproportionately by customers of discretionary services and could further incent cord-cutting or cord-shaving.” Customers might be used to the five per cent tax on their cable and satellite bills, which has been there since 1998, but “they are very sensitive to increases in internet and wireless prices, as well as cable and satellite prices,” Shaw noted, and said an ISP tax would see middle-class households paying twice for Canadian content. The very concept of Canadian content was also brought under scrutiny as companies made their cases to Canadian Heritage. “In our view, we do need to be more flexible in how we support production of content by Canadians, and therefore should not define ‘Canadian content’ by reference to the CAVCO point system or similar complex measures,” Alphabet Inc.’s Google Canada said in its submission. “Rather, the preferred approach would be the one adopted in digital media tax credits, which define eligible labour simply by reference to Canadian residency. This ensures that public funding only applies to eligible labour performed by Canadian residents (which incentivizes use of Canadian labour) while preserving flexibility.” Shaw also expressed support for the CRTC’s recent changes to the eligibility requirements for certified independent production funds, saying in its submission that while the decision “engendered some opposition from representatives of the creative industries, Shaw agrees with the CRTC’s view that the capitalization of Canadian content can be augmented by a revised points requirement.” The change would not only “improve the fundamental economics of the domestic production industry, it would create opportunities for the exhibition of Canadian programming — and of Canadian values and ideas — throughout the world,” Shaw said, also advocating for opening up public policy support, such as tax credits, to populist TV programming, like reality TV, to boost export potential, citing the international success of the BBC’s Great British Bake Off. Bell chastised the CRTC for its “light touch” when dealing with broadcasting services operating over the Internet, “while heavily regulating traditional broadcasting services, leading to an “out-dated” approach. The governing legislation is also outdated, Bell said, with the Broadcasting Act requiring an overhaul that includes “simplifying the objectives of the Act to focus on producing great Canadian content for domestic and international audiences,” reorienting the regulatory framework so that it focuses less on “micro-regulation” of the traditional broadcasting environment and more on “creation, delivery, promotion and exportability of Canadian content,” and removing the CRTC from its involvement “in the day-to-day creative or commercial decisions of the industry.” Similar to the idea expressed by Richard Stursberg in his Rogers Communications Inc.-sponsored submission, Bell recommended a new funding model using a Canadian Programming Excellence Fund (CPEF) “that would consolidate the , Telefilm and BDU-supported Canadian Independent Production Funds (CIPFs) into one superfund, as well as existing tax credits.” This fund would support projects that are 50 per cent Canadian and provide funding “to meet promotion and international distribution obligations.” — With reporting by Charelle Evelyn at cevelyn@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Avoid ISP tax, tweak CanCon rules, companies say in Heritage review

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Avoid ISP tax, tweak CanCon rules, companies say in Heritage review

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