Future reviews to determine much of DigiCanCon strategy: experts

OTTAWA — While the response to the long-awaited results of Heritage Minister Mélanie Joly’s Canadian content consultation included praise for some elements — such as a $500 million deal for Netflix Inc. to spend on content in Canada — many also pointed out that it’s a strategy that pushes off any substantive legislative and regulatory changes. “It’s evolutionary, not revolutionary, but it sets a direction where the government wants to go and I think most of the heavy lifting is still in front of them,” Ken Engelhart, former Rogers Communications Inc. regulatory chief, said in a phone interview. Much of Joly’s strategy, outlined Thursday, looks to future reviews — of the Broadcasting and Telecommunications Acts, a report on distribution models it requested from the CRTC, and the Copyright Act and Copyright Board reviews. While that means the measures she announced don’t contain any new regulations or tax changes that would affect the industry, the strategy did include promises for more funding for the Canada Media Fund (CMF) and a new deal with Netflix that will see the company establish a production division in Canada and spend $500 million over five years. Conservative heritage critic Peter Van Loan said in a phone interview with The Wire Report that “there’s very little new in it despite the months of hype and all the anticipation, and the policy that’s in place really remains — except for some very minor tinkering — the same policy that the government’s had for years.” The Netflix deal, he said, is “not a change in policy and that’s not mandatory; that’s just something that’s happening that Netflix is going to do.” Van Loan did, however, praise the governments’ move not to impose any new taxes; as expected, the strategy didn’t include any measures regarding sales tax or Canadian content contributions or requirements on foreign digital platforms. Those platforms have thus far not been required to collect and pay sales tax — which domestic streaming services are — due to rules that tie the requirement to a physical presence in the country. That won’t change even as Netflix opens up a Canadian production division. Government officials clarified Thursday that Netflix’ production company will be distinct from its streaming service. That means tax requirements, including HST, will apply to the production division, but with “respect to its streaming service, the Government will not impose a tax on Netflix or other broadband service.” Independent consultant Kelly Lynne Ashton noted in a phone interview that the tax revenue from the production division will make for an additional revenue source, “but it’s not anywhere near the volume that they would be getting from the monthly subscription services.” The officials also confirmed that Netflix Canada itself wouldn’t qualify for funding from bodies like the CMF, Telefilm Canada, or tax credits, which require the company to be Canadian-owned and controlled, though should it team up with Canadian production partners (as it has done in the past) that qualify, those partners may have access to the funding. As part of the agreement, the government said in a release that “Netflix will continue to work with Canadian producers, production houses, broadcasters, creators and other partners to produce original Canadian content in both English and French.” It will ensure that “Canadians and Netflix members around the world find Canadian films and television shows on the Netflix Service by highlighting and promoting those productions on its global platform,” and a promise to seek “commitments from digital players to invest in, produce and showcase more Canadian content.” Speaking to reporters in Ottawa after a noon speech outlining her strategy, Joly was asked about why she chose not to impose the same Canadian content requirements that apply to Canadian broadcasters. Joly didn’t address the question directly, saying that “we believe that our domestic market is a launchpad for global success. In that context, the government chose to… invest in the Canada Media Fund,” she said. Regarding not requiring Netflix to pay taxes on its streaming service, Joly said, as she has previously, that the government did not want to “increase taxes on the middle class. This is not a surprise. And why did we not want to do that? We know that internet services are one of the most costly services in the world, in Canada. And we know that that’s a real issue.” However, some critics questioned how significant that $500 million over five years is. NDP heritage critic Pierre Nantel told reporters, in French, that government policy shouldn’t be based on deals with American companies, and that being excited about the $500 million is a short-term view of the problem. Nantel questioned how that figure compares to what Netflix already spends in the country. “Was it kind of a re-announcement?” he asked. Nantel also brought up the issue in Question Period that afternoon, asking why Joly chose not to make “foreign companies pay their fair share.” Prime Minister Justin Trudeau said in response that “we are incredibly proud of our cultural industries, and we know that building stronger cultural industries for the 21st century, recognizing the transformation of the broadcast universe, is something that we need to do.” Ashton noted in the interview that it’s “not a lot of money for Netflix when you think about how much they actually spend on original programming. So from their perspective, they’re getting out of any potential regulatory obligation, for really not that much.” Plus, if there had been any kind of regulatory obligation imposed by the minister, it would have applied to other services as well, such as Facebook Inc. or Amazon.com Inc., she noted. “It may not be the best possible deal for Canadian programming. There’s also a lot of details that are still left to be seen,” she said, such as whether that spending is “really going to be incrementally more than what they’re already spending.” During her press conference, Joly refused to answer multiple questions about how much Netflix currently spends in Canada, and how big of an increase the $500 million represents. Quebecor Inc. took Joly’s strategy to task in a press release Thursday, saying that it’s “disappointed that the federal government’s vision relies on US-based giants to promote the development and vibrancy of our culture.” CEO Pierre Karl Péladeau said in the release that it amounts to a two-tier system, in which “foreign platforms that will be able to engage in unfair competition by producing content without taxation and without being subject to Canada’s regulatory framework, while receiving production tax credits.” Péladeau also pointed that while Netflix has promised to spend $100 million a year for five years, Quebecor’s TVA spends $300 million a year in the Quebec market. “This paltry agreement is an insult to the leading role of broadcasters, the largest contributors to Canada’s audiovisual landscape,” Péladeau said. As part of Thursday’s announcements, the government also turned to the CRTC for guidance, through an order-in-council asking the regulator to issue a report, by June 1, 2018, on “the distribution model or models of programming that are likely to exist in the future.” Materials released by the government also included a promise to seek “commitments from digital players to invest in, produce and showcase more Canadian content.” Other aspects of the three-pronged strategy, dubbed “Creative Canada,” were made up of already-announced proceedings, reviews and funding. New funding includes $125 million over five years for an export strategy and an unspecified amount for the CMF, according to a background briefing. That amount will be used to compensate for a decrease in funding caused by lower industry revenues in order to maintain its level of funding, Joly outlined in her speech. The government also promised to “modernize” programs like the CMF, Canada Music Fund, the CAVCO approval process and the Canada Book Fund, and to “ an international strategy to promote cultural diversity online,” something the minister has already brought up in meetings with the likes of Facebook and Alphabet Inc.’s Google. It also promised a new “Creative Export Fund” in 2018, and enhanced “export support in key markets, participation at trade events, new & modernized coproduction treaties.” Joly also said in the speech that the governments’ review of the Broadcasting Act would strengthen the mandate of CBC/Radio-Canada. CBC CEO Hubert Lacroix, speaking to reporters after her speech, said that “we are all for being at the centre of this vision of Creative Canada that the minister has, so we’ll be very happy to participate in making this mandate stronger.” CBC had asked for a number of changes, including an increase in funding and a move to an ad-free model, none of which were included in Joly’s strategy Thursday. “I’m not surprised to hear today that the conversation was not about funding models. You heard her direction to the CRTC, and we know that to be able to deliver on all of the expectations that she has clearly enunciated as being the CBC/Radio-Canada vision…we’re going to need a very strong funding model.” David Sparrow, president of the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA), said in an interview that “initially, it’s a very positive announcement.” “The things she’s brought up today are very helpful to our industry, in terms of supporting the ,” he said, though he added the industry still needs more details about how that additional funding will work. ACTRA has long been pushing for imposing regulatory and financial requirements on foreign over-the-top (OTT) players. Sparrow said Thursday that “a foreign company should not be able to come in and set up its own rules for how it’s going to operate in Canada. Right now they’re making their own deal with the government and with government oversight, and we certainly welcome that. We don’t know all the details. We don’t know whether this is new money or whether this is money they intended to spend here anyway. And we don’t know what their responsibilities are long-term.” The Canadian Media Producers Association (CMPA) praised elements of the announcement, including the CMF funding. CMPA president Reynolds Mastin said in the press release that the deal with Netflix “has the potential to be a positive interim measure for Canada if it creates opportunities for increased independent production of Canadian stories.” He added: “However, with new digital players continuing to enter our country, we believe an updated regulatory system is the ultimate path to ensuring the production of diverse Canadian content for decades to come.” The Writers Guild of Canada (WGC) issued a press release commending Joly for “emphasizing the key role screenwriters play in the industry by announcing a new focus on early-stage pitch document and script development at the Canada Media Fund (CMF).” However, the release noted that much “is still to be determined, with an upcoming review of the Broadcasting Act, a possible reassessment of the CRTC’s role, and a CBC mandate renewal.” Advocacy group Friends of Canadian Broadcasting spokesman Ian Morrison said in a phone interview that the group was “greatly disappointed that, after 18 months of study, two years since she’s been minister, that this comes down and it’s too modest a contribution.” He said the group was also disappointed that “some of the most important things,” including the review of the Telecom Act and Broadcasting Act, have been “put off for another year while the government asks the CRTC for advice. It means effectively there will be no new legislation in the life of this Parliament.” Overall, Ashton said, though the policy “says a lot of the right things about moving forward, recognizing the changes in the world, the need to use digital technologies, the need to support Canadian content and creators in an ever changing universe…it’s just really thin on detail.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and reporting and editing by Ahmad Hathout at ahathout@thewirereport.ca

Future reviews to determine much of DigiCanCon strategy: experts

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Future reviews to determine much of DigiCanCon strategy: experts

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