By Len St-Aubin
RICHARD STURSBERG’S OP-ED in Monday Oct. 24’s Globe and Mail put forward the British system of defining domestic content as a model for redefining TV CanCon when the CRTC starts regulating global streaming services as broadcasters under Bill C-11. He makes a good point, but vastly understates how contentious this will be in C-11’s brave new world.
Stursberg has previously recommended the British model. He’s right that adopting their approach would address two issues. First is the often unrecognizably ‘Canadian’ outcomes of current CanCon criteria. Second is foreign streamers’ reasonable expectation that they can own the rights to content they are required by law to finance (but he doesn’t mention the potential trade complications of preventing them from doing so). Indeed, my last commentary on Bill C-11 argued that new CanCon criteria will be necessary to deal with these concerns.
But C-11 creates a framework in which redefining CanCon will be just one of many significant, highly contentious, policy issues left for the CRTC to resolve.
That will begin after C-11 becomes law, and the government issues its planned policy direction. Among other things, that will require the CRTC to revisit what constitutes CanCon. Undoubtedly, the British model will be proposed. Stursberg says that adopting it “might cause some gnashing of teeth among the Canadian guilds and producers.” There’s the understatement! Some have gone so far as to ask that ensuring Canadian ownership of CanCon be embedded in the act. So, the starting point is oppositional.
Context is important…
CanCon is defined using criteria applied by three bodies: the CRTC for regulation; Canadian Heritage to access tax credits; and the Canada Media Fund (CMF) to access its public financing. The latter two apply primarily to scripted fiction and long-form documentaries. Along with employment of Canadian artists, the criteria require Canadian rights ownership. Only CanCon that is ‘certified’ for regulation, tax credits or public financing, counts. Unregulated, privately-financed CanCon is just not a thing.
Here’s how this plays out today: CRTC data show that Canada’s private broadcasters, all combined, spend about $400 to $500 million on Canadian scripted fiction and long-form docs. Virtually all of that is produced and owned by Canadian independent producers, for two reasons: First, under current CRTC regulation broadcasters must acquire about 75% of that content from them. Second, under current CanCon criteria, only independent producers that own the rights in a production can access the rich tax credits and CMF financing. Since broadcasters can’t own an equity stake, Canadian scripted fiction and long-form docs are an expense — not an investment.
So even though broadcasters must spend 30% of gross revenues (GR) on CanCon, not surprisingly, the bulk of that goes to news, sports, and ‘lifestyle’ content that they produce and own, subject only to CRTC approval, and sometimes monetize. Also no surprise, they spend significantly more acquiring foreign (mostly US) scripted fiction than they do acquiring Canadian.
Making global streamers finance CanCon will change market dynamics.
Unlike Canadian broadcasters, they will spend virtually all of their CanCon obligation on scripted fiction and long form docs, for global audiences (they don’t do news and sports). For Netflix alone, 30% of GR in Canada would be about $300 million. Add in Disney, Amazon Prime et al, and foreign streamers’ combined CanCon obligation could easily be double what Canada’s private broadcasters now spend on comparable CanCon. Of course they want lesser obligations, and want to own content they finance.
Yet, Canada’s independent producers are eyeing all that new foreign money with proprietary interest. Under current CRTC regulation and CanCon criteria, it would finance productions they would produce and own. Even if the CRTC sets streamers’ CanCon obligation at only 15% of GR, it’s a powerful incentive. But heritage ministers Guilbeault and Rodriguez have stoked expectations of up to $1 billion in new money.
If CRTC adopted the British model, foreign streamers would be able to own the rights in ‘certified’ Canadian scripted fiction and long-form docs. So, the CRTC and government would be hard-pressed to continue preventing broadcasters from doing the same, including access to CanCon tax credits and CMF financing. All of a sudden, broadcasters would have an incentive to view what’s now an ‘expense’ as a potential investment, producing it themselves or negotiating an equity stake with independent producers.
That would be a sea change for Canada’s independent producers, breaking the bankable CanCon system of subsidized-independent-supply for regulated-demand. Expect fierce opposition.
That is just one of many big policy issues that Bill C-11 leaves dangling. For the first time ever in Canadian broadcasting law, policy and regulation, C-11 will require foreign content providers to compete with Canadian broadcasters for CanCon. The higher streamers’ regulatory obligation, the more they will be driven to compete for the best CanCon stories, creators, artists, talent, crews, locations, resources — and Canadian audiences. And the greater will be the impact on Canadian broadcasters, and pressure for change, all driven by government-mandated foreign competition.
C-11 will usher-in the biggest market upheaval in Canadian broadcasting and CanCon production ever seen. It will outsource the most culturally sensitive, high profile, CanCon. It will drive Canadian broadcasters to demand liberalization of foreign investment restrictions as they compete head-to-head with globally financed foreign streamers for their own domestic content.
No one, neither the government, nor any of the stacks of reports and submissions filed in the long parade of policy consultations that led up to C-11, has addressed the market, economic and financial implications of what the CRTC is about to undertake. It will take years to implement, with lengthy CRTC proceedings followed by challenges to Cabinet and the courts. And it will cost Canadians heavily as consumers and as taxpayers.
Policy consultant Len St-Aubin has worked with government, associations, and private sector clients including online streamers. The views expressed in this opinion are his alone. Formerly he was Director General, Telecommunications Policy, at Industry Canada, he was also a member of the policy teams that developed both the 1991 Broadcasting Act and the 1993 Telecommunications Act.
