The CRTC should adopt the British approach to certifying domestic content
By Konrad Von Finckenstein, former chair of the CRTC
The CRTC is now faced with the enormously complex task of implementing C-11, the new Online Streaming Act. Under the terms of that Act, streamers like Netflix (called online broadcasting undertakings) have to register with the CRTC and comply with CRTC-imposed conditions. The CRTC will have to make several difficult decisions, one of the most controversial will likely be:
Prescribing what constitutes a Canadian program for the purposes of the Act (s.10(1)(b)).
This should be a priority for the CRTC, as much follows from how it addresses this issue. Obviously, the primary purpose of the Act is to foster and enhance the production and exhibition of Canadian content (CanCon).
In a recent Cartt commentary by Doug Barrett entitled “A Modest Proposal for C-11 Implementation,” the author suggests using and expanding the concept of Programs of National Interest (PNI) and applying it to streamers — based entirely on the current CanCon certification criteria (Canadian Audio-Visual Certification Office or CAVCO, the CRTC, and the Canada Media Fund or CMF).
This is analogous to pouring new wine into old bottles. Not only are these decades-old criteria outdated when compared to domestic content criteria used in other countries, they are out of touch with global market realities that have made Canada a hub for audiovisual production. Furthermore if left unchanged, current CanCon criteria, applied to foreign streamers, are the most likely target for a successful, and harmful, challenge under Canada’s free trade agreements.
Let’s start with PNI. This CanCon category consists primarily of ‘primetime’ entertainment content: drama, comedy, long-form documentaries. The PNI obligation was created by the CRTC to force broadcasters to spend some of their CanCon obligations on high-quality entertainment content in addition to news and sports which make up about 70 per cent of their CanCon spending. By directing the majority of the PNI obligation to content produced and owned by independent producers, the measure was also intended to foster diverse content and develop Canada’s independent production sector.
Broadcasters see PNI as an acquisition expense — not an investment — because the content must be owned by independent producers in order to access CAVCO tax credits and CMF financing (not available to broadcasters). So, broadcasters invest in less expensive Canadian lifestyle content that they own and monetize. And broadcasters still spend more on foreign entertainment than on Canadian PNI.
In short, the whole concept of PNI is a meaningless device for global foreign streamers whose sole focus is on producing, owning and monetizing high quality entertainment content for global audiences.
In short, the whole concept of PNI is a meaningless device for global foreign streamers whose sole focus is on producing, owning and monetizing high quality entertainment content for global audiences. Applying the PNI model would force them to spend all of their CanCon obligation on content that they cannot own. By contrast, Canadian broadcasters can — and do — spend the vast majority of their CanCon obligations on content that they produce and own in-house (news, sports, lifestyle…).
From a trade perspective, that outcome would be akin to requiring a foreign pharmaceuticals company to invest in research for products to be patented and owned by Canadian companies.
The underlying problem is that current CanCon criteria (CAVCO, CMF, CRTC), and regulations, were designed for a closed-access domestic market of appointment television run by licenced Canadian broadcasters. They were not designed to regulate streamers which are mostly foreign owned.
Let’s go back to basics.
What is the purpose of Broadcasting Act. Very broadly speaking it falls into four categories:
- to have a Canadian broadcasting system that reflects Canada, its history, images, stories and values
- to foster a Canadian broadcasting industry through regulatory protection and cross-subsidies;
- to provide Canadian creators and talent a platform to reach Canadian audiences; and
- to promote Canadian audio and video content domestically and, indirectly, internationally
To achieve all these aims, the Act always required that broadcasters be owned and controlled by Canadians. In addition, criteria were developed to define what is a Canadian program, both for CRTC regulation and for access to public financing (CAVCO and CMF).
The present CanCon criteria serve a mix of cultural and industrial objectives. Requiring that key creative personnel (such as director, screen writer, lead performer, art director, music director, etc.) be Canadian is both a proxy for Canadian culture, and supports employment. However, the requirement that the production company be Canadian owned and controlled, and own the IP rights, is primarily industrial in nature.
All of this was devised in the context of policies intended to promote both diverse broadcasting for Canadians, and an independent audiovisual production sector, in a controlled-access domestic market.
Introducing global foreign streamers into this system changes all of the underlying assumptions: more vigorous competition for CanCon and Canadian audiences; different expectations for owning and monetizing content — from both broadcasters and streamers; different perceptions of the value/need for public financing for content production, whether tax credits or subsidies; content seen as a competitive advantage and investment necessity, rather than primarily as an acquisition expense.
Sweeping foreign streamers into CanCon regulation will require an in-depth reconsideration of CanCon criteria in the context of a radically altered Canadian marketplace. The CRTC will not license streamers as broadcasters but will impose conditions on them. The principal ones will be:
- to register with the Commission
- to furnish information regarding its ownership and operation
- to carry and showcase a given percentage of Canadian content
- to promote such Canadian content effectively
- to enhance the discoverability of such Canadian content
- to pay a regulatory fee
- to contribute substantially to the creation of Canadian content.
All these issues undoubtedly will be subject to lengthy contested hearings.
However, one cannot forget that the largest and most prominent streamers are foreign owned. Hence the definition of Canadian content will be crucial. To impose the existing burdensome (from their view) conditions on them and use present Canadian content rules will surely produce significant trade dispute.
A situation where US streamers (most streamers are US based) must favour Canadian content and subsidize it through sizeable contributions but are effectively prohibited from producing such content or owning the IP is clearly a violation of national treatment and discriminates against foreign streamers. While under CUSMA and its cultural exception Canada can insist on Canadian ownership of both the production company and ownership of IP rights, such a requirement comes at a cost. If Canada were to persist in such an approach the US can assert that such condition hurts its industry. It can invoke retaliation in an equivalent amount. The US can determine the amount of retaliation and choose the area in which it applies, which likely will be in the area most hurtful to Canada. All Canada can do is ex post facto go to the dispute settlement provisions and argue that there was no hurt to US industry or that the retaliation employed was excessive.
This all begs the question why Canada would do this. Why not abandon the present system designed for a different time and adopt a system built for the digital age.
The CRTC should adopt the British approach to certifying domestic content (see this and this). The British model has much to recommend.
The British Film institute under its system does not consider ownership and IP rights. Instead, it concentrates on producing products that reflect Britain. It employs a cultural test based on a points system. To qualify a British a product must get 18 out of a total of 35 points. It works as follows:
Section A – cultural content
A1: Film set in the UK or a European Economic Area (EEA) – Up to 4
A2: Lead characters British or EEA citizens or residents – Up to 4
A3: Film based on British or EEA subject matter or underlying material – 4
A4: Original dialogue recorded mainly in English or UK indigenous language or EEA language – Up to 6
Section B – cultural contribution
The film demonstrates British creativity, British heritage and/or diversity – Up to 4
Section C – cultural hubs
C1: (a) At least 50% of the principal photography or SFX takes place in the UK – 2
(b) At least 50% of the VFX takes place in the UK – 2
(c) An extra 2 points can be awarded if at least 80% of principal photography or VFX or SFX takes place in the UK – 2
C2: Music Recording/Audio Post Production/Picture Post Production – 1
Section D – cultural practitioners
D1: Director – 1
D2: Scriptwriter – 1
D3: Producer – 1
D4: Composer – 1
D5: Lead actors – 1
D6: Majority of cast – 1
D7: Key staff (lead cinematographer, lead production designer, lead costume designer, lead editor, lead sound designer, lead visual effects supervisor, lead hair and makeup supervisor) – 1
D8: Majority of crew – 1
Redefining CanCon based on a modification of such criteria could surely be done. Criteria could even include points for independent producers and ownership of IP rights in Canada — without making it mandatory. However, that approach would not violate national treatment obligations and therefore would be much more defensible than the current system. It would ensure that films reflecting Canada and the talent of our creators would qualify without causing a trade dispute. And it would be appropriate for the current digital age.
One can only hope that with respect to streamers (online broadcasting undertakings), the CRTC will adopt a new system along the lines outlined above.
