By Howard Law, author of Canada vs. California, and MediaPolicy.ca
Last week the CRTC released its anticipated “Phase One” ruling on the implementation of the Online Streaming Act, Bill C-11. The headline was the $200 million price tag put on Canadian content contributions assessed by the commission on large foreign online audio and audio-visual streamers operating in Canada.
Following the commission’s decision, many industry players and public policy commentators were quick to declare victory or disaster, something we can expect in a regulatory drama that never quits.
This drama is chronicled in my book, Canada vs California: How Ottawa took on Netflix and the Streaming Giants, published last month by Lorimer. In Chapter Nine, I listed ten major policy issues that should dominate the commission’s implementation of the internet-era update to the Broadcasting Act: this first commission ruling ticks several of those boxes.
What follows is a modest attempt to provide nuance and context to this first of several major commission decisions.
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Off the top, the commission states its challenge: the steadily declining industry cash contributions to broadcasting funds that subsidize (usually in addition to government subsidies) Canadian TV drama, documentary, local expression, news programming, and musician development.
Since 2017, the contribution-triggering revenues of Canadian broadcasters have shrunk by over 30 per cent, dragged downwards by the slow eclipse of legacy media. In tandem, the revenues of foreign streamers have been on the rise, without contributions. The commission is fixing that under the authority of the new bill by calculating what, as the new statute commands, is “appropriate.”
The commission’s new contribution levy on foreign streamers of five per cent of Canadian revenues for both video and audio platforms spits out a commission-estimated $200 million cash boost to the Canadian broadcasters’ existing contributions of $390 million (television) and $34 million (radio) as of 2022.
The streamers’ contributions are approximately $50 million for audio and $150 million for video funds. Among the video streamers, the big revenue earners in Canada are YouTube ($2.3 billion including audio) and Netflix ($1.575 billion). At five per cent, that ought to trigger contributions of $78 million from Netflix and $115 million from YouTube. But as we will see, YouTube is off the hook for its proportionate share.
The destinations of these five per cent streamer contributions are several Canadian media funds with specific programming purposes that mostly duplicate the existing five per cent contributions of Canadian broadcasting distributors, at least on the video side of the ledger. The foreign streamers swear this isn’t fair, but more on that later.
On the video side, the $390 million cash contribution to media funds from Canadian cable and satellite distributors is subdivided into envelopes for the Canada Media Fund (sponsoring television drama and documentaries) and “local expression”:
- Canada Media Fund (CMF) and independent (CIPF) funds – 3.2 per cent
- Local and Community Cable News – 1.5 per cent
- Independent Local News Fund (ILNF) – 0.3 per cent
- Total 5 per cent
As those in the industry are aware, the CMF earmarks dollars for programming in both official languages and for indigenous nations, official language minority communities (OLMC), and racialized communities.
As for the foreign video streamers’ $150 million, here is how their five per cent tithe breaks down:
- CMF – 2 per cent
- Indigenous Screen Office – 0.5 per cent
- Diversity and Inclusion Funds (e.g. Black Screen Office, Accessibility Fund) – 0.5 per cent
- CIPFs supporting OLMC programs – 0.5 per cent
- ILNF – 1.5 per cent
- Total 5 per cent
In each case, you can add up the numbers for drama and documentaries on one hand, and news on the other. The result is a broad parity between domestic and foreign contributions to Canadian programming. The federal cabinet told the CRTC that “appropriate” contributions from online broadcasters means “equitable.” This is the commission’s idea of equitable.
Of course, the full picture of how Netflix and the other video streamers will contribute to Canadian content is far from complete. The commission has yet to consider the streamers’ obligations to make or license Canadian programs on their own platforms; Canadian Programming Expenditures (CPE) in other words. The commission will also consider the streamers’ obligations to push Canadian programs to Canadians, “discoverability” in regulatory vocabulary. Equitability has a way to go yet.
Yet the commission remains strangely coy on these next steps, omitting any mention of CPE or discoverability in its “Path Forward” road map to future proceedings. Instead in this recent ruling the commission refers twice to the “fine tuning” of streamer obligations at some point in the future. What an odd choice of words for such large obligations.
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Is the five per cent levy on video streamers fair? Netflix and the Motion Picture Association of America say not. In fact, they repeatedly claim the CRTC levy is “discriminatory” against foreign video streamers.
It’s true that, unlike the new requirement for video streamers, Canadian television programmers don’t pay into media funds. But these independent Canadian programmers (for example Corus, Wildbrain, OutTV, Blue Ant) obey license terms that require significant CPE commitments, with Canadian content budgets set by the CRTC at an average rate of 29 per cent of annual revenues.
Or looking at the comparison between foreign and domestic broadcasters in another way, the vertically integrated giants Bell, Rogers and Québecor —operating both cable distribution and their networks of local stations— pay the five per cent levy and fulfill a 30 per cent CPE. For example, Bell’s combined contribution in 2023 was $98.6 million cash for media funds and a further $926 million spent on their Canadian news, sports and entertainment content.
Next up, Netflix says it’s discriminatory (or perhaps novel) to compel an entertainment programmer to contribute cash to Canadian news. But Canadian cable distributors like Telus and Cogeco, who don’t own local television news operations, must contribute to the ILNF news fund as part of their five per cent tithe.
Let’s try one more. Netflix says it’s discriminatory to make a foreign streamer contribute to the Canada Media Fund without being able to license CMF-financed programs from independent Canadian television producers. However as both the CRTC and the Heritage Minister were keen to point out (although nobody paid much attention to the minister on this point), in the future the foreign streamers will be able to license CMF-financed shows.
Going almost unnoticed in all of the grumping, the commission has given Netflix and the other video streamers the option to claw back 1.5 per cent of their 2 per cent CMF contribution so long as they spend it directly on licensing Canadian programs for their platforms. Neither Bell, Québecor or Rogers are allowed by the CRTC to do that with their CMF contributions.
In short, the video streamers’ cry of “discrimination” rings hollow. It’s not a valid regulatory argument; rather it’s an international trade argument and not a very good one.
The streamers’ allegation of “discrimination” is their semaphore to signal the possibility of making formal accusations against Canada of violating national treatment rules under the US-Canada-Mexico trade agreement. But a violation of national treatment rules does not exist if the regulatory burdens on US streamers are equitable to those required of Canadian streamers and broadcasters. There’s clearly no case for that, although our trade history is replete with American threats of preemptive trade retaliation in the absence of actual violations.
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The CRTC also imposed a five per cent levy on audio streamers Spotify, Apple, Amazon and YouTube Music, spoiling all parlay bets on the outcome of its Phase One proceeding.
The five per cent figure is a bit of a stunner because cash contributions by Canadian radio broadcasters currently range from one-half of one per cent (0.5 per cent) assessed on local radio to four per cent on Sirius XM satellite radio. And the CRTC is explicit on the reason why: local radio’s cash levy is so low because of its significant airtime quotas (35 per cent to 65 per cent) for Canadian songs while Sirius XM’s four per cent contribution is so high because of its modest song quota of ten per cent of airtime.
The $50 million in audio streamer funds will be distributed among the existing music development funds FACTOR, Musicaction, Starmaker, RadioStar; also the Community Radio Fund and the newly established Indigenous Music Office get support. There’s also new money for news reporting in small and mid-sized radio markets.
The American lobby group for the music streamers, the Digital Media Association, echoed Netflix’s complaint of “discrimination.” But unlike the video streamers, the audio streamers’ five per cent obligation does appear to be inequitable to Canadian satellite and local radio, at least to this point. However, we don’t know what Canadian song play requirements the CRTC may impose in Phase Two of its implementation that kicks off in Spring 2025. Based on the teeter-totter logic of emphasizing either cash contributions or song playtime, the commission may be on track to require very little of the audio streamers in terms of song playtime.
And that is not going to go down well in Québec.
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The CRTC’s decision on streamer cash contributions to Canadian media funds was popular in Québec, as expected. The federal Bloc Québecois’ leader Yves-François Blanchet hailed it. Cultural and creator groups welcomed it too.
But there’s a problem. From the very beginning of the Parliamentary debate on the Online Streaming Act, the Québec music industry has been laser-focused on the dreadfully low prominence and consumption of French language music on global audio platforms. My fellow anglais, don’t underestimate the angst.
In Parliament, the Bloc pushed through an amendment to the bill obliging audio streamers to use their platform technology to push recommendations of French language music to French speaking Canadians. However, the commission’s May 2023 public notice minimized expectations that it would go anywhere near ordering streamers to do so. The Trudeau cabinet’s November 2023 Policy Direction to the commission consciously passed on the opportunity to overrule that.
Last week Eve Paré, director general of the influential Québec music alliance ADISQ, was blunt in her response to the commission’s new ruling on music streamers’ cash contributions: “now halfway through this modernization process, the next phase will focus on new obligations to promote Canadian and indigenous content on listening platforms, an equally fundamental step.”
Even more significantly, Québec’s minister of culture Mathieu Lacombe has staked a lot of political capital on delivering better outcomes for the consumption of French language content on global streaming platforms operating in Québec through legislation promised for 2025.
So far, the commission seems to have backed itself into a corner on doing anything meaningful on the discoverability of French language music on the global platforms. For now, that puts the commission on a collision course with Québec.
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When the Liberal government decided, mid-way through the Parliamentary consideration of the Online Streaming Act, to regulate YouTube, it brought on a crushing political headache and instantly made the legislation more notorious than would have been its preference (I cover this extensively in my book).
Ever since, the Liberals have been backpedaling on this issue. The CRTC also seems to regard regulating platforms that host user generated content as an unwanted responsibility. The first indication of this occurred on the evening of April 27, 2023, the day that Bill C-11 received Royal Assent. Commission chair Vicky Eatrides issued a press release declaring she had already made up her mind that the commission would not regulate content uploaded to YouTube or TikTok, something the new legislation allowed her to do if she wanted.
Now the same commission chair has ruled that she will not regulate contributions on advertising revenue earned by these social media platforms on user generated content, something the legislation also allows her to do if she wants. In the case of YouTube, that regulatory mulligan on paying five per cent of $2 billion in Canadian revenues is substantial (how much is unclear: YouTube will have to pay contributions on revenues earned on its owned and operated streaming service, YouTubeMusic). The user-uploaded music available on YouTube (i.e. not YouTubeMusic) almost certainly makes it Canada’s most popular music streamer, but it will pay no contributions. If I was the boss at Spotify, Apple or Amazon paying the full shot at five per cent, I would want to know why.
The exemption of YouTube and other social media platforms from paying contributions also overrides the federal cabinet’s direction to the CRTC to consider regulating YouTube on both video and audio “user” content that is effectively “rebroadcast” on YouTube by the biggest users of all, Canadian broadcasters and global streamers.
As you can tell, the regulation of YouTube is something of a mess. Complicating it further, YouTube is appealing the commission’s ruling to collect broadcasting fees on advertising revenue generated by user uploaded content.
Nevertheless, the commission’s ruling on contributions signals that YouTube should not get too comfortable with its exemption, it’s only temporary.
It’s a regulatory space to watch.
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More than one critic of C-11 and the commission has suggested the five per cent levies are so onerous that foreign streamers might pack up and leave the Canadian market. The news media has picked this up: an excellent lede for grabbing the attention of Canadian consumers.
One should never be cavalier about the possibility, but the prospect of a major streaming service pulling up stakes is overblown.
For video streamers, the five per cent is really 3.5 per cent (given the option to claw back contributions and invest it directly in making or licensing Canadian shows). As Netflix grudgingly conceded to the commission in November, it was prepared to pay two per cent. In Europe, Netflix and the other streamers pay anywhere from two to six per cent.
For audio streamers, the five per cent doesn’t look so equitable at the moment, although we heard no complaints from them that the commission has exempted podcasting from their contribution base.
Global streamers are not gushing profits just yet and, in both video and audio, the market leaders are charting a path from winning market share at all costs to the profit margins that shareholders expect in the long run. Nevertheless, Netflix, Spotify and YouTube all make money. Apple, Amazon and YouTube enjoy the enviable capacity to hedge against their parent company’s profits.
Then there is the ominous precedent of Meta deplatforming Canadian news in response to Bill C-18 ‘s regime of mandatory licensing payments. Does the commission’s ruling on contributions risk similar corporate hardball from video and audio streamers?
The C-18 analogy doesn’t quite work. Meta got out of Canadian news (while retaining its disinformation business), not Canada. Meta is still in the market of 40 million Canadians, it hasn’t left. More importantly, Meta’s news blackout (and Google’s threat to do the same) was motivated by its fear that another country mandating news payments would spread to the US market, where state governments are beginning to emulate Canada, Australia and Europe. There is no similar copycat effort afoot for regulating streamers in the US.
In any event, would Netflix exit and give up nine million subscriptions, gifting the Canadian market to the other Hollywood streamers?
Would Spotify forfeit its leading position among music subscription streamers and invite YouTubeMusic, Apple and Amazon to eat its lunch?
Or, more likely, will the streamers play Canadian domestic politics and stoke US Congressional animosities against Canada, meanwhile biding their time in wait for some combination of a Poilievre government in Ottawa and a second Trump administration in Washington D.C.?
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Despite this first ruling, the commission is not done yet, not by a long shot.
It has to figure out the streamers’ obligations for spending on Canadian programming Expenditures and the discoverability of that content.
It has a federal cabinet mandate to take a second look at definitions of Canadian content for both video and music.
At some point, it will have to deal with what Netflix wants very badly, which is an exemption from Canadian rules that leave copyright and full intellectual property rights to Canadian programs in the hands of independent Canadian production companies.
But the elephant in the room is the possibility of scaling down the regulatory obligations of Canadian broadcasters, just as we are scaling up the regulatory obligations of American streamers, so that they meet somewhere in the middle.
Consider this innocuously phrased paragraph in the commission’s ruling and parse it closely:
94. Base contributions set the foundation for a modernized contribution framework. In future proceedings, based on the evidence submitted, the Commission may consider other types of contributions, such as direct expenditures on certain types of programming, the carriage of certain services, or the promotion, discoverability and prominence of Canadian or Indigenous content. The Commission may also adjust overall contributions of traditional and online broadcasters as it moves forward with the implementation of the amended Broadcasting Act.
May, indeed.
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