October 5, 2017 2 years 1 week ago

Netflix and Creative Canada: A good deal explained horribly (CORRECTED)

THE NINE MOST FRIGHTENING words in the English language are “I’m from the government and I’m here to help,” according to an old joke popularized by former U.S. president Ronald Reagan. It’s funny ’cause it’s true.

Heritage Minister Mélanie Joly and her communications team must have forgotten this as they prepared for the announcement last week of her new Creative Canada policy framework (which offers some vision but punts many details down the field) – and augmented it with a shiny headline – the announcement Netflix will invest $500 million in Canada over the next five years.

Beyond her speech and the $500 million number, the Minister seemed ill prepared to explain much of her vision, or anything Netflix might actually have in mind beyond that single number. She certainly did not seem prepared for the tough questions on fairness and inevitable backlash in Quebec.

After reading, watching and listening to the minister’s various visits with the consumer media in French and English, one ridiculous mistake (Vidéotron isn’t a cable company, really??!!), the attempted damage control, and her truly Herculean efforts to hear a question and then avoid answering by using vast quantities of words that sometimes just don’t make sense, one can only conclude she’s either very poorly briefed or simply doesn’t know her own file.

She even went off on a tangent about the Telecom Act (which falls under ISED Minister Navdeep Bains’ portfolio, not hers) on CTV’s Question Period (pictured in a screen cap) where she said about collecting more revenues for Cancon: “We know that we have a very strong telecommunications sector, that we have internet service providers that actually benefit from the use of all of these online platforms, be they Canadian or foreign – and that’s why we’re opening the Telecommunications Act where we really hope that we can talk to the telecommunications industry to see how they can support Canadian content. What can be their role in making sure that there are strong Canadian voices – and ultimately how can we preserve that market of $3 billion that supports the distribution of Canadian content and how can they play a role also in making sure there is strong journalism in the country.”

So, um, taxing ISPs for Cancon after all, and for journalism too apparently, would seem to be on the table? (Ed note: Anyone know to what the $3B number refers?)

“Our $1/2B commitment to productions in Canada over the next five years is a guaranteed minimum of new spend by Netflix.” – Corie Wright, Netflix

Anyhow, confused by all of this and the myriad hot takes in the media slamming Joly, we set about to do a little work and answer some things that the government should have. Minister Joly mentioned many times that this deal falls under the Investment Canada Act (ICA), but explained very little about what that means. She seemed incapable of telling people what sort of content Netflix might produce in Canada, flubbed the question a couple of times on whether the $500 million really is new money – and had no explanation on how this can actually dovetail nicely with the existing system. She also had no answers on why Netflix will definitely produce French language content. So, we’ve tried to secure some answers.

1. The $500 million promised is 100% new spending. “Our $1/2B commitment to productions in Canada over the next five years is a guaranteed minimum of new spend by Netflix. The purpose of the ICA application was to enable Netflix to launch Netflix Canada, which will make it easier for us to produce even more great content here,” said Corie Wright, director, global public policy at Netflix (An earlier version of this story mistakenly said Netflix would be spending one to two billion dollars. That headline was a mis-read of this statement by Wright. Cartt.ca regrets the error.)

2. Can Netflix take advantage of local tax credits? Yes. So can Canadian producers and any other foreign producers who work here. This has always been so.

3. Can Netflix take money from the Canada Media Fund? No. They are not a Canadian company, so they can’t. However, if they are involved in a co-production with a Canadian producer or broadcaster, that Canadian company can apply for CMF funding. “We value our partnerships with local producers and broadcasters like CBC and the amazing content that results from them, including Cancon productions like Anne, Alias Grace and others. We plan to pursue co-productions as part of our continued investment in Canada, and will have new projects to announce in the coming months,” Wright added.

4. Can Netflix produce CAVCO-pointed Canadian Content? No. They’re not allowed. Not on their own. They are not a Canadian company, so even if they made a movie with a Canadian writer, director, lead actor and crews, it would not, under the current regime, count as Canadian content. And guess what? They have already done that. 2016’s ARQ – a sci-fi thriller made by Toronto writer/director Tony Elliott (an Orphan Black writer) is as Canadian as any film could be – but not under the rules, because it was commissioned by Netflix. If that now aired on a Canadian TV channel, it wouldn’t count as Cancon, which is an odd, unintended consequence of our existing regulations.

5. Will Netflix make French content? You bet. Do they know how much? No – or at least they aren’t saying. “We just received Investment Canada Act approval last week. We are starting work to launch Netflix Canada soon and continuing to grow our work with Canadian producers, talent and crews. Stay tuned for more announcements,” said Wright. “Netflix’s investment decisions are driven by our global members’ ever increasing demand for great stories from around the world. We are committed to investing in production in Canada because Canada produces great stories – both in English and French – and has top-notch talent. That is why Canada is already one of the top three locations for Netflix original productions and why we have decided to launch Netflix Canada.”

Will they agree to a quota? No. The company has agreed to spend $25 million on a market development strategy for French Canada, but it has gone on record in the past saying they don’t believe quotas are a good idea – and that it’s better if they just pursue good stories created by talented people, wherever they are and in whatever language. Netflix is a global player, driven by data, who will do what the marketplace tells them. So, here’s some marketplace data. According to Numeris, eight shows in Quebec during the week of September 18th drew more than a million viewers and all of them are home grown, airing on TVA or SRC.

“The Quebec broadcasters likely see this and worry their long-held competitive advantage of being the only place for French speaking Canadians to find content in their language will soon be under challenge by Netflix.”

Netflix would have to be utterly blind to not realize that the path to success in Quebec is paved with French-language Canadian content. They don’t need to be told or mandated to make such shows because it’s just good business to do it. Look at District 31 or Unité 9 or L’Echapée (to take just three critically praised Quebec shows) – Netflix would kill to have quality content like that – which it could in turn market to the many other French language markets it serves around the world. The Quebec broadcasters likely see this and worry their long-held competitive advantage of being the only places for French speaking Canadians to find content in their language will soon be under challenge by Netflix.

6. Netflix can not be regulated like Canadian broadcasters, no matter the pleas from certain people. Despite things we’ve written about the fairness of it all – that Canadian broadcasters have to spend 30% of revenues on Cancon while Netflix won’t have to hit that number – the CRTC made a decision 18 years ago with the 1999 New Media Exemption Order to exempt distributors like Netflix from broadcast style regulation. That still stands and so the government can't demand content quotas. In fact, Bell Media’s Crave TV falls under the NMEO, too.

That essentially means the Broadcasting Act doesn’t cover Netflix – so if the government was going to secure any sort of hard commitments from Netflix, it had to use the ICA instead when the company decided to incorporate here. Using the ICA this way is not new. The government got concessions from Burger King when it bought Tim Horton’s, for example.

There are also provisions in the ICA whereby the federal government can go to court against any entity which doesn’t live up to its agreements. Minister Joly was right when she told Question Period’s Evan Solomon that the government will “monitor the investments of Netflix in Canada and also we have enforcement mechanisms under the Act.”

Alas, ICA agreements are confidential, unlike CRTC undertakings. However, the requirements are noteworthy. With the help of an independent expert lawyer who guided us through things, (and who asked not to be named because his firm does some work for broadcasters), the commitments demanded are quite detailed and can be found in section 20 of the ICA. Foreign companies investing in Canada have to make significant guarantees (jobs, economic development, exports) in order to launch here. We’ll send you the form, if you like.

7. Netflix will absolutely collect sales tax if Quebec, or Canada or any other jurisdiction, says they must. Netflix obeys the law, after all.

Do you have any other questions about this for us? Let us know, confidentially, at editorial@cartt.ca.