By Konrad von Finckenstein
WITH RESPECT TO CANADIAN content, the Broadcast and Telecom Legislative Review panel report views the internet through a broadcasting lens.
It works from the basic tenet that everyone involved in electronic media content (from “curators” like broadcasters, streaming services and newspapers, to “aggregators” like BDUs, Stack TV and MSN News, to “sharing” services like Facebook and YouTube) should be subject to CRTC regulation, and contribute to the creation and dissemination of Canadian content.
To that end, it recommended companies providing commercial audio and video content into Canada by way of streaming over the internet (let’s call them “over the top broadcasters” or OTBs) would be required to register with the CRTC and be subject to conditions and levies to support Canadian content.
The government seems to have accepted these premises (except with respect to newspapers) and is drafting legislation.
Nowhere, however, does the BTLR report address the issue of compliance with trade obligations, particularly the USMCA. The panel appears to be of the view its recommendations should not cause a problem with the new USMCA as it provides “that the agreement does not apply to a measure adopted or maintained by Canada with respect to a cultural industry.” The cultural industry includes the production, distribution or sale or exhibition of audio or video recordings including audio and video music recordings.
However, the BTLR report sidestepped a key issue: What is Cancon? And therein lies a potential trade issue.
Currently, three bodies define Cancon:
- The Canadian Audio Certification Office ( CAVCO) determines who is entitled to enhanced income tax benefits
- The Canada Media Fund (CMF) determines who is eligible for funding from the government mandated CMF into which all BDU’s must contribute.
- The CRTC determines what content qualifies as Canadian for the purpose of broadcast production and dissemination obligations mandated by the commission. (Sensibly, the Commission accepts CAVCO and CMF certifications.)
The rules are quite similar. In addition to Canadian creative criteria, they all contain two essential provisions
- The production company must be Canadian owned and controlled in fact and law (all three certify productions by independent producers, but CRTC certifies Canadian broadcasters’ productions, too)
- The production company must own the copyright of the product in Canada and abroad during and after the production
So, as to accommodate CRTC registration of foreign entities, BTLR recommendation 55 proposes to remove the Broadcasting Act’s reference to “a single system… owned and controlled by Canadians”. However, it recommends no changes to Canadian ownership rules for broadcasters (which the government had ruled out in advance), nor any changes to Canadian ownership of Canadian content.
“Unlike their Canadian counterparts, however, foreign OTBs — that is most OTBs — could not, under current policies, own any of the Cancon required to meet regulatory obligations.”
If the panel recommendations are enacted in legislation, the result would be that all OTBs must contribute to the creation of Canadian content, either by spending obligations or a levy, like all other broadcasters or distributors. Unlike their Canadian counterparts, however, foreign OTBs — that is most OTBs — could not, under current policies, own any of the Cancon required to meet regulatory obligations.
This would clearly be a violation of national treatment under the USMCA. It would amount to a condition of market entry, in requiring a foreign OTB to make investment in intellectual property that they cannot own. While the cultural exemption allows such a measure, the trade agreement also allows an injured party to take a retaliatory “measure of equivalent commercial effect.” Such retaliation can be taken in any sector and is not restricted to the cultural sector.
Given the might and influence of the U.S. entertainment and broadcasting industry, Canada should anticipate a push for harsh retaliatory measures to be taken quickly, if this becomes law.
To avoid this, new legislation needs to be flexible, an approach suggested in my recent Cartt.ca article. Namely, government must
- Make the necessary amendments to the GST and income tax legislation to ensure that foreign OTBs are subject to the same taxation as Canadian businesses.
- Avoid the BTLR’s overly broad definitions. Constrain any expansion of regulation under the Broadcasting Act — either by legislation or by ordering the CRTC to amend the Digital Media Exemption Order — to capture only OTBs over a certain level of gross revenue earned in Canada. Recognizing that most innovation occurs at the edges, driven by small players, such minimum floor is necessary so as not to rob the internet of its most creative players.
- Give the CRTC authority to enact “registration regulations” for registered OTBs that basically mirror regulations for broadcasters.
- Provide that OTBs have the choice to either: comply with the registration regulations, or commit to invest 25% of their gross Canadian income on productions made in Canada (Such spending would be equivalent to the 25% Netflix purports to spend today in Canada and would be subject to verification).
This 25% of gross revenues commitment could include:
- Acquisition of rights to certified Canadian content for distribution in Canada and/or other territories.
- Investments in Cancon co-productions with Canadian broadcasters and producers.
- Investments by foreign OTBs in productions that meet or exceed the prevailing six out of 10 Cancon creative criteria (e.g.: Netflix’s ‘Jusqu’au déclin’) but otherwise would not qualify as “Cancon” due to financing.
- Investment in other audio and video production in Canada that takes into account use of Canadian creative and other resources (to be defined in the legislation) .
Unless the federal government wants to allow full foreign ownership of Cancon, such flexibility is essential so that foreign OTBs and Canadian equivalents are treated equally. The goal would be to incentivize market-based investment that helps sustain a globally competitive production industry and infrastructure in Canada. This is an obvious prerequisite to the creation of Canadian content.
If such legislation is enacted, it would be difficult to make the case that foreign OTBs are being discriminated against and injured as a result of a violation of national treatment, and hence retaliatory measures of equivalent effect may not be undertaken.
After all, it would be hard to establish injury to foreign OTBs. The complaining party would need to demonstrate that investing 25% of their gross Canadian income in Canadian production is more onerous than the obligation imposed on Canadian companies under the CAVCO, CMF or CRTC rules.
In light of the new digital trade chapter in the USMCA, any new legislation that impacts intellectual property, and particularly the use of the cultural exemption should contain the option for OTB’s outlined above.
Konrad von Finckenstein is a former chair of the CRTC (2007-2012)
Original artwork by Paul Lachine, Chatham, Ont.
