By Len St-Aubin, a policy consultant who has worked for clients including Netflix, and was a member of the policy teams that developed the 1991 Broadcasting Act and the 1993 Telecommunications Act
Online streaming has been the goose that laid the golden egg for original Canadian made-for-TV drama, comedy and documentaries, increasing production and budgets and winning global audiences.
Now the government and regulator are out to kill the goose. With the Online Streaming Act (Bill C-11) and the CRTC’s June 4 policy decision 2024-121, they are determined to apply to online streaming outdated and intrusive regulation that risks undermining CanCon’s online streaming success story.
Worse, despite much talk about “levelling the playing field,” nothing the government or CRTC has done is likely to help Canadian broadcasters compete.
In TV broadcasting, CanCon policy is a system of regulated demand for subsidized supply. Broadcasters have spending obligations to acquire and exhibit drama, comedy and documentaries owned and created by independent Canadian producers. Producers rely on broadcasters’ upfront commitments — along with rich tax credits and public financing available only to producers — to finance those productions.
Last month, prompted by Bill C-11, the CRTC started applying the same approach online. It ordered foreign streamers that earn more than $25 million in Canada to contribute five per cent of Canadian revenues to a list of CanCon subsidy funds. That was called a ‘base contribution’ — signalling more to come, likely CanCon acquisition and discoverability requirements. Legal challenges have already begun.
Here’s the thing: rules designed for domestic broadcasters in a closed market with managed competition don’t transfer to global streamers in a highly competitive market.
Even in Canada, outcomes have been one-sided. “The system” helped establish an independent production sector for entertainment CanCon. But while broadcasters acquire it, they have no incentive to invest in content that they can’t own and profit from. It’s a cost of doing business that they seek to minimize, and often marginalize in their schedules. They spend twice as much on, and earn more from, popular U.S. drama and comedy that decades of data demonstrate Canadians prefer to watch. Most of their CanCon spending goes to news and sports. Some also invest in cheaper reality and lifestyle content that they can own and monetize.
Online streamers face different market dynamics. They are hungry for exclusive original entertainment content, preferably that they produce, own and control, for global audiences. They have taken advantage of Canada’s world-class production sector, tax incentives, and low dollar, to produce on location here. They have also been willing to work around CanCon rules. Since they can’t own subsidized original CanCon, they acquire world distribution rights upfront for the content’s online lifespan, resulting in higher budgets, better productions and global audiences.
All of this has been a huge benefit for Canada’s production sector — and CanCon.
The CRTC’s decision estimates that five per cent of foreign streamers’ Canadian revenues will pump $200 million a year into audio and audiovisual CanCon funds. Ironically that’s much less than, and will likely reduce, their current market-based investments.
Data from the Canadian Media Producers Association’s (CMPA) latest industry Profile 2023 show that foreign financing contributes very significantly to making and exporting more and better CanCon:
- Over the last 10 years — without any regulation — foreign investment in CanCon, mostly from streamers, doubled to $1 billion in 2022-2023. Most ($898 million) went to Canadian TV, and about half of that to CanCon certified by the Canadian Audio-Visual Certification Office (Profile 2023 12/13).
- Over the last 10 years, foreign investment helped certified CanCon TV production grow 54 per cent — from $2.4 billion to $3.7 billion. (Profile 2023 33)
- Over the last five years, foreign financing in certified Canadian English-language TV matched or exceeded financing from Canadian private and public broadcasters combined (Profile 2023 46).
- In 2022-23, foreign financing in the culturally-important fiction category of certified English-language TV was 50 per cent higher ($309 million) than financing from Canadian private and public broadcasters combined ($204 million). In children’s content it was 48 per cent higher (Profile 2023 47).
These are categories the CRTC calls “Programs of National Interest” or PNI. They are the focus of policy and regulation. About 41 per cent of production costs are publicly financed.
Despite impressive market outcomes, outdated policy and regulation are set to punish foreign streamers and likely destabilize that market-driven CanCon production. So why, exactly, are we now regulating foreign streamers like domestic broadcasters?
Because Canadian producers worry that foreign investment in on-location production in Canada ($6.8 billion) far exceeds foreign investment in CanCon (about $1 billion). And, because streamers are not regulated, broadcasters want “a level playing field.”
Yet at $1 billion, CanCon is about 13 per cent of total foreign investment, about $8 billion. That total contributes massively to sustaining Canada’s outsized, world-class, global audiovisual production sector — and its capacity to produce world-class CanCon.
Canadian producers know all this (it’s their data). So they should know that the CRTC decision, which micromanaged the five per cent levy into allotments of 0.5 per cent to 2 per cent for a list of subsidy beneficiaries (including, bewilderingly, Canadian news) will just lead streamers to move money around.
There’s no new money here. Rather, the CRTC’s levy will reduce market-driven CanCon financing. Worse, it could decline further if CanCon policy continues to prevent foreign streamers from owning content they are required to finance, and/or regulation gets more heavy-handed. Unlike broadcasters, foreign streamers can just walk away.
Meanwhile, nothing in C-11 or the CRTC’s decision “levels the playing field.”
Nothing incentivizes Canadian broadcasters to invest in high-profile market-driven original entertainment CanCon. Rather, policy and regulation still disincentivize.
At a time when exclusive originals are a coveted competitive advantage, Canada’s English-language broadcasters still see their future as foreign content middlemen. Recently, Rogers outbid Bell and Corus for a slate of American content. At the same time, they are asking the CRTC to reduce Canadian PNI obligations. CRTC already approved that for Corus. Bell, Rogers and Blue Ant Media all want the same. Are they betting some foreign streamers will exit the market?
Yet despite a smaller market, lower revenues and online competition, struggling French-language broadcasters outspend English-language counterparts on original CanCon. And Canadian online services like Skyship Entertainment are flourishing.
Foreign streamers are already investing hundreds of millions of dollars in publicly financed CanCon to compete with broadcasters for Canadian and global audiences.
How does making them contribute to subsidy funds, or trying to make them to spend even more, “level the playing field” for Canadian broadcasters?
Despite a rapidly changing market, government and the CRTC are stuck in the past, still believing that:
- CanCon is a regulatory “burden” that depends entirely on mandated cross-subsidies, and
- intrusive spending obligations are better than market-driven investment at financing CanCon that Canadians, and the world, want to watch.
It’s rear-view mirror thinking that risks undermining both CanCon’s streaming success story, and Canadian broadcasters.
Cartt accepts commentary from informed observers of the telecommunications and broadcasting industry. The views reflected in these pieces do not necessarily reflect the views of Cartt. Pieces for consideration should be sent to editorial@cartt.ca.
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