Tag: C-11

The Online Streaming Act: Dealing with US Industry Concerns (The Cancon Factor)

A vintage television set displaying the Canadian flag.

Image: Shutterstock

Last month I wrote about the spectre of US trade retaliation against measures impacting or possibly impacting US streaming services as the Canadian Radio-Television and Telecommunications Commission (CRTC) proceeds with implementation of the Online Streaming Act (formerly Bill C-11). The Computer & Communications Industry Association (CCIA), a US trade association that includes, among others, Amazon, Google, Meta and Apple, has taken aim at this process, claiming it is discriminatory and violates Canadian commitments under the CUSMA/USMCA, the trade agreement that replaced NAFTA. A core element of CCIA’s argument is that the very concept of Canadian content (Cancon) is discriminatory because it violates Article 19.4 of CUSMA which calls for “national treatment” of a digital product;

“No Party shall accord less favorable treatment to a digital product created, produced, published, contracted for, commissioned, or first made available on commercial terms in the territory of another Party, or to a digital product of which the author, performer, producer, developer, or owner is a person of another Party, than it accords to other like digital products”

What is Article 19.4 intended to cover? As an example, if rules are imposed prohibiting digital products from causing harm to children, the same rules should apply to both domestic and foreign products. However, do special requirements regarding Cancon audiovisual or music products (such as airtime quotas on radio or possible “discoverability” requirements for streamers) constitute discrimination against US digital products? Maybe. Is all music and AV content fungible or is Cancon somehow different, i.e. not a “like digital product”? If Cancon is “different”, what is it that differentiates it? That is not an easy question to answer because of the many criteria that go into determining whether a product is considered Canadian for regulatory purposes.

I took a stab a couple of years ago at explaining how Cancon is defined (“Unravelling the Complexities of the Canadian Content (Cancon) Conundrum”). For AV products, it is basically a combination of four elements; production control, copyright and distribution rights, creative positions and production spend. The CRTC definition and the definition used by the Canadian Audio-Visual Certification Office (CAVCO), which distributes certain tax credits, are slightly different with the latter being more stringent. For music there is the MAPL system. As explained by the CRTC, to qualify as Canadian content, a musical selection must generally fulfil at least two of the following conditions: M (music): the music is composed entirely by a Canadian; A (artist): the music is, or the lyrics are, performed principally by a Canadian; P (performance): the musical selection consists of a live performance that is recorded wholly in Canada, or performed wholly in Canada and broadcast live in Canada, and L (lyrics): the lyrics are written entirely by a Canadian. The CRTC is proposing that the “P” criteria be dropped owing to changing patterns in the music industry, notably the many Canadian artists recording outside Canada, such as in Nashville.

Qualifying as Cancon is complicated, but it has value. Cancon certification provides access to various subsidies and funds as well as providing a product that meets airtime and broadcast obligations, where and when they exist. In the aftermath of the enactment of the Online Streaming legislation, a key question is whether streamers (like broadcasters) will be required to meet certain content quotas, if indeed it is even feasible to impose content quotas on streamers. The different delivery model, where it is the consumer who “pulls” content from a broad menu rather than a broadcaster who “serves up” a given offering, makes it almost impossible to impose content quotas. Theoretically, you could require a streamer to make available a specified inventory of Cancon, or even to promote Cancon (referred to as “discoverability”), but there is no way of making consumers actually watch or listen to Canadian productions. Trying to apply a 20th century broadcast model of regulation to 21st century streaming is not a good fit. Regulators around the world are grappling with this reality. One of the arguments for imposing an expenditure requirement on streamers, both domestic and international, to support the creation of Cancon is to compensate for the lack of applicability of content quotas in a streaming environment.

A core feature of certified Cancon at present is that it cannot, by definition, be produced by a non-Canadian regardless of whether all the creative talent (writers, directors, performers, designers, composers etc.) and production spend would otherwise meet Cancon criteria. There is a complicated formula that awards points for creative roles filled by Canadians, with a specified number of points required to qualify under different programs.  The fact that a non-Canadian production may be a Canadian story filmed in Canada with Canadian actors is irrelevant with respect to Cancon certification. In short, the colour of the money (the production company) is a determining factor. Additionally, under CAVCO rules, a foreign studio or producer cannot hold the intellectual property, (the copyright) in a Cancon production. A Canadian production company must be the copyright holder for all commercial exploitation purposes for a minimum of 25 years.

As part of implementing the Online Streaming Act, the CRTC was instructed to review the definition of Cancon. The Commission subsequently held public hearings in which ownership of copyright became a key issue. Opinions ranged from expanding the CAVCO requirements to all forms of Cancon to eliminating copyright ownership as a factor. The streamers, who now have (contested) financial obligations to fund Cancon, generally prefer to own copyright in productions. It is not a surprise that they object to being required to fund Cancon productions while being denied the opportunity to own and exploit the rights. Supporters of a more restrictive Cancon definition point out that foreign streamers are free to license Cancon qualifying productions from the Canadian rightsholder. However, a restrictive definition tied to financing and copyright ownership eliminates the possibility of direct financing by foreign streamers and could mean they would in effect be paying twice, first by contributing to the Fund that financed the production and second, by paying to acquire the rights. Moreover, there is no guarantee that the rights would be available on acceptable terms.

Those advocating for a comprehensive Cancon definition that includes financing and IP ownership as factors argue this is necessary to create and maintain a viable Canadian industry. But such restrictions have two effects. First, if copyrights must be retained, this removes from Canadian producers/rightsholders the ability to sell the rights at a time of their choosing (and possibly use the funds to produce more Cancon). Not all productions will have a sustaining revenue stream over time. It should be left to the producer to judge whether to cash out now or license the product while retaining ownership. Second, requiring that the producer be Canadian for a production to be certified as Cancon disincentivizes foreign streamers from self producing content showcasing Canadian stories, artists, locations etc. They can do so but are denied all Cancon credit for such productions. The cost of such productions does not count against their required financial contribution (currently 5% of revenues) nor does the production qualify as Canadian content in terms of meeting existing (or possibly future) content quotas. If a goal of Cancon policy is to promote expressions of Canadian culture through creation of financially viable productions, disincentivizing foreign producers from putting their toes into the Cancon lake makes no sense. Production of Cancon by global enterprises like the streamers will help ensure global distribution, meeting both cultural projection objectives as well as exposing Cancon to new markets.

There is also the question of subsidies provided to producers of Cancon. Under current definitions, the US studios are not eligible to access funds earmarked to produce Cancon (even though they are required to contribute to these funds). This could be dealt with giving foreign studios “contribution credit” for self-financed Cancon productions. It’s worth noting the studios are already offered generous subsidies–euphemistically referred to as tax credits–to undertake non-Canadian production in Canada, and no-one complains about that, except Donald Trump. Trump has been rattling the chains over so-called “runaway production” and has threatened to impose tariffs on movies made outside the US.

While I think many of the concerns of the foreign streamers could be addressed through a more flexible definition of Canadian content, I am not confident the CRTC will see it this way given the policy instructions it received from the government at the time the legislation was proclaimed. Can it comply with this guidance while not painting itself into a CUSMA corner? The Commission is directed to take international commitments into account, although there is no specific reference to CUSMA, only the 2005 UNESCO Convention on Cultural Diversity.

From my perspective it is not realistic for US streamers to expect a free ride (and they probably don’t) but Canada and the CRTC need to avoid being too greedy. They should also be flexible in defining Cancon, focussing more on the promotion of Canadian stories, music and talent and less on maintenance of an industrial policy that relies on protectionism for a favoured few. A policy that calls on foreign streamers to invest in Canadian creativity, given the revenues that they generate in Canada, is not unreasonable; denying them the ability to take a direct ownership stake in the products to which they contribute funding would be short-sighted. The policy straitjacket that exists with respect to Cancon sets up a search for draconian solutions, like the CCIA’s threats. In short, remove the Cancon handcuffs and keep the required contributions reasonable. Give credit for funds expended on content that meets Canadian artistic and cultural criteria. I think this would help blunt the frontal attack from US audiovisual streamers. Music is more complicated. Meanwhile, Canada needs to be careful not to negate any trade obligations it has taken on and avoid being forced into the Article 32.6 “cultural exemption” corner. 

But wait, I have an idea! If all else fails, there is also CUSMA Article 32.2 (b). “Nothing in this agreement shall be construed to…. preclude a Party from applying measures that it considers necessary for the fulfilment of its obligations with respect to …the protection of its own essential security interests.” If Donald Trump considers that importing kitchen cabinets from Canada threatens the national security of the United States perhaps it is not such a stretch to conclude that the preservation of Canadian culture (whatever that is) is just as essential to Canada’s national security, justifying any measures one chooses to employ. Is this a serious option? You decide.

© Hugh Stephens, 2025.  All Rights Reserved.

In writing this opinion piece, I have drawn on my background both as a former Canadian government official who has had some dealings with international trade issues over the years, as well as past experience as an executive with one of the US companies which, at the time, controlled a major Hollywood studio. (Time Warner). However, whatever “solutions” I have proposed to address US industry concerns regarding Cancon are mine alone. I hope they are a useful contribution to the debate, but I want to be clear that I do not speak for the CCIA or the streamers.

US Retaliation Against the Online Streaming Act: How Real is the Threat?   

Illustration of the Canadian flag overlaid with yellow caution tape labeled 'TARIFFS', featuring American flags, symbolizing trade tensions between Canada and the USA.

Image: Shutterstock

As CRTC hearings on implementation of the Online Streaming Act (formerly Bill C-11) grind slowly forward as part of the Commission’s deliberations as to how foreign audiovisual and audio (music) streaming services may be required to meet Canadian content (Cancon) and discoverability requirements, while determining the extent of their financial contribution to various funds supporting Canadian content, affected US industry players are not sitting on their hands. As you would expect, they are deploying a range of tactics to fight back using their industry associations, the Motion Picture Association (MPA)-Canada, representing Netflix, Disney, Sony, Paramount, Universal, Amazon Prime and Warner Bros. Discovery, and the Computer & Communications Industry Association (CCIA), representing among others Amazon, Apple, Google and Meta, as their vehicles of choice.

MPA-Canada is currently appealing to the Federal Court the CRTC decision that its members must contribute 1.5% of annual revenues to the Independent Local News Fund, arguing that the studios do not produce news and should not be required to contribute to a line of business in which they are not active. Apple, Spotify and Amazon are also appealing the full 5% payment on the grounds it is a tax the CRTC is not mandated to apply. The 1.5% contribution to news is part of the CRTC’s initial decision that the streamers should, as a “downpayment”, contribute 5% of revenues to fund Canadian production.  The MPA has also undertaken a lobbying campaign to point out how much its members already contribute to production in Canada, (CAD$6.7 billion in 2023, more than the CBC, Canadian Media Fund and Telefilm Canada combined) even though much of that content does not count as CanCon under current rules.

To this “positive” argument, the CCIA by contrast has added a more hard line, “negative” approach, releasing a study that calculates the amount the CRTC’s compulsory contributions will purportedly cost the US industry. Assuming the levy stays at 5% of revenues (by no means an assured outcome as Canadian broadcasters are urging the CRTC to impose contributions of 20 to 30%, similar to the obligations they face), CCIA estimates this will cost US streamers between $2.19 billion and $6.96 billion (all figures USD) by 2030. The estimate of losses is bundled with CCIA’s claim that the financial obligations constitute a violation of the CUSMA (known as the USMCA in the US) because it creates a preferential regime for Canadian content “thereby discriminating against content classified as American or from a third country”. In the eyes of the CCIA, actions under the Online Streaming Act violate the principle of “national treatment” in which Party A agrees to treat the products and services of Party B “no less favourably” than its own products and services. In support of this claim, CCIA cites the Investment and Digital Trade Chapters of CUSMA/USMCA, Chapters 14 and 19 respectively. According to CCIA, the Online Streaming Act’s “inconsistency with core trade obligations is beyond dispute”. Given this “indisputable” fact, CCIA states that “if challenged, Canada can be expected to invoke its cultural industries exception (Article 32.6) as a basis for justifying the inevitable discrimination….”

Article 32.6 is part of the General Exceptions Chapter of the CUSMA/USMCA. It states, in part, “This Agreement does not apply to a measure adopted or maintained by Canada with respect to a cultural industry…” The production, distribution, sale, or exhibition of film or video recordings as well as audio or video music recordings are included in the definition of a cultural industry. As I have written elsewhere (NAFTA and the Cultural Exception) Article 32.6, while in theory exempting defined cultural industries from the obligations of the Agreement (the NAFTA provision was essentially rolled over into the CUSMA), has a sting in its tail. If Canada applies any discriminatory measures that violate the agreement using the cultural exclusion as the pretext, the US is fully within its rights to retaliate with measures of “equivalent commercial effect”, in any sector. The CCIA’s $2.19 billion or $6.95 billion numbers need to be viewed in this context.

The first question, therefore, is would Canada need to resort to Article 32.6 to justify measures taken under the Online Streaming Act? I argued in an earlier paper I wrote for the School of Public Policy at the University of Calgary that given the current structure of the obligations, Article 32.6 would not be in play because the measures in question are not inconsistent with CUSMA, given the Agreement’s precise wording. You can read the detailed arguments in the paper, but essentially my position is that neither the Chapter 14 Investment reference nor the Chapter 19 Digital Trade provision cited by CCIA are relevant because content streaming is covered by a separate part of the Agreement, Chapter 15, Cross-border Trade in Services. The terms of the Online Streaming Act, as applied by the CRTC provide “national treatment” to foreign streaming services. In fact, they impose lesser requirements on foreign streamers with respect to carriage of Cancon than they do on Canadian streamers.

But this interpretation is only my personal view. I have no idea is this is the interpretation of the trade policy gurus at Global Affairs Canada (I haven’t spoken to them and even if I did, they would be unlikely to tell me what their position would be on a hypothetical trade case) and is almost certainly not the interpretation favoured by officials in the Office of the US Trade Representative (USTR). And certainly not by CCIA. CCIA’s position is that a show or track streamed in Canada is a digital product, (even though it describes its members as providing “streaming services”). The Agreement is clear that there should be no discrimination against digital products of the other Party i.e. they should be accorded “national treatment”, although domestic products can be subsidized. On the other hand, if streamed content is not considered a digital product (nor an investment, which according to CUSMA cannot be subject to “performance requirements” as a condition of allowing the investment) but rather a cross-border service, the conditions applicable to delivery of the service are what counts. National treatment needs to apply to service delivery, and insofar as the Online Streaming Act is concerned, it does.

Whether streamed content is a digital product or a cross-border service clearly matters. If the US brought a CUSMA trade complaint against Canada–and if the CCIA view were to prevail–Canada would either have to change the way it treats US digital products carried by streaming services or defend its actions on the basis of the cultural exception, Article 32.6. If it did the latter, it would be opening itself to trade retaliation by the US, at an equivalent commercial level. In my experience and judgement, Canada would be most unlikely to resort to the exception to justify its actions precisely because of the consequences. The US would retaliate not just against the cultural sector, but in other areas that would set one industry or part of the country against another. To avoid this, the government would instead find some other way to comply with the Agreement by modifying the offending provision (as little as possible but as much as necessary), but doing so in a way, if possible, that still met all or most of its policy objectives.

It is also just possible, however, that Canada would be prepared to absorb the retaliation, calculated by CCIA to be between $400 and $500 million annually if the CRTC mandated contribution remains at 5% of revenues. This sounds like a big number but the random way the Trump Administration has been imposing tariffs on a range of Canadian products such as steel and aluminum (50%), lumber (45%), and autos (25%), industries where Canadian exports total tens of billions of dollars annually, makes $400 million in possible retaliation seem relatively minor. In effect, Trump’s erratic punitive behaviour has normalized trade retaliation–and devalued its effectiveness as a threat. But whatever response the Canadian government took, the first step would be to determine whether Canada was in fact in violation of the Agreement. If one Party considers that “an actual or proposed measure of another Party is or would be inconsistent with an obligation of this Agreement”, it can resort to the dispute settlement process. In the first instance, this involves consultation and if no resolution is reached, sometimes the constitution of a panel to decide the issue. (CUSMA/Article 31).

The CCIA itself cannot charge Canada with non-compliance, although it can raise the spectre of retaliation as it is doing. Only the US Government can bring a complaint, and at this stage it is not clear if it would be willing to do so. Given the range of trade disputes between the two countries, including unilateral tariffs on Canadian exports imposed by the Trump Administration on the basis of specious claims that Canada is a major source of fentanyl exports to the US (last year 0.2% of all fentanyl seized at the US border came from Canada; over 90% was from Mexico), or equally questionable grounds that exports of Canadian products ranging from aluminum to kitchen cabinets pose a national security threat to the US, the bilateral trade relationship hardly needs more issues. It will depend on the extent to which the streamers in the US have the ear of the Trump Administration. Given Trump’s insistence that Canada drop its planned Digital Sales Tax if it wanted to keep the current bilateral trade talks going , it is certainly within the realm of possibility that USTR would take up the CCIA’s case.

There is one other wrinkle to the cultural exception clause. Even if Canada does not justify its actions on the basis of Article 32.6, potentially the US could unilaterally declare it considers Canadian measures to fall under that provision and move to initiate retaliatory measures. If it did so, Canada would then be entitled to demand a panel to determine whether Article 32.6 is applicable, and if so, whether the retaliation met the “equivalent commercial effect” test. However, the key issue would still be to determine whether Canada had violated its commitments under the Agreement. If there is no violation of CUSMA’s terms, the cultural exception is moot. If all this has your head spinning, welcome to the green eyeshade world of trade practitioners.

CCIA, in pushing back against the provisions of the Online Streaming Act, has resorted to the threat of trade retaliation as one more tool in its policy toolbox. That is to be expected. With this in mind, the CRTC will be carefully reviewing how much leeway it has in trade policy terms and needs to keep Canada’s CUSMA commitments in mind when implementing policy. In a following blog posting I will outline what I think Canada and the CRTC need to consider.

© Hugh Stephens 2025. All Rights Reserved.  

Does the Trudeau Government Really Support Canadian Media? Saying One Thing but Doing Another (It’s Time to Walk the Talk)

Image: http://www.shutterstock.com

A couple of weeks ago I provided my interpretation of the results of the recent Federal Court case, Blacklock’s Reporter v Attorney General of Canada. My main objective was to call out the twisting of that decision by those claiming the result means that fair dealing trumps the protection provided under the Copyright Act to TPMs (Technological Protection Measures, aka “digital locks”). In other words, debunking the assertion that as a result of this decision, it is legal for a user to bypass or circumvent an access control TPM in order purportedly to exercise their rights under fair dealing. As I explained, the court did not so rule for the simple reason that it concluded that the user, a Parks Canada employee, did not circumvent the TPM because she had obtained access licitly through purchase of a subscription. The issue at bar was that the password thus obtained was then shared with a couple of dozen or so other employees of Parks Canada and other Canadian government departments for “research”, an identified fair dealing purpose.

The judge concluded that the terms of the subscription were sufficiently ambiguous to permit the interpretation that sharing the password was not an infringement, and thus did not constitute circumvention. He was also unwilling to conclude that a password constitutes a TPM, absent expert testimony. He then went on to assess whether the use fell within the four corners of fair dealing, concluding that it did both in terms of purpose and form of use. As controversial as this decision may have been in terms of determining that sharing a licitly-obtained password granted for a single subscription was not an infringement because the end use was fair, as well as failing to accept that a password authorized by the copyright owner that controls access to content is not a TPM, the decision nonetheless did not legitimize the circumvention of a TPM on the basis of fair dealing. Thus, I concluded the Court had upheld the principle that fair dealing does not trump a TPM, or, put another way, the Court did not overturn that principle.  

Then, noted copyright lawyer Barry Sookman weighed into the debate, posting his views on the decision, “Understanding subscription licenses, fair dealing and legal protection for TPMs in Canada: A critical commentary of the Blacklock’s Reporter Parks Canada decision”. Sookman’s legal deep dive into the case is a much more detailed analysis than my own although he also concludes that, among other things, the decision did not rule that fair dealing trumps the Copyright Act’s anti-circumvention prohibition regarding TPMs. He also disputes the Court’s fair dealing analysis, concluding that since access was not licitly obtained, there can be no fair dealing. According to his analysis, it was not obtained legally because there was breach of contract. Based on his review of contract law and precedents, Sookman concludes (unlike the decision reached by the judge in the case), that Blacklock’s Terms of Service were binding on Parks Canada. You can read his arguments for yourself.

One sure way to know how persuasive these points are would be for Blacklock’s to appeal the case, although this seems unlikely unless a source of funding appears. As Blacklock’s noted in a posting shortly after the decision was announced,

“We are a small business like a million others. We have spent eight years and $538,665 fighting the Attorney General and Federal Court to uphold property rights. FC 829 should be appealed to the Supreme Court, but large corporations and trade associations relying on electronic commerce cannot leave it to Blacklock’s alone to litigate the definition of “password” in Canada in the digital age. Parties interested in joining an appeal with financing should contact counsel: Scott Miller, c/o MBM Intellectual Property Law. 275 Slater Street, 14th Floor, Ottawa K1P 5H9.”

Will anyone step forward? The Attorney General for Canada has deep taxpayer-funded pockets. Blacklock’s does not. This is David v Goliath.

Sookman’s analysis suggests there are solid grounds for an appeal, but to me the most important element of his blog post relates to policy direction rather than legal arguments. He concluded his analysis by noting the discrepancy between the Government of Canada’s aggressive pursuit of Blacklock’s and its professed support for Canadian journalism. The government, through the Attorney General of Canada (AGC, i.e. the Department of Justice), not only very aggressively defended the suits Blacklock’s brought against government departments but went beyond a defence, seeking a declaration from the Court that a password is not a TPM and that its use does not constitute circumvention, in effect seeking to gut the TPM provisions of the Act. (The Court declined to make such a declaration). Moreover, when Blacklock’s tried to discontinue the action, the government continued to pursue the case, instituting a motion seeking declaratory relief that the Agency did not breach Blacklock’s Terms of Service or infringe copyright based on a fair dealing defence.

This is the same government that constantly speaks of the need to maintain a viable media sector and which has undertaken several initiatives with the declared intent of doing so. Perhaps the most visible, and possibly most controversial, is the Online News Act, Bill C-18, that sought to impose an obligation on large US-based social media platforms, to wit Google and Meta (Facebook/Instagram), to negotiate good faith content sharing agreements with Canadian media for the platforms’ use of news content, failing which the government would impose binding arbitration. Most people are familiar with the decidedly mixed outcome of that exercise, with Meta “complying” with the legislation by blocking links to Canadian news content on its sites while Google agreed to contribute $100 million annually to media in Canada, to be disbursed through a hastily formed entity, the Canadian Journalism Collective. The funding subsumes Google’s earlier voluntary licensing agreements with some media companies. The Collective is expected to dole out about $17,000 annually per working journalist from this fund. Meanwhile news links remain blocked on Facebook and Instagram.

Another government attempt to obtain additional funds comes through a second recently passed piece of legislation, the Online Streaming Act, Bill C-11. The CRTC has taken early action to require an initial “downpayment” from foreign streaming services operating in Canada, part of which will go to support the Independent Local News Fund. Then there are tax credits such as the Canadian Journalism Labour Tax Credit for a QCJO (Qualified Canadian Journalism Organization).

There has been some pushback against financial support for media from governments, streamers, and social media organizations, primarily from a few prominent journalists worried about compromising the independence of the Fourth Estate. See Andrew Coyne’s recent comments (“Please stop helping us: the newspaper bailout is a comprehensive policy failure”) in the Globe and Mail. Although many in the media industry do not agree with his perspective, Coyne has a point. The media, newspapers like the Globe and Mail and National Post, specialized journals like Blacklock’s, recreational publications like the Walrus or Maclean’s, or various other online publications, should be able to stand on their own feet and earn revenue from the valuable content they provide. If that content is not worth paying for in the eyes of consumers, why produce it? But a business model that is based primarily on getting paid by consumers for the content they consume is not viable if media products are free for the taking by anyone claiming “fair dealing”. That is nothing but a licence for piracy.

If you click on the link to the Coyne opinion piece above, unless you have a digital subscription to the Globe, you will run into their paywall. You will be invited to register for a few free articles, but more specifically you will be encouraged to subscribe, with a very attractive initial offering (at the moment, $7.96 a month, before tax) that after a set period of time will revert to the more normal subscription price of about $32 a month. That is how the Globe can afford to pay Coyne and run its business. You can even use the Globe content that you access through your paid subscription for fair dealing purposes, for example by making a copy of a reasonable amount of that content for research, private study etc. However, it you were an employee of a large organization, (like a federal government agency or department for example), and a number of employees of your organization needed access to the Globe to stay current on issues, to track what the public is reading, or to anticipate questions that ministers might be asked, etc., one would normally expect that rather than having just one subscription for members of that organization, there would be an institutional subscription that reflects the true usage of the content. For example, Parks Canada has almost 6000 employees. The federal government in Canada has almost 300,000. A smaller organization, like the Department of Canadian Heritage, (that is spearheading policy initiatives to “save” journalism in Canada) has almost 2000 employees. Some specialized agencies (Copyright Board of Canada, for example) have just a handful. (The Copyright Board has 25). One would expect that an institutional subscription would be tailored to the number of users.

One would not expect that a large government department would purchase exactly one (1!) subscription and freely share it among any employees who might need access to the content, using fair dealing as the pretext. But that is what happened to Blacklock’s Reporter. That is what Department of Justice lawyers, representing Parks Canada, (an agency of the Government of Canada, the same government that is touting its support for professional journalism because of the important role it plays in our democracy) argued was their right to do. Rather than siccing the legal dogs from the Justice Department (representing the Attorney General of Canada) on a news organization like Blacklock’s that investigates and reports on what is going on in Ottawa, the Government of Canada should walk the talk of its policy to support responsible journalism in Canada and pay fairly for the content it uses rather than hiding behind a specious expansive interpretation of fair dealing. The actions of the government are reminiscent of the tactics used by educational institutions in Canada to avoid compensating authors and publishers for widespread copying of content for use in teaching under the guise of “educational fair dealing”.

Not only has the Attorney General taken a hard line on this case, it has also tried to blacken Blacklock’s reputation by accusing it of entrapment and being a copyright troll. Blacklock’s had to resort to Access to Information requests to learn how many government employees had accessed the single subscription they had authorized. The judge in the Blacklock’s case explicitly dismissed these allegations, noting that Blacklock’s had no intent to deceive.

As Barry Sookman concluded in his blog post, 

“It is high time the Government decides whether it wants to win its suits with Blacklock’s at all costs and in the process create precedents which undermine news services and other cultural industries in Canada or do the right thing and support Canadian news publishing. A good start would be revisiting its legal argument and if this case is appealed, think about what it is really trying to accomplish.”

There are lots of precedents where the Justice legal dogs have been called off for policy reasons, among them the $20 billion settlement on First Nations child welfare. The Canadian Human Rights Commission ruled that the federal government had chronically underfunded child welfare services on Reserves and ordered restitution. The federal government appealed the Commission’s order for payment and challenged the tribunal’s orders in the Federal Court. The Justice lawyers were prepared to fight to the bitter end. But then political realities intruded and common sense prevailed, the appeal was paused and negotiations leading to the settlement were undertaken. The government’s legal stance was way out of synch with its stated policy positions.

The same is true in this case and it is high time the Government of Canada stopped saying one thing but doing another. It’s time to walk the talk in Ottawa.

© Hugh Stephens 2024. All Rights Reserved.

The CRTC and Online Streaming: Money Now; Details Later

Photo: Author

The first shoe has dropped for foreign online music and video streamers in Canada, at least those generating more than $25 million a year in “contribution revenues” from the Canadian market. On June 4, the Canadian Radio-television and Telecommunications Commission (CRTC) announced it will be imposing “base contributions” of 5 percent of annual Canadian contribution revenues on streamers such as Netflix, Spotify, Amazon Prime, Disney + etc. as part of the implementation of the Online Streaming Act passed last year. (Canadian streamers associated with a Canadian broadcast entity, i.e. Crave, are exempt). The Act brings online streaming services under the regulatory purview of the broadcast regulator. The “base contributions” are to begin in the 2024-25 broadcast year, beginning September 1 of this year, and are expected to generate in the range of CAD$200 million annually. According to the Minister for Canadian Heritage, Pascale St. Onge, the levy is about “fairness in the system” and will be good for the streamers because it will create more content that will “most likely” go back on their platforms. So why are they not happy? (And they are not).

They are not happy because this is just the first shoe to drop, and while they now know the cost of this shoe, they don’t know what the other shoes are going to cost, what exactly those shoes will look like, or indeed whether they will be allowed to try them on. Because, you see, the rules about who can access the Funds that their money will be going into, and on what terms, have not yet been determined. Key decisions regarding the definition of Canadian content and who can own or control Canadian content (through holding the copyright) are a couple of years down the road. With those decisions could come other requirements, such as allocating a percentage of revenues to production of local content on top of the current “base contribution” to existing Funds, discoverability obligations, and possibly others.

With regard to the top-up of existing funding mechanisms, just about anybody who is anyone in film, TV or music will be lining up to get a share of the $200 million pie. The list includes (and I am not kidding) no less than 11 identified recipients named by the CRTC;  the Canadian Media Fund, the Independent Local News Fund, the Black Screen Office Fund, Certified Independent Production Funds supporting OLMC (Official Language Minority Communities), the Indigenous Screen Office Fund, FACTOR and Musicaction, a new temporary fund supporting local news production by commercial radio stations outside designated market, the Canadian Starmaker Fund and Fonds RadioStar, the Community Radio Fund of Canada, direct expenditures targeting the development of Canadian and Indigenous content and, last (and least, in terms of percentage of the funding from audio online undertakings), the Indigenous Music Office. Is anyone missing? What about the Punjabi Weather Network or the Lawn Bowling Broadcast Fund? This is micro-management gone wild.

The 5% contribution funding is divided up into various slivers, some larger than others, by the Solomons at the CRTC. As for the Minister’s optimistic belief that those making the contribution will “most likely” benefit from the content produced, I struggle to see how Netflix or Disney+ will get much out of the Independent Local News Fund (which is currently funded by Canadian cable platforms) or Francophone productions in British Columbia or Alberta. The argument, no doubt, is that this is the price for participating in the Canadian broadcast ecosystem, that now includes online streaming undertakings. Music streamers, on the other hand, will probably benefit from the development of more Canadian talent.

As a consumer of music and audio-visual content, I am also a participant in the broadcast ecosystem and already pay in various ways, through income and sales taxes, and streaming and cable (yes, I am still one of them) subscription fees. I have a hunch I am about to pay more. For several years now the AV streaming services have been on a spending spree in an attempt to grab market share. Profitability came second, but that is rapidly changing as the market matures. And that means subscription fees are going up. (Netflix is killing off the basic subscription I have had for a number of years and given me the choice of a slight price reduction if I put up with ads, or else face a roughly 50% increase in monthly subscription fees. I am still dithering). And this was before the CRTC dropped its latest bombshell. If the CTRC is going to take 5% or more of revenues, simple math tells you there are only a couple of ways to make that up, cut costs or raise prices. “Costs of doing business” inevitably get recovered from customers. If the price of supporting a viable content industry in Canada was limited to a 5% increase in my monthly subscriptions, I would gladly pay but I doubt that my contribution will be limited to 5%.

Ironically, the issue of whether the CRTC should regulate streamers was postponed for years in Canada because of aversion of what was referred to at the time as the “Netflix tax”. No-one knew for sure what that meant; it could have meant imposing sales taxes on a Netflix subscription (which has since been done), or it could have meant a levy on Netflix (which was the first streaming service to enter Canada) to fund Canadian content. But while people weren’t clear on what a Netflix tax was, they knew they didn’t like it. It became a symbol of piling yet one more nuisance fee onto consumers (“carbon tax” anyone”?) and while a small fee on a streaming subscription was unlikely to send anyone to the poor house, politicians from all parties outdid themselves by swearing to avoid any form of Netflix or internet tax.

Serendipitously, I have just finished reading Howard Law’s new book, “Canada vs California-How Ottawa Took on Netflix and the Streaming Giants”, a fascinating deep dive on Bill C-11, which became the Online Streaming Act, and its unsuccessful predecessor Bill C-10. (For those who don’t know, Howard also publishes a weekly blog, MediaPolicy.ca, another essential read for anyone interested in the Canadian media scene). Law devotes an early chapter to “No Netflix Tax 1999-2019” and then goes on to take the reader through the painful teething pains of Bills C-10 and C-11. The term “Netflix tax” has fallen out of use these days but the end result of the imposition of the CRTC “base contribution” on foreign streamers is really no different from an indirect tax.

Alternatively, if the streamers do not fund this new “base contribution” by raising prices to consumers, they will likely compensate for it by spending less elsewhere, i.e. on Canadian production, the very objective for imposing the contribution in the first place. According to MPA-Canada, in 2021-22 “foreign investment in production” (FIIP, a metric for international participation in the film and television production industry in Canada) contributed $875 million to production of Canadian content, about 13% of total financing for Canadian-owned content productions. (This is in addition to the much larger Foreign Location Shooting spend on US productions made in Canada). By comparison, the Canadian Media Fund contributed only 7% of total financing for Canadian productions. The foreign contribution to Canadian production was not far off the $1.09 billion spent by Canadian broadcasters on in-house production. A similar scenario exists in Australia, where the government is also exploring various options to require foreign streaming services to fund local production. Yet the streamers are currently the leading source of production funding for Australian adult drama. In Australia, streaming services invest more in this drama than public, commercial and subscription broadcasters combined, despite having no legal obligation to do so.

What does the US government think of the CRTC’s announcement? That will depend on how hard the foreign streamers push the US Administration to intervene, and right now it is not clear what they will do. Part of the issue is those other dangling shoes. The outcome might not be all that bad for the streamers if they are given fair access to the content they will be required to fund. After all, they need to spend on content to fill their pipeline. But the terms of what payback they will get from their required investments are not clear. A lot will depend on what amount of spend the Commission imposes on foreign streamers for production of Canadian content (Cancon), and how Cancon is defined.

Right now, the Canadian content definition is a complicated formula, set by different funding and regulatory bodies, as I outlined in a blog a couple of years ago,  (see “Unravelling the Complexities of the Canadian Content (Cancon) Conundrum”) and as Law outlines in his book. The core is the infamous points system, based on the nationality of key players in the production, plus amount of local spending. In addition, one of the current conditions for a production to be considered Canadian—and thus qualify for tax credits (funding)–is that the copyright and catalogue rights must be held by a Canadian (normally the producer) for a minimum of 25 years. However, the CRTC does not impose a copyright requirement when defining Cancon for broadcast quota purposes. Will this continue when the Commission finally gets around to addressing this issue? That shoe is still hanging there.

If the Cancon definition is tweaked in such a way that the foreign streamers are required to spend a set percentage of local revenues on Canadian content, but at the same time are excluded from being able to acquire such production (i.e. restricted to licensing content they have already invested in), this will be a problem. It is one thing to apply strings when a producer is applying for tax credits (AKA a subsidy). It is quite another to be required to fund production but be excluded from recouping a return on that investment in a way that makes most sense for the funder. With the Cancon definition shoe still dangling, trying to enlist the US Administration to bring pressure on Canada right now may not be the best strategy. Not that this has stopped some of the usual suspects, like the National Foreign Trade Council and the US Chamber of Commerce from weighing in. Their comments are no doubt a marker for future reference if needed. CUSMA/USMCA obligations need to be kept front and centre.

As I noted in an article last year, (“Could or Would the US Retaliate Against the Online Streaming Act (C-11) Now That it is Law?”), “the CRTC must be mindful that foreign streamers who contribute to Canadian productions need to be able to access, acquire and distribute them on an equal footing with Canadian streamers, who face no such limitations”. The CUSMA/USMCA trade agreement requires that cross-border digital services be dealt with on a national treatment basis, i.e. accorded no less favourable treatment than Canadian streaming services. The current proviso that exempts Canadian streaming services associated with a Canadian broadcaster from the 5% levy on revenues is not an auspicious start, but we will have to wait to see what happens.

Regarding the link between Cancon and copyright ownership, I know there are people in the industry in Canada whom I respect who argue this is very important to maintain cultural sovereignty. They feel strongly that it is essential for Canadians to hold the copyright in productions to avoid becoming just service producers. They have a point, although there are other considerations that need to be borne in mind. A Canadian producer should be able to hold the copyright (and assume the risk that the production may not be big earner in future) if they wish, or else assign it, take the money and move on to the next project without the government putting its thumb on the scale of commercial negotiations. And it is not unreasonable for those who provide the funding and invest in a project to be allowed to negotiate commercially on how the asset is exploited.

The CRTC’s June 4 announcement can be considered a down payment or perhaps a first shot across the bow, depending on how you want to look at it. We are in for months, if not years, of more consultations. The CRTC’s own announcements project consultations into 2026, well past the next election. There will be several more shoes to drop, and the political landscape could well change. In the meantime, the streamers will have to start paying into a mixed bag of Funds as directed by the CRTC. As for those all-important details about the regulatory framework, they will come later.

© Hugh Stephens 2024. All Rights Reserved.