As the CRTC considers approving a new tax on streaming sites, Canadians must demand to know where their money is actually going.
On May 25, 2011, the Canadian Radio-Television and Telecommunications Commission (CRTC) published a Broadcasting and Telecom Notice of Consultation, launching a fact-finding mission on today’s Over-the-Top (OTT) programming services and their potential impact on the Canadian entertainment industry. This exercise could result in the modification of the CRTC’s previous New Media exemption orders, which continue to promote a “hands-off” approach to regulating new media technologies.
On the surface, the CRTC’s proposed exercise sounds reasonable. Internet video-streaming services such as Netflix, Hulu Plus, and Amazon Prime have become so popular in the United States since the CRTC’s exemption orders were originally published two years ago that it has become necessary to evaluate the potential impact these new services could have on the Canadian entertainment industry, and on Canadian culture. Already, Netflix has gained over a million Canadian subscribers since last year’s launch of its online video-streaming service.
However, statements from the CRTC’s consultation suggest that its inquiry might produce highly undesirable results, further reducing our entertainment choices and limiting the development of viable Canadian content. It refers, for instance, to a report issued by the Standing Committee on Canadian Heritage in March 2011, which recommended that the CRTC:
examine the growing emergence of non-Canadian broadcast players in the new digital realm and initiate a public consultation process to determine whether and how such non-Canadian companies should support Canadian cultural programming. (emphasis added)
It appears the CRTC is considering recommending that the federal government levy a new tax against all OTT service subscriptions, based on the premise that the money is needed to help “support Canadian cultural programming.” This tax was indirectly proposed by the Standing Committee on Canadian Heritage, and is supported by members of the rather secretive Over-the-Top Services Working Group (“35 private-sector executives from the distribution, telecommunications, broadcasting, production, and creative sectors in Canada”), or “The 35” as I like to call them.
With the flaws in the CRTC’s arguments, it’s hard to believe usage-based billing has made it this far. Read all about it here.
One immediate and significant problem with the proposed tax is that it would only apply to OTT services with a Canadian business presence. U.S.-based Netflix, the largest OTT service in the world, has no official business presence here in Canada, and is out of the jurisdiction of both the Canada Revenue Agency and the CRTC. Netflix isn’t legally required to collect any Canadian sales tax, pay any Canadian corporate tax, or even comply with any Canadian content requirements.
If the goal of the tax is actually to protect Canadian content, then it is missing the mark, because it will be unable to target precisely the companies that are supposedly causing the problem. This suggests that The 35 must have a different goal in mind, with the discussion of foreign OTT services being nothing more than a red herring.
Large Canadian corporations already own a wide range of Canadian production, broadcast, distribution, and internet-access services, and are now launching their own subscription-based OTT services. Any taxes collected from their OTT subscribers would be returned to the corporations in the form of Canadian production funds. This means that, as a user, you would not only pay a monthly fee (plus sales tax) to the Canadian OTT service that has the content you want to watch, but you would also be charged an extra tax that would be handed over to various divisions of your OTT provider’s parent corporation.
Furthermore, the application process for these production funds could be rigged in such a way that any independent producer not properly “partnered” with any of the corporations represented by The 35 would never qualify. The scheme would ensure that The 35 would not only receive all of the tax money collected from their own OTT subscribers, but would also receive the tax money collected from the few independent Canadian OTT subscribers struggling to survive.
Back in July, OpenMedia.ca boycotted the CRTC review of OTT services like Netflix and YouTube. The Mark reports here.
Foreign-based OTT services such as YouTube, Vimeo, and Netflix are already stealing customers away from the existing cable television services of The 35, not only by offering a wider selection of high-quality entertainment choices, but also by allowing Canada’s next generation of content creators to independently publish high-quality Canadian content online, thus completely bypassing the “walled garden” style corporate infrastructure of The 35.
Perceiving this as a threat against their control of the Canadian entertainment industry, The 35 have asked the CRTC to study the possibility of taxing OTT services, with the expectation that this new revenue stream will find its way back into their hands in the form of production funds.
Furthermore, the fact that usage-based billing and aggregated volume pricing of The 35′s internet services will very likely not be applicable to their OTT services means that, in comparison, the continued use of foreign OTT services could become so expensive that most Canadians might have no other choice but to retain the services of The 35 – as chosen and priced by The 35 – whether they like it or not.
If implemented, this highly deceptive taxing scheme will fleece Canadians, limit their entertainment choices, fill the coffers of large corporations, and further reduce the amount of viable Canadian content. This is not only another fine example of regulatory capture, but could also be viewed as a form of legalized embezzlement – one that has the potential to be approved by the CRTC.
“Netflix” photo courtesy of Reuters; “OTT” image courtesy of François Caron.