Common questions and answers on the streaming tax – AKA the Netflix Tax.
This statement was originally published on openmedia.org on 29 July 2020.
What’s a Streaming Tax, and why are we talking about it?
A Streaming Tax – which is often misleadingly called a “Netflix Tax” – is a policy proposal that would bring streaming platforms under a version of the same rules that currently apply to Canada’s broadcasting companies (e.g. Bell Media, Chorus Entertainment, Rogers Media, the CBC, etc.)
In practice, streaming services would be mandated to contribute to fund the creation of Canadian content, in the same way that companies providing cable TV have historically been required to contribute. But there’s one major difference: when cable companies have contributed, they’ve also historically been prime beneficiaries of the systems they are contributing to – as they are eligible to apply for those same funds to create their own content. So while they contribute funds, they also generally receive funding in return.
Foreign streaming services like Netflix, on the other hand, aren’t eligible for the Canadian funding they’re contributing to – meaning they’re just being forced to provide funding to content for cable TV broadcasters. All at the expense of Internet users, paying for the content they’ve chosen to watch.
Streaming taxes were a topic of much debate in the 2015 federal election, and were rejected by all parties, recognizing that we can’t treat the Internet like Cable. Subsequently, when the federal government held its #DigiCanCon consultation in 2016, Heritage Minister Melanie Joly famously noted that“everything was on the table” – EXCEPT a Netflix Tax.
However, this proposal seems to have found its way back on the table over the past year, as the government faces pressure from cable to somehow offset people cutting the cord and making the switch off their services. We believe the Streaming Tax is deeply misguided, mistakenly treating the Internet like Cable TV and threatening to hold us back in time, instead of looking to the Internet model as a way to modernize our content services and platforms for the digital age.
Is the Streaming Tax a sales tax?
No, it’s not a sales tax.
The Streaming Tax would require streaming platforms to pay a percentage of their revenue to the Canada Media Fund (CMF). The CMF distributes funding for the production of Canadian content – AKA “CanCon”.
There are calls for international streaming organizations to pay sales tax – they don’t currently, with the exception of Quebec, who introduced sales tax in 2017. OpenMedia supports their inclusion in sales tax – we’ve written more on the subject here. But we ARE opposed to a Streaming Tax, which is the only thing that we are addressing in this FAQ.
What’s CanCon?
In its current form, “CanCon” is a really narrow view of Canadian content. The term comes from a government standard that was used to boost the success of Canadian content, mainly by enforcing its presence in a set amount of broadcast airtime. It was dreamed up in a time when, unlike Internet streaming, space on the airwaves was scarce and only a set amount of content could be made available. In a world of very limited content windows, airing too much popular content created in other countries risked crowding out production by Canadian creators for reaching their audiences.
Right now, Canadian broadcasters are required to have between 50-60% of programming yearly be Canadian in origin – that’s creative content that’s “Canadian”, according to a strict set of rules. For example, in order for something to qualify as a CanCon TV show:
- The producer must be Canadian, and also has to be responsible for monitoring and decision-making;
- Either the director or screenwriter must be Canadian;
- At least one of the two lead performers must be Canadian;
- A minimum of 75% of program expenses and 75% of post-production expenses must be provided by Canadians and Canadian companies;
- And a production must earn 6 out of 10 ‘points’, based on how many key creative functions are performed by Canadians
What an inflexible and clinical process for assessing creative projects that tell Canadian stories, right? It should be no surprise that a lot of great content by productions shot in Canada, written by Canadians, or starred in by Canadians does not qualify for support. Not to mention: it doesn’t really apply to the kinds of content Canadians are making on the Internet today, like podcasts, Youtube channels, and Patreon-supported content.
The CanCon system was an imperfect system adopted in a time of limited options for creating homegrown content. While it can help make sure that content is created using some Canadian companies behind the scenes, it does not guarantee that the end result matches Canadian culture, or stories. And, on the flip side, this system means that a large amount of content that is filmed in Canada, and stars Canadians, still doesn’t qualify as CanCon even though you would think it should.
To see just how bad the CanCon system is at reflecting what’s Canadian, Michael Geist has a great quiz called Is It CanCon? The answers might surprise you!
What does CanCon have to do with the Streaming Tax?
The Streaming Tax would slap a CanCon quota on streaming platforms operating in Canada, while still prohibiting Canadian creators who work with streaming service platforms from accessing CanCon funding to create Canadian Content specifically for digital audiences – in effect, taxing popular new media to pay for continued production of old media with shrinking audiences.
The modern Internet has provided an infinite diversity of niche services and creator-audience relationships, allowing us to more fully share with each other not just one monolithic “Canadian” identity, but a rich panoply of identities and ways of living held by people living in Canada.
But Minister Guilbeault is looking to squeeze the Internet back into broadcast’s mold, by trying to apply rules that are based on a limited amount of space to the infinite possibilities of the internet- and the Streaming Tax is just the start. Alongside mandatory contributions to the CMF, Guilbeaut is proposing a mandated percentage of CanCon Internet ‘programming’.
Isn’t it fair to make streaming companies follow the same rules as broadcasters?
It’s certainly not fair to the people who end up footing the bill – and don’t kid yourself, that’s us. The last time the government brought up a Streaming Tax, companies like Netflix said they’d be passing the costs onto their subscribers. Translation: streaming platforms aren’t going to be paying for a Streaming Tax, you will. Right now, people are already struggling to keep their heads above water during COVID-19 – there’s nothing fair about saddling them with added costs.
But just as importantly, it is not a fair or effective way to support new Canadian content. Cable TV costs are built from the start with the understanding that these companies need to factor in their contributions to the CMF – and that they’ll be able to apply for some of the funding for their own content production. Unlike Canadian broadcasters, foreign companies can’t access the CMF – even though the Streaming Tax would have them pay into it, and even when they’re producing and shooting content in Canada, by Canadian creators. That’s despite the fact that foreign companies today contribute by far the most funding for new English-language content written or produced in Canada.
Bigger picture, streaming services are not like broadcasters, and trying to treat them like they are is going to run into a lot of problems.
What makes streaming any different than cable or radio?
Streaming and these old broadcasting platforms are completely different beasts.
- On a streaming platform, you’re in control. With streaming, you pick the content you want to watch or listen to on-demand, instead of “tuning in” to a predetermined cable or radio broadcast.If you and a friend tune into the same radio station, you’ll hear the same song at the same time. That’s because cable and radio are single broadcasts that deal with a finite amount of airtime. Meanwhile, if you and a friend both open Netflix, the stuff you watch and the time you spend watching it will be totally different. There’s no airtime to fill with streaming, and critically, there’s no minimum or maximum amount of content, which has led to a proliferation of much more diverse and niche Canadian content than we ever got from broadcast media.
- There’s no clear limits on who streaming content requirements would need to target: Unlike cable and radio, which online platforms count as streaming platforms isn’t very difficult to define – and that could make Streaming tax legislation both a dangerously broad and ultimately ineffective limitation on how we access content online. And because it is so hard to define who the government is trying to target with its Streaming Tax, this policy threatens to go after way more than just Netflix.Take Spotify and Google Play Music, or podcast platforms like Apple Podcasts and Stitcher – all streaming platforms, but very different from Netflix. They can stream practically anything audio-based: talk shows, music, audio dramas, monologues, poetry, journalism, you name it. Canadian-made content is already flourishing on these platforms without help – and it is unclear how the government could effectively regulate their content identity without greatly interfering with our ability to access them at considerable unnecessary cost.Things are even worse when we look at user-generated content playgrounds like YouTube and TikTok. YouTube lets you stream anything available in their media library or uploaded by their 1.8 billion active users. You can see a blockbuster movie, listen to someone’s original song, buy an episode of your favourite TV show, watch a dance video or political protest uploaded from someone’s iPhone, see an indie creator’s short film, and everything in between. Cable has never had to deal with a line this blurry between user-generated content and industry-produced content.Likewise, creators and artists on TikTok can directly upload original video clips – dancing, comedy sketches, cinematography, and more – to be streamed by their audience, and a very healthy TikTok community exists of Canadian content from many types of creators. TikTok doesn’t host any movies or TV shows- It’s all user-created content- but is streaming content nonetheless. This simply doesn’t match the same criteria and standard that applies to CanCon, or broadcasting regulations in general.
I love Canadian content. What’s wrong with making streaming services pay into CMF and follow CanCon rules to support it?
We love Canadian content too! But this bill doesn’t encourage CanCon to step into the modern ages and make programming with Canadian stories and stars specifically for the digital era. In fact, instead of making more Canadian shows available, it may just reduce the number of American and International TV shows that Canadians can watch. And it continues to prop up a system that is based on the world of broadcast, and cable TV – not the Internet.
When CanCon regulations were dreamed up in the 1970s, websites hosting millions of individual creators and artists didn’t exist. These rules were designed to fit the world of cable and radio – and that’s why there’s no logical way to apply the Streaming Tax to platforms like YouTube, Apple Podcasts, and Netflix.
For platforms that host a lot of user-created content, like Youtube or TikTok, none of it is considered Canadian content, because it doesn’t fit into the CanCon criteria, which have not been updated since 1995. And even if the CanCon criteria were updated, it would be next to impossible to figure out what percentage of this kind of content is CanCon. We’re not talking about regulating a few thousand titles here – YouTube creators upload around 300 hours of video content every minute. In 2019, almost 200,000 new podcasts were released – and that number’s been steadily growing for the past decade. The content hosted on these platforms is vast and constantly fluctuating; an attempt to assess its CanCon-worthiness would blow millions on the personnel and AI needed just to comb through each new upload, let alone the existing content.
For platforms with smaller, produced catalogues, like Netflix, we run into a different problem. If platforms are asked to ensure that their library of CanCon is a set percentage of their overall content library, it’s unlikely that they’ll run out and start ramping up their CanCon production to meet the threshold. Instead, it’s far more likely that they’ll just trim their catalogue of foreign content until it’s reduced enough they meet the required CanCon percentage.
Those of us who tried early Netflix will remember the frustration of finding that our favourite American or International shows weren’t available in Canada – and the amount of quality content produced outside Canada has surged each year since, as creators around the world have become more fluent with digital production technologies. It could mean a huge quantity of shows being suddenly made unavailable to Canadians. Nobody wins if much quality International content is suddenly gated from us. Not CMF, not Canadian producers, not Netflix, and least of all not regular folks who just want to watch their favourite shows and experience new ones with a different perspective.
What would the Streaming Tax do to the small Canadian creators on these streaming platforms?
It will likely make it much harder for them to make a living off their work. Unlike cable and radio, a lot of streaming platforms are safe havens and incubators for small and indie creators.
Because it’s fairly cheap to set up shop, podcasting is one of the most accessible ways for indie creators and regular folks to get their audio content out in the world. And unlike working with Netflix or traditional broadcasting, creators can submit their podcasts directly to these platforms without going through a producer, distribution company, or label.
YouTube and TikTok have done the same for millions of creators, artists, and indie production companies by providing a free platform for users to stream their videos. Small Indigenous artists have even started to use TikTok as a means of amplifying First Nations, Metis, and Inuit cultural content.
But companies are interested in the path of least resistance, and Minister Guilbeault’s proposal basically lays down an obstacle course. Instead of jumping through his series of flaming hoops to raise prices, absorb more costs, and meet increased regulatory requirements, these platforms are far more likely to do what they can to avoid the added costs and labour. And when that happens, it’s small Canadian creators who will suffer most.
YouTube and podcasting platforms will look for ways to offload the cost of the Streaming Tax and the responsibility of meeting CanCon requirements onto individual creators, and could require proof of identity to post or run a popular account. Companies will also likely reduce the revenues due to creators from Canada from subscriptions and ad revenue, to keep enough money to pass through to the CMF – making it harder to be a Canadian content creator who makes a living through your online work. Given that the vast majority of small and indie creators work on small budgets, their margins are already thin, this could shrink their presence quite a bit. And again, they aren’t eligible for the funding they’d be helping to support.
The result? Less Canadian creators surviving in the digital realm, and the potential for the majority of non-CanCon videos and podcasts being blocked in Canada to meet CanCon % requirements- impoverishing our Internet experience twice over.
