CRTC calls for ISPs to pay for CanCon, ‘equitable’ OTT contributions

GATINEAU — The CRTC is recommending the government undertake a bevy of changes to the Canadian content system, including a new approach to funding content that would include contributions from telecom service providers and see online services make “equitable” contributions. “What we’re suggesting in the future is that, as a policy principle, everyone who’s deriving a benefit, who’s participating in the system, should make a contribution,” CRTC chairman Ian Scott said in an interview. “That doesn’t seem to be a particularly wild idea.” That would mean internet service providers (ISPs) and other telecom providers would contribute an equal amount to the system that broadcasting distribution undertakings (BDUs) do. “Demand for these services is almost wholly driven by demand for audio and video content, yet the Canadian market for this content is only supported by BDUs, television programming and radio services,” the report said. It suggested TV providers, radio services and “appropriate telecommunications services” contribute a fixed percentage of revenues. If that level was set at, for example, one per cent, “contributions from telecommunications services would be somewhat higher than those expected from existing contribution commitments, contributions from radio services would be somewhat higher than those currently made to Canadian content development and contributions from BDUs would be considerably less than their current requirement to contribute up to 5% of their revenues,” it said. The regulator is also recommending the end of traditional broadcast licensing and for making “any video or audio services offered in Canada and/or drawing revenue from Canadians subject to the legislation.” While that would see services such as that from Netflix Inc. incorporated into the broadcasting system, they wouldn’t necessarily have to contribute in the exact same way as telecom providers. Netflix declined to comment. “These services are not identical and so should not make identical contributions. Instead, their contributions should be appropriate to their circumstances, while providing the greatest benefit to Canadians,” the report said. To make that happen, the traditional licensing model would be replaced by “agreements” that would see services such as OTT platforms obtain access to Canadian tax incentives and funds. They would get such benefits in exchange for making commitments, for example, about supporting promotion or discoverability of content by Canadians, or “facilitating the prominent placement of Canadian content, its export and/or the attribution of Canadian sources.” Scott said the new, flexible regulatory system would reduce regulatory burden because companies would come in as groups, rather than having each division have separate applications. John Lawford, executive director of the Public Interest Advocacy Centre (PIAC), said in a phone interview that he isn’t sure how well-thought out the decision is considering it will seemingly scrap the CRTC’s enforcement mechanisms through distribution licenses in favour of voluntary agreements, despite saying in a blog post Thursday that licensing is a “significant barrier to entry” in broadcasting markets. In that post, Lawford notes that the idea isn’t bad in principle, “but we feel it will only work if the CRTC is given a strengthened bargaining position beyond existing incentives it says it will use to entice programming distributors to help fund Canadian content.” “We want to use incentives, rather than prescriptive rules,” Scott said in the interview. “We’re not saying we’re going to have Canadian content quotas necessarily,” he said, adding contributions from the players will be formalized in those service agreements. The report also said Canadian content funding “could also incorporate a portion of the revenues derived from spectrum licensing and auctions, since the demand for spectrum is driven to a large extent by the demand for audio and video content.” Monica Auer, executive director at the Forum for Research and Policy in Communications, agreed that internet and mobile service providers should support production of new, first-run programming content because their subscribers access audio-visual content. She also said the group “would prefer to see a clear regulatory framework established through a public-hearing process, that would set standard obligations and incentives, rather than a one-negotiation-at-a-time approach.” The CRTC suggestions were part of its report on the future of programming models, issued in response to a the the government’s Creative Canada strategy, which asked the CRTC to consult on future distribution of programming. Heritage Minister Mélanie Joly told reporters early Thursday afternoon that she would offer further comments on the report “shortly.” “Of course, the conclusion is clear. We need a new system to deal with broadcasting and digital platforms in this country. Of course, we will go ahead and modernize our Broadcasting Act and our Telecommunications Act,” she said, according to a transcript. The government announced upcoming reviews of both pieces of legislation more than a year ago, but has yet to start the review process. In response to a follow-up question in French about online platforms contributing to Canadian content, she said there’s general agreement on the need to ensure “equity,” adding again that the government would have further announcements on the subject. The recommendations would also include an alignment of initiatives of several funds including the Canadian Media Fund (CMF), Canada Music Fund, and Telefilm. “It could integrate or at minimum align the existing contributions of the federal government directed to audio and video content,” it said. The report also said that the government needs to focus on the production and promotion of “high-quality content made by Canadians that is discoverable by audiences in Canada and abroad.” Friends of Canadian Broadcasting was in favour of the report, highlighting the suggestion that “the government permit Canadian companies to deduct the cost of ads placed only on those foreign online platforms that have committed to the Canadian media system, including financing of Canadian content.” The watchdog group has been campaigning for changes to rules that allow Canadian organizations to deduct taxes on advertising on foreign internet platforms. In its press release, it called on the government to take the CRTC’s report and advice “to heart and act quickly in the face of the crisis in Canadian local news and storytelling.” The Canadian Media Producers Association (CMPA) also expressed a favourable opinion of the report. The group said in a press release that it “strongly supports” the idea that beneficiaries of Canada’s broadcasting system must contribute to it. By doing so, it is “helping ensure the continued production and distribution of this great content.” Kelly Lynne Ashton, an independent broadcasting consultant, said in an email that it’s “rather optimistic” to think the report will have an impact on the future of TV because the government has already taken similar proposals off the table, including requiring Netflix to contribute. She also said she would have liked to see more specific recommendations from the report, including specifics on how promotion and discoverability would be implemented. “It leaves a lot for future consultation,” she said. But she also said the content side has been advocating for some time to bring telecoms to contribute to broadcast funds. “They do more than carry audio and video and it isn’t all Canadian, so the key issue is the size of the contribution and ensuring that it isn’t forwarded to the consumer to pay.” On that, Internet advocacy group OpenMedia was quick to criticize the report Thursday, writing in a press release that it was “a policy that would raise the cost of Internet access for all Canadian Internet users.” The group pointed out that the idea of expanding Canadian content contribution requirements to ISPs was already floated by a Parliamentary committee a year ago — and immediately rejected by both Prime Minister Justin Trudeau and Heritage Minister Mélanie Joly. The issue of a “Netflix tax” has also been a politically sensitive one for the Liberals since the previous government, when then-prime-minister Stephen Harper said he was against taxes on streaming services and suggested the Liberals were in favour of such a tax, something the Liberal government has been refusing to implement since. Which consumer will see a difference in service prices will depend on what that consumer has, former Rogers Communications Inc. regulatory chief Ken Engelhart said in a phone interview. He said the reasoning is that if a consumer has both an internet and cable subscription, they will simply see the cost of their cable subscription decline by the same value that their internet bill will increase. However, if a consumer only subscribes to internet, they would see a singular increase in that bill, with no content balancing it. Scott argued in the interview that there is no new money being brought into the system; rather, it’s a redistribution of the same money. “This has nothing to do with GST or sales tax,” he said. “There’s no new tax, there’s no new money.” Engelhart said he expects the report to face some headwinds from the government. Both BCE Inc. and Rogers said they were reviewing the report. Telus Corp. did not respond to a request for comment. — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and reporting and editing by Anja Karadeglija at akarad@thewirereport.ca

CRTC calls for ISPs to pay for CanCon, ‘equitable’ OTT contributions

Broadcast | May 31, 2018

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CRTC calls for ISPs to pay for CanCon, ‘equitable’ OTT contributions

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