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Report On Business Canada should stop ‘subsidizing’ U.S. Internet giants, Péladeau says

Pierre-Karl Péladeau in Montreal on Jan. 28, 2016.

Paul Chiasson/The Canadian Press

Canadian regulatory policies effectively subsidize the world's largest digital companies by making them exempt from taxes and spending requirements imposed on Canadian broadcasters, Quebecor Inc. president and CEO Pierre-Karl Péladeau says.

Ahead of a much-anticipated speech on Thursday that will outline Heritage Minister Mélanie Joly's vision for the future of the sweeping cultural policies she oversees, Mr. Péladeau called on the government to subject Internet giants such as Netflix Inc. and Inc. to the same business conditions that Canadian companies face.

Read more: What's on the line as Mélanie Joly prepares to chart the future of Canada's cultural industry

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"Everybody should be treated the same way. We're all paying our taxes. All services and goods sold in Canada are taxed. Why would you have exceptions?" Mr. Péladeau said during his first English-language media interview since returning to lead family-controlled Quebecor in February, after stepping down as Parti-Québécois leader last year.

"Since they have a treatment which is more favourable than the Canadian players, therefore we're subsidizing them. We're subsidizing [some of the] the largest market capitalization[s] in the world. That's quite a weird business model."

In a major review of the policy governing Canada's $48-billion broadcasting, media and cultural industries, Ms. Joly has said that "everything is on the table." Mr. Péladeau is not alone in responding by advocating for a "level playing field" for media companies to compete with digital giants who are not subject to sales tax in Canada, or to a regulatory system that imposes requirements for investment in Canadian content.

Quebec Communications and Culture Minister Luc Fortin has said that intangible products sold by digital services companies should be subject to sales tax the same way other products are, and has said that he would not rule out imposing such a tax in Quebec, regardless of the federal government's moves.

In an open letter to the federal government on Tuesday, more than 270 representatives of the creative community called on the federal government to subject companies such as Netflix, Amazon, Google Inc. and Facebook Inc. to the same regulations as Canadian companies. The letter was initiated by the Quebec English-language Production Council and signed by individual writers, directors, producers, actors and others, as well as industry associations and unions. In a statement, the group pointed out that, just last week, following approval from the European Commission, France enforced a new 2-per-cent tax on subscription and advertising revenue earned in France by digital streaming services. The tax will be directed to that country's National Film Board.

"One of the key principles of federal policy is that those who benefit from the sector should also be contributing to it," said Reynolds Mastin, president and CEO of the Canadian Media Producers Association.

Most industry players are expecting Thursday's speech to be light on policy details, in favour of a broader summation of Ms. Joly's vision after a year and a half of consultations. While the ministry's mandate oversees much more than just the broadcast industry and film and video production, these industries have become a focal point for the tension between supporting an evolving digital media economy and supporting Canadian media players who have never faced this level of competition from global giants.

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Quebecor is arguably more insulated from such competition than many other industry players.

"Quebec viewers will watch television that is produced locally, whereas in the rest of Canada you have a mixed bag of American and Canadian products," Mr. Péladeau said. Quebecor's French-language stations command about a third of Quebec's francophone TV audience, far ahead of Bell Media Inc. and CBC/Radio-Canada at roughly 18 per cent each, as well as Remstar Corp. at less than 10 per cent.

As such, it has been well positioned to compete digitally: it launched streaming video service Club Illico in 2013, and has grown to roughly 345,000 subscribers as of Aug. 31. It reported sales of $31.4-million last year with steady increases in revenue coming from subscriber growth. Videotron CEO Manon Brouillette said in August that 90 per cent of Club Illico customers are also cable subscribers, but as people cut the television cord, the company hopes to at least keep clients on the streaming service. Club Illico has allowed Quebecor more opportunities to amortize the cost of producing shows, by launching titles such as Blue Moon exclusively on the streaming service first, before rebroadcasting on its specialty channels.

Quebecor's media business is small in comparison to its telecom operation, which accounts for about 78 per cent of revenue and 97 per cent of the company's adjusted operating income. The media division's results have improved recently, due to savings from cost cutting – last November, Quebecor slashed 220 jobs – as well as a bump in advertising and subscription revenues from TVA Sports, helped by strong viewership of the Stanley Cup hockey finals. However, newspaper and magazine ad revenues have continued to fall.

The company is now considering ways it could employ the other properties it owns – such as its mobile network – to support its print and digital media products.

"[Print] is very fragile. We all know this. We're working on this right now – considering a project which is too early to mention, but we're trying to find a solution that will be built on what we've been doing quite successfully for the last 15 years since we bought Videotron: convergence of content and channels, or networks to distribute it," Mr. Péladeau said. "... We should imagine new sources of revenue, from users that are now going around the mobile networks."

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During the Heritage consultations, digital companies have been emphasising the role they play in the Canadian media sphere: Google recently created a "Spotlight" channel on YouTube to show off all the made-in-Canada content on its video-sharing service. Netflix's submission to Heritage pointed out that the company spends "substantial" amounts on film and TV production here.

"[Netflix] will be a drop in the ocean compared to what the broadcast industry has been doing for so many years here. … In terms of jobs, money being invested in the industry, the broadcasters are the ones that are delivering the most," Mr. Péladeau said. "[Ms. Joly] should recognize this. We are not just a Netflix world."

With files from Christine Dobby

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