Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law
Heritage Minister Mélanie Joly launched her surprise national consultation on Canadian content in a digital world last April with considerable excitement for the possibilities of revolutionizing policies born in an analog era. Ms. Joly spoke enthusiastically about the potential for Canadian creators to use digital networks to reach global audiences and for all stakeholders to rethink the cultural-policy toolkit.
Submissions to the consultation closed last week and, despite the hope for new, innovative thinking, many of Canada's largest cultural groups placed their bets on extending myriad funding mechanisms to the Internet. Rather than overhauling older programs, the groups want those policies expanded by mandating new fees, costs or taxes on Internet services, Internet service providers, Internet advertisers and even the sale of digital storage devices such as USB keys and hard drives.
Netflix is the top target, as the streaming giant is on the receiving end of demands to extend sales taxes and implement a Cancon contribution tax on foreign online video providers. For its part, Netflix highlighted its investment in Cancon in its submission, noting that Canada is now one of the top three locations worldwide for its commissioned original productions.
Yet, groups such as ACTRA, the Writers Guild of Canada, the Canadian Media Producers Association and the Directors Guild of Canada remain unconvinced, arguing that the government should require Netflix to contribute a percentage of its revenues toward the creation of Canadian content.
If implemented, a Netflix tax could have far-reaching effects. For example, ACTRA recommends that any online video service that distributes broadcast content with more than 2,000 subscribers be required to contribute 5 per cent of its gross revenue toward independent Cancon creation funds. The proposal could mean that many services block Canadian subscribers to avoid the mandated payments, resulting in decreased online video competition. In fact, the Directors Guild wants even more, raising the prospect of 30 per cent of revenue, which would run into the hundreds of millions of dollars annually.
The rumoured demands for a new tax on Internet access also surfaces with many submissions calling for a new requirement on ISPs to contribute a portion of their revenues for Cancon creation. Groups play down the impact on the affordability of Internet access, with the WGC arguing that an additional 5-per-cent cost on Internet services is "minor, bordering on insignificant for virtually all Canadian consumers." Recent CRTC data reported that Internet access revenue was nearly $10-billion last year, suggesting that an Internet-access tax could cost consumers at least $500-million annually.
Groups also seek to upend the digital advertising market with calls for limiting the tax deductibility of Internet advertising to Canadian-owned websites that feature Canadian content.
Not only are new digital services the target of new tax proposals, but ACTRA also supports extending the private copying levy, whose origins date back to the cassette tape, to newer digital storage devices. The creation of an iPod tax was roundly rejected several years ago, yet the group asks Ms. Joly to apply the fees to iPods, USB keys and hard drives when it next reforms the Copyright Act.
The push to create new taxes and funding mechanisms to support Cancon has several major implications for the government. Ms. Joly may be responsible for cultural policy, but cabinet colleagues such as Finance Minister Bill Morneau and Innovation Minister Navdeep Bains must become more actively engaged in the process. Tax policy sits at the heart of many proposals that would require support from Mr. Morneau, while higher costs for Internet services and digital products could undermine Mr. Bains's innovation strategy.
The collective cost of the various culture taxes and fees – now supplemented by the CBC's request for $318-million to compensate for going ad free – would run into the billions of dollars, resulting in a massive transfer from consumers and companies to the creative industries.
Ms. Joly opened the consultation by saying that "for a long time, politicians have been afraid to deal with these difficult issues." As she now faces the unenviable choice of promoting new Internet taxes over the objection of companies and consumers or implementing new export-driven policies that fall short of the expectations of cultural groups, it may be easier to comprehend why previous politicians were reluctant to re-examine long-standing Cancon policies.