, , , , Published 10/17/2019

By Ed Henderson

In February 2007, believing that nothing major would ever become of Internet broadcasting, the Canadian Radio and television & Telecommunications Commission (CRTC) announced an exemption order (C-58) – now referred to as the Digital Exemption – for Internet delivered content. This exemption meant the Internet would not be treated as a broadcaster and would pay no taxes. Foreign ownership would be unregulated and there would be no requirement to feature Canadian content nor make financial contributions, as all other broadcasters do, to the creation of Canadian content.

Internet broadcasters have laughed all the way to the bank ever since.

The Canadian government has long recognized our proximity to the USA as a threat to our cultural existence. Since the early 1900s, government sought ways to protect Canada’s unique culture. In 1936, the federal government introduced the Broadcasting Act, which established a place for Canadian voices to be heard in every part of our country. Since 1957 the Canadian government has regulated the allowable percentage of foreign ownership of Canadian broadcasting entities at 20%.

Canadian content regulations in television (enacted in 1961) and radio (enacted in 1970) have helped build our culture, so much so that artists from the 1970s onwards were able to establish their careers in Canada. Before those regulations were created, many aspiring Canadian artists were forced to leave the country to find success.

Today, the presence of an increasingly dominant and unregulated Internet means history is repeating itself. Once again, we are seeing Canadian artists leave Canada to establish their careers in the arts.

The result is that we are losing jobs in all media and arts. We are also losing Canadian content and programming.

Creators, artists and publishers in Canada are not the only sectors affected by the unregulated Internet. As Internet broadcasting has grown, traditional media in Canada have suffered: newspapers, TV, radio and cable have seen their advertising revenue drop year after year. Conventional TV revenue fell from $1.984 billion in 2011 to $1.411 billion in 2018 – nearly 30%. This has resulted in financial losses every year, beginning in 2012, with $7 million to last year with $144 million (total deficit in only seven years is $675 million). Commercial radio revenue peaked in 2013 at $1.6 billion falling to $1.49 billion in 2018 (a loss of 7%).

The result is that we are losing jobs in all media and arts. We are also losing Canadian content and programming.

Such losses of revenue have caused less spending on production. Producers have less to pay creators. Producers increasingly demand creator copyrights and the royalties that are due to them – surely, an unintended side-effect of the Digital Exemption.

Meanwhile, the Internet broadcasters, mostly located in California, are making billions. Over the top (OTT) revenues have gone from $115 million in 2011 to $1.3 billion in 2018 (a 1,130% increase), and projections for 2022 are $2.351 billion. Almost none of this revenue stays in Canada.

Richard Stursberg and Stephen Armstrong in The Tangled Garden (published by James Lorimer & Company Ltd., 2019) provide a simple fix for this problem: rescind the Digital Exemption.

They write: “Culture is an enormous business in Canada. It is worth, by the government’s reckoning, almost $54 billion per year and employs 650,000 people. This makes it almost twice as large as agriculture, forestry and fisheries industries combined. It accounts for double the number of jobs in mining and oil and gas.”

Stursberg and Armstrong vividly describe the swift pace of the losses to Canadian culture: “Beginning around 2010 . . . much of what had been accomplished began to erode. The once mighty newspaper industry struggled to survive, shedding journalists and closing bureaus across the country. The vastly profitable television business began to lose money. CTV, Global and CityTV, the powerhouses of the private news business and the biggest commissioners of Canadian drama and comedy, were all under water by 2012. The magazine and film businesses were also swept into the downdrafts created by the FAANGS.” (Facebook, Amazon, Apple, Netflix, Google)

Action by government is urgent.

Rescinding the Digital Exemption will likely cost Canadian citizens and government nothing. According to Stursberg and Armstrong, “Extending the sales tax, abolishing the tax credits for foreign offshoots and eliminating the loophole on the application of C-58 will generate sufficient funds” to protect Canadian Content in the digital marketplace.

“The measures are neither novel nor strange. They are, in fact, simply extensions of the rules that have historically governed broadcasting and newspaper businesses. They require that the FAANGs be subject to the same tax regimes as the traditional media, that they make the same contributions to the production of Canadian content and respect the same standards of civility and truthfulness that bind the newspapers and broadcasters.”

Action by government is urgent. The authors warn us: “these changes in policy . . . must be made now. The financial situation of the traditional media is so fragile that they can not wait much longer.”

These simple changes would nearly double the amount of support for our Canadian cultural industries and provide increased tax revenue for Canada. Stursberg and Armstrong hypothesize that, if the Digital Exemption was rescinded and the Internet broadcasters were treated as what they are: broadcasters, – the $100 million that Netflix spent on production in Canada in 2017 would have been $230 million and would rise to $320 million by 2021.

The European Union has taken action. It recently passed legislation to support its thriving cultural economy by applying the same regulations that all non-Internet broadcasters are subject to all Internet broadcasters.

Canada must do the same. Treat the Internet as the broadcaster that it is. Regulate it, require it contribute their fair share of and support and broadcast Canadian content.

Canada’s cultural existence depends on it.

A version of Ed Henderson’s editorial was published in the October 15, 2019, edition of The Globe and Mail.

About Ed Henderson