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Peter Menzies: Say goodbye to Netflix, Canada? Why the Online Streaming Act might just run them (and other international streamers) out of the country

Commentary
A television remote control shows buttons to access streaming services Netflix and Amazon Prime, in a photo illustration made in Toronto, March 22, 2024. Giordano Ciampini/The Canadian Press.

You have money. Our dependents want some. Give it to them.

That, in a nutshell, describes the Canadian Radio-television and Telecommunications Commission’s (CRTC) initial decision stemming from its 2023 hearing—the first of many it will be holding in the years to come in order to implement the Online Streaming Act. Its initial effort to “modernize” the Broadcasting Act has not only upheld its traditional role as a vessel of wealth redistribution, it works hard to swiftly turn on the cash taps and get money into the hands of as many key voting demographics and influencers —including newsrooms—as possible in time for the 2025 election.

In doing so, it has also punted a number of awkward and vital decisions into the future, sprinkling hope among those having to pay up that they might yet get some credit for what they are already spending and keeping alive the dreams of traditional funders that they will have their financial burdens relieved down the road.

But as things stand, foreign streamers will have to pay 5 percent of their Canadian revenues into a plethora of funds to support folks the vote farmers at the CRTC are convinced can’t survive without their support.

Here’s the list and the allocations from the video streamers (minimum portions for francophone/Quebec content also apply):

  • 2 percent to the Canada Media Fund and/or direct expenditures towards certified Canadian content;
  • 1.5 percent to the Independent Local News Fund;
  • 0.5 percent to the Black Screen Office Fund, the Canadian Independent Screen Fund for BIPOC creators, and/or the Broadcasting Accessibility Fund;
  • 0.5 percent to the Certified Independent Production Funds supporting Official Language Minority Community producers and producers from diverse communities; and
  • 0.5 percent to the Indigenous Screen Office Fund.

Music/audio-only streamers will have their pockets picked like this.

  • 2 percent to FACTOR (a music/musician development fund) and Musicaction (similar);
  • 1.5 percent to a new temporary fund supporting local news production by commercial radio stations;
  • 0.5 percent to the Canadian Starmaker Fund and Fonds RadioStar;
  • 0.5 percent to the Community Radio Fund of Canada;
  • 0.35 percent to direct expenditures targeting the development of Canadian and Indigenous content and/or a variety of selected funds; and
  • 0.15 percent to the Indigenous Music Office and a new fund to support Indigenous music.

In other words, a fund for everyone! Every one of those groups—a potpourri of the self-styled needy—gets a piece of the pie.

They will be happy. According to the CRTC, this decision will put an additional $200 million into their pockets.

You might well wonder why companies such as Netflix, Spotify, and Apple should have to fund broadcast news reporters—including those employed by Bell and Rogers—as none of them produces news. No doubt the executives of those and other companies are pondering the same and calculating the global cost of compliance with such a demand. Because, as Canadians learned from the debacle of the Online News Act, “the world is watching” and whatever demands global companies concede to in one country could very well be replicated in others.

So, if they agree to fund news in Canada, why wouldn’t the U.S. expect them to do the same there? Or, hey, India? And how much would that cost?

If you were an executive at Spotify—a company whose highest net profit ever was 5 percent—and you were being asked to cough up that same amount in Canada, what would you do? Stay and pay or pack your bags?

It should be noted that there were a couple of bright spots in the decision. One is that the CRTC, having initially proposed that its regulations would apply to companies with $10 million or more in Canadian revenue, moved that number to $25 million. That will be a relief to some of the smaller streamers. But while it may lessen the risk they will flee the country, it could also discourage them from investing and growing into scope.

The CRTC also excluded revenue derived from user-generated content from its calculations which, for companies such as TikTok, is a big win.

The bad news is that, as with Spotify, streamers such as Netflix (net profit margin 18 percent) are going to have to find the 5 percent from somewhere. The apparent options are to a) reduce current investment in Canadian film and television; b) increase subscription costs to consumers, c) lay people off/reduce overhead, or d) leave the country. The CRTC decision is rather cleverly constructed to avoid the nuclear option of d)—at least until after the election—by promising in the future to perhaps give credits for money already being spent on production. And maybe a more workable definition of Canadian content. Maybe.

Nevertheless, as a source within the industry told me:

“I’m renewing my VPN subscriptions because I don’t see why Netflix, Amazon, Disney, et al. would continue operating in Canada.”

Neither do I.

In his blog, Michael Geist of the University of Ottawa described the streamers’ dilemma like this:

“The streaming companies themselves will rarely, if ever, be eligible for the money they are required to pay, creating an obvious inequity of mandated payments without benefits. In fact, their existing contributions, which notably include massive film and television production investment in Canada, are entirely ignored.”

There will have been much toasting and popping of corks among those designated to receive the loot being torn from the bottom lines of offshore streamers.

And there will be some sadness within the executive corridors of Bell, Rogers, et al. that they got no regulatory relief from their current obligations to most of the funds listed above. That’s another matter the CRTC has set aside for the future, likely because had it met Canadian companies’ requests to have their contributions reduced (Bell asked for a decrease from 30 percent of broadcast revenues to 20 percent), the net benefit the regulator could have announced to its co-dependents would have been much, much less.

The streamers haven’t called a cab to the airport yet. And I’m not sure they are even packing their bags. But there’s little doubt they’ll be making sure their passports are up to date.

Tammy Nemeth: Buckle up, businesses. Even more climate standards could be coming to drive up your costs

Commentary
People participate in a climate protest on Parliament Hill in Ottawa on Friday, Sept. 15, 2023. Sean Kilpatrick/The Canadian Press.

Businesses, take note: mandatory sustainability and climate-related financial disclosure standards are on the horizon. If you thought productivity and competitiveness have been lagging in Canada, the Canadian Sustainability Standards Board (CSSB) sustainability and climate-related disclosures will hardly improve the situation.

These standards, which revolve around the vague and undefined concept of “sustainability” and the shifting science of climate change, have the potential to increase costs, hinder competitiveness, and expose companies to the risk of climate lawfare. They are designed to do nothing less than change the entire economic system.

Last year, the International Sustainability Standards Board issued standards that are under consideration for endorsement by the CSSB, which was created in 2022 to support the adoption of the ISSB standards. After nine months of consideration, the warrior accountants of the CSSB released Canada’s carbon copy version of sustainability and climate-related financial disclosure standards for public comment. The consultation deadline is June 10th.

The CSSB standards will apply to publicly traded companies, but non-publicly traded businesses may need to comply with aspects of the standards if they are part of a larger company’s supply chain. The standards will initially be voluntary until mandated by regulators like the Canadian Securities Administrators (CSA), which has said it will consider incorporating the standards into a mandatory rule in the near future.

Supporters argue that mandatory climate disclosures will enable investors to gather the same data from every business and then use that to shift investment in order to support the transition to net-zero emissions by 2050. However, the comprehensive nature of these disclosures, integrated into financial statements, presents significant but little-understood risks for Canadian businesses. These risks include the financial burden of compliance, the competitive disadvantage compared to Canada’s major trading partners, and the potential for legal liability.

The CSSB standards mandate an array of information and data gathering such as transition plans based on climate scenario analysis, internal emissions accounting, and Scope 3 emissions accounting (that is all indirect emissions within a supply chain upstream and downstream—classified into 15 categories including transportation, distribution, processing, use, disposal). Surprisingly, the CSSB has not conducted a cost-benefit analysis of implementing the standards. Instead, board members have referenced a cost-impact analysis of the ISSB standards by the Australian government. Converted into Canadian dollars, for publicly listed companies with at least 100 employees and $50 million in annual turnover, the average initial cost of compliance is approximately $1.1 million, with annual recurring costs around $641,000.

What accounts for these expenses? Employees will have to be hired and trained to collect and report on this information, or an outside party will have to be engaged to do so. Estimates for climate scenarios run between $100,000 and $400,000 depending on the size of company and detail required. Subscriptions for data gathering software can also be pricey, not to mention the requirement for mandatory Scope 3 emissions data collection and analysis. This redirection of funds could otherwise be used to improve products and services or distribute profits to investors, but instead, a significant portion will be directed to climate consulting and law firms, many of which appear to support the standards for self-serving reasons.

Canada should prioritize alignment with our Canada-U.S.-Mexico trading partners rather than focusing on other countries with whom our trade is minimal. Instead, the CSSB standards seem to align with the European Union. It is worth noting that only 8 percent of our export trade goes to the EU, whereas 78 percent of our export trade goes to the U.S. Although the U.S. Securities and Exchange Commission (SEC) has introduced a climate disclosure rule, it has been indefinitely stayed pending legal challenges.

Even if the rule is upheld, not only do certain key aspects of it remain voluntary, such as climate scenario analysis, Scope 3 emissions accounting, and transition plans, but the rule also includes safe harbour provisions, which lower legal and liability costs for companies. Safe harbour is defined as “protection from liability if certain conditions are met…to give peace of mind to good-faith actors who might otherwise violate the law on technicalities beyond their reasonable control.” There are no such provisions in the CSSB standards. Once mandatory, the CSSB standards could put Canadian manufacturers, resource companies, and food producers at a competitive disadvantage, as they may face added financial or regulatory burdens that their North American counterparts do not.

The integration of CSSB disclosure standards into financial statements has legal implications. The CSSB standards expose companies, and those reporting to them like small or individual operations, to potential liability and litigation through several provisions. The standards require extensive forward-looking information and reporting on matters outside a company’s direct control, such as Scope 3 emissions accounting, climate scenario analysis, and transition planning.

The complexity of measuring and reporting sustainability metrics cannot be overstated. In contrast to traditional financial reporting, sustainability and climate financial reporting involve a mix of qualitative and quantitative data, often subject to interpretation and manipulation. Potential liabilities could be mitigated with safe harbour provisions, but the CSSB standards do not offer such protections. Even though other jurisdictions like Australia and the U.S. do provide such safe harbours for Scope 3 emissions, climate scenario analysis, and transition plans, the CSSB standards leave Canadian companies legally vulnerable to uncertainties in their statements, data, and projections.

Advocates for the standards argue that extensive data gathering and meticulous monitoring of company performance, with a focus on climate rather than profitability, will bring significant benefits to society. The actual impact of these efforts remains to be seen, but one thing is certain: mandating sustainability and climate-related financial disclosure standards will deeply transform our economic system.

Yet, few are aware of these developments because they have been taking place in the enigmatic realm of accountancy and appointed industry standards setters. The profound implications of these standards on our economy and society underscore the need for a robust and broad public conversation, rather than relying solely on unelected standard-setting bodies to make those decisions. Now is the time to engage in that conversation and shape those standards before they are set. The deadline for comments is June 10th.