Canada’s digital policy has seemingly long proceeded on the assumption that tech companies would draw from an unlimited budget to write bigger cheques to meet government regulations establishing new mandated payments. Despite repeated warnings that tech companies—like anyone else—were more likely to respond to Bills C-11 (internet streaming) and C-18 (online news), as well as a new digital services tax, by adjusting their Canadian budgets or simply passing along new costs to consumers, the government and the bill’s supporters repeatedly dismissed the risks that the plans could backfire.
Yet now the bill from those digital policy choices is coming due in the form of legal and trade challenges, blocked news links amid decreasing trust in the media, cancellation of sponsorship deals worth millions of dollars that will be devastating to creators, and a new Google digital advertising surcharge to offset the costs of the digital services tax.
While some argue this is Big Tech bullying, it is better viewed as a predictable response from companies whose existing contributions were greeted with false claims that they did not invest in Canada and whose suggested policy alternatives were simply ignored. It is no different than EV battery companies responding to government funding for competitors to seek similar support or entrepreneurs leaving Canada due to tax policy changes. Companies of all sizes seek to minimize tax obligations, and new financial obligations invariably spark budget changes.
The irrational actors here were government and the policy supporters who seemed to think there would be no consequences for costly legislation that sought to extract billions in payments for little, if anything, in return.
Needless to say, it has not played out that way.
Earlier this year, the CRTC ruled that internet streaming services must pay 5 percent of their Canadian revenues to support a variety of Canadian broadcasting programming. That decision came before the commission completed work on foundational issues such as identifying what qualifies as Canadian content or determining how existing contributions from streaming services would be treated for the purposes of the regulation.
The result: potential increased consumer costs, multiple legal challenges, and now the cancellation of tens of millions of dollars in sponsorships by Netflix. These cancellations will hit younger creators particularly hard since much of the sponsorship is focused on new creative development. For example, the Globe and Mail reports that Netflix funded roughly 90 percent of ImagineNATIVE’s year-round development programs.
All of it is now at risk due to the uncertainty associated with whether the contribution will count for regulatory purposes. The lost sponsorship was entirely predictable as critics (myself included) warned that millions in new mandated payments would come primarily from shuffling existing spending and result in little new money.
The disaster that is Bill C-18 is by now well known. Blocked news links on Meta platforms have had no discernible impact on Facebook traffic, but it has sharply reduced referral traffic to Canadian news sites and led to the cancellation of millions of dollars in previous agreements with publishers.
Meanwhile, the Google money remains in limbo as the sector awaits CRTC approval over the governance of its distribution. With prior Google agreements folded into the new $100 million contribution, some organizations will garner less than they did prior to the legislation.
Moreover, as demonstrated by the recent response to a controversial tweet from Heritage Parliamentary Secretary Taleeb Noormohamed or the backlash against a CTV report that stitched together comments from Conservative leader Pierre Poilievre to create a fake clip, the government’s policies have only exacerbated public mistrust of the media with every error viewed through the lens of government funding for the media. Far from preserving an independent press, the policies have actually placed them at greater risk.
As if those bills were not bad enough, the digital services tax is facing a trade challenge by the U.S. and next week Canadian digital advertisers will face a 2.5 percent surcharge for Google advertising to account for the costs associated with the DST. This too was predictable: Google levies similar charges in countries that have adopted DSTs and the U.S. made it clear that it believed the DST violates Canada’s obligations under the USMCA.
Canadian businesses now face higher advertising costs, which will likely be passed along to consumers and lead to smaller ad budgets for print publishers at the very time that government policy is trying to increase advertising on those platforms. Moreover, Canadian business sectors could face billions in retaliatory tariffs since the U.S. can target whatever sectors it wants.
There is nothing wrong with regulating tech companies and ensuring that they pay their fair share. However, by demanding these companies bankroll government policy objectives through billions in new taxes and payments without fully fleshing out the regulatory frameworks or remaining open to alternative policy approaches, there was always a risk that they would respond by hiking consumer prices or cancelling support to meet the new budget demands by redirecting funding elsewhere.
The surprise isn’t that this is precisely what is happening but rather that the government ignored the repeated warning signs that this was the likely outcome.
A version of this article originally appeared at michaelgeist.ca.
