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The Government in the Machine: Forcing Streaming Platforms to Prioritize Canadian Content Will Only Hurt, Not Help, Canadian Creators

The Government in the Machine: Forcing Streaming Platforms to Prioritize Canadian Content Will Only Hurt, Not Help, Canadian Creators

June 17, 2021

“The best laid plans of mice and men often go awry,” aptly applies to Canada’s weak, overly-broad, and ill-conceived attempt at legislative reform for digital content. Bill C-10 would essentially place (the very broadly defined) “online broadcasting undertakings” in Canada under the regulatory control of the Canadian Radio-television and Telecommunications Commission (CRTC). These proposed amendments to Canada’s Broadcasting Act—purportedly intending to increase visibility for Canadian digital content creators—are vague, broad, overreaching, lack substance, ignore facts, do not accomplish their goals and would be more burdensome for distributors, creators, and consumers alike. The supporters of Bill C-10 should be fully transparent and tell Canadians “we don’t like what you are watching online [too much American content], and we want you to pay more for it.”

Bill C-10 would classify streaming services, user-generated content sites, and similar services as “broadcasters,” providing the CRTC broad control over how these Internet-based services operate in Canada. It would also impose conditions requiring these services to provide a quota of “Canadian content,” including content from Indigenous and underserved cultures. Furthermore, the bill requires these companies to pay “to support the Canadian broadcasting system.”

According to Steven Guilbeault, the Canadian minister who sponsored the legislation, Bill C-10 is intended to support Canadian “artists and creators, especially francophones, indigenous, and racialized people, [who] have a hard time being heard in their language and culture.” This ignores the basic premise that certain content is for a niche market, and consumers interested in such content actively seek it out (and find it). The same is true for Maori content, folk music, and almost all indigenous content worldwide. J-Pop, jazz, bluegrass, Bollywood, cult horror films, and sci-fi all have their markets, and some are larger than others. This is a simple fact of business.

It is absurd that in today’s golden age of streaming options and online content creation, the Canadian government wants to directly intervene in the process of how Netflix, Spotify, and other companies design their algorithms to determine what people should watch or listen to and believe that forcing firms to do this is the best way to support the creation and consumption of local content.

Bill C-10 is a misguided policy for several reasons. The proposed legislation states the CRTC:

must regulate and supervise the Canadian broadcasting system in a manner that… takes into account the variety of broadcasting undertakings to which that Act applies and avoids imposing obligations on a class of broadcasting undertakings if doing so will not contribute in a material manner to the implementation of the broadcasting policy.

However, this makes the amendment contradictory, as the concept behind the proposal imposes such obligations on online broadcasters. Unlike similar legislation in Australia and the EU, Bill C-10 would not only extend the definition of “broadcasters” beyond traditional means to include streaming services but also user-generated platforms such as YouTube, Instagram, TikTok, and potentially smartphone apps. Most troubling, it gives CRTC the power to intervene in how these platforms use their algorithms to display relevant content for each user—forcing platforms to prioritize domestic content over foreign content, even if this is not the content Canadian users want to see.

Guilbeault apparently does not think Canadians are watching enough of the “right” content, and so intends to force online services to give preference to Canadian content for all Canadian Internet users. This would require companies to rewrite their search and recommendation algorithms so that they are no longer optimized to show content to users based on their own interests and preferences, but instead based on where they are located. Such a requirement would be a burdensome and unneeded government intrusion in what should be a commercial- and customer-driven process, inevitably resulting in subpar outcomes for consumers.

And imagine if every country imposed similar requirements. Content creators are rightly concerned that if online platforms are forced to start prioritizing domestic content everywhere, this would significantly limit their global audiences (and thus earnings). These new algorithms could prevent the next generation of Canadian content creators from reaching success in foreign markets. Indeed, the international success of certain Canadian stars such as Justin Bieber would not be possible without services like YouTube.

There are also questions about how this vague and expansively drafted law would be implemented or enforced, which remain unanswered. As written, the CRTC has wide latitude for enforcement, and the potential to overreach. Who will determine the parameters for these algorithms, and how? Which consumers will ultimately pay for these changes to be implemented on a limited scope? None of these are addressed by the proponents. Additionally, what constitutes “Canadian content” is never defined beyond the inclusion of Indigenous persons and cultures. Add in concerns about how this affects free speech, discrimination, and the prospect for retaliation, as Canada is making algorithm manipulation a condition of market entry, which raises the prospect of a trade dispute.

Furthermore, the bill is based on a faulty premise: that penalizing businesses will somehow help Canadian content creators or the Canadian economy. The initial bill, introduced last November, would require online streaming services to fund Canadian television and music production by contributing a portion of their revenue. Local content and spending requirements could easily backfire. It could force Netflix to leave or otherwise dissuade new services from entering the market given the cost of compliance. The business model of many new streaming services is using niche content to appeal to a small part of the market around the world. It makes no sense for them to spend huge amounts to meet a quota. Local quotas and spending may not work out how Canadian politicians expect because streaming platforms, like Netflix, need stories with universal appeal. It may come as a shock to some Canadian policymakers, but these stories may not be explicitly Canadian. So what they actually spend in Canada may not even achieve their goal. Never mind that to meet their quota they could simply fund cheap and bad content, which they would then be forced to put in front of unsuspecting Canadian consumers who would wonder why the algorithms are horribly wrong.

Canadian policymakers would do well to look at using carrots instead. Rather than punishing online platforms with an additional revenue tax, Canada would do well to learn from New Zealand, providing incentives that bolster the country’s creative industries and the economy overall. The value of this type of support to streaming services has only grown with the rise of streaming, as these platforms make their local content—like Netflix’s "Schitt’s Creek" and "Kim's Convenience"—to global audiences on an ongoing basis.

Netflix has invested C$2.5 billion ($2.07 billion) in Canada since 2017. Netflix pledged another $500 million over five years, which it actually invested years ahead of plan. Netflix also just announced plans to open an office and hire local content executives to expand its operations in Canada. This comes in addition to its production hub in Toronto. As Netflix executives point out, their business model and spending on local content (as compared to traditional broadcasters) is different: about 70 percent of the funds that local broadcasters spend to meet their Canadian content requirements goes toward news and sports, whereas Netflix spends a substantial share of its money on filmed entertainment. So it’s hard to understand why Canada’s government feels the need to intervene given that Netflix and others are already engaged and producing local content that has enduring value, which is made immediately available to global audiences.

In addition to the existing tax credit, investing federal funding into supporting local creators through incentives and collaborations would also do far more to promote local industry and content development than attacking foreign industry leaders. Some of these leaders have also brought Canadian-produced or co-produced series (such as The Tudors, Schitt’s Creek, Republic of Doyle, Anne With an E, and Frontier) and artists (such as Justin Bieber, Shawn Mendes, and the re-emergingly popular Bryan Adams) to an international audience for years.

The bill demonstrates an increasingly common and troubling scenario in countries around the world—governments attempting to use traditional broadcasting regulations and oversight to help “level the playing field.” As Amanda Lotz and Anna Potter point out in their analysis of similar proposals in Australia: streamers aren’t broadcasters. They are paid for by subscribers, not advertisers. They do not use public spectrum, which is a basis of local content requirements on broadcasters. A more direct analogue with streamers is the video rental store, which never faced requirements to offer local content. Moreover, even Canada’s traditional broadcasters have stated this bill will not remedy the real problem for them, which includes excessive fees and regulatory constraints, including local content quotas.

If the Canadian parliament wants to protect, incentivize, and support its digital content creators and traditional broadcasters, they need to find a better way than Bill C-10.

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