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Liberal deal lets Netflix play by own rules in Canadian broadcasting

01 Oct 17
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When Heritage Minister Mélanie Joly announced last year that she was prepared to blow up the principles regulating Canada’s $48-billion broadcasting, cultural and media industries, she had a blunt message for Canadians.

“Everything is on the table,” she explained at the moment.

The strategy, it turns out, is less of a buffet than may have been envisioned.

Amid much fanfare, Ms. Joly declared this week that the centerpiece of Ottawa’s new policy could be a landmark $500-million deal with Netflix, the favorite U.S.-based streaming support.

The statement is seen as a signpost of a new era in cultural policy: that of the authorities dealmaker.

Additionally, it raises questions of transparency about what the deal really means for customers, and whether it is going to act as a blueprint for future investments in Canada.

David Sparrow, president of ACTRA, the Alliance of Canadian Cinema, Television and Radio Artists, said this investment does not necessarily imply more Canadian content.

“I am a person who very much supports Canada setting its own cultural agenda,” he said.

“The Netflix deal, what it signifies is a good-size investment in foreign-service work to be carried out in Canada, but there is no guarantees they are going to really use Canadian founders”

The opposition, also, was quick to criticize, noting that Netflix said last month it would increase its monthly costs in Canada, and questioning whether the new deal is merely a commitment to cash that Netflix was spending here.

“We already knew Netflix intended to keep investments in Canada. Knowing this, will the minister admit that Canadians were ripped off{}” NDP MP Rachel Blaney stated in Question Period on Friday.

In actuality, what Canadians know about Netflix’s investments in Canada is restricted: In its submission as part of their Heritage consultations, Netflix said it had “commissioned hundreds of millions of dollars of original programming produced in Canada” annually. However, in response to questions from The Globe and Mail this week, Netflix spokesperson Bao-Viet Nguyen wouldn’t clarify whether that amount reflected investment in new productions, or even if it included spending licensing applications already made in Canada to show on its stage.

A senior Canadian official said the arrangement relates to initial production in Canada. This doesn’t include, for example, a series that is already shown in the nation, such as Degrassi, or shows that are syndicated.

Netflix Inc.’s commitment to invest at least {}500-million on Canadian programming during the next five years has been touted by the authorities as a first-of-its-kind deal worldwide. Additionally it is a bargain that admits, at least for now, that Internet broadcasters will be permitted to play with a different set of principles in Canada.

“This is a significant undertaking by Netflix to do this…this will become what other nations look at around the world concerning asking for similar kinds of obligations,” a senior government official, who wasn’t authorized to speak publicly, told The world.

“That production will go somewhere. Netflix is making investments, they are wanting to become a larger producer. The question was do we push that into Canada or do we go someplace else?”

Ms. Joly touted the “top-shelf, quality content” that could result in the deal in a speech outlining her vision for Canada’s evolving cultural coverage on Thursday. It will see the creation of Netflix Canada, the first permanent manufacturing presence the company has established outside america.

Additionally, it puts Netflix on another plane from other TV services.

“It is a validation of the opinion which you can get considerable investment in the Canadian market without regulation,” said Michael Geist, law professor and Canada Research Chair in Internet and E-commerce Law in the University of Ottawa.

Netflix’s spending on programming isn’t falsified by any regulatory body; the provider isn’t required to submit its financial performance to the Canadian Radio-television and Telecommunications Commission (CRTC); it won’t be asked to correct that paying upward if its earnings here increase; and it faces no restrictions on the kind of programming in which it invests. All those conditions apply to Canadian broadcasters.

Proportionally, that investment is also less than what the broadcasters spend. Including revenue from the broadcasters (making money primarily from advertising and from subscriptions in the event of specialty and pay TV stations) and from satellite and cable TV subscriptions, TV firms in Canada made approximately $14.8-billion in earnings in 2016, according to the CRTC.

A few of those are the exact businesses, such as Rogers Communications Inc., which is both a cable company and a broadcaster. Canadian program spending commitments demanded of the two broadcasters and TV service suppliers totalled $2.79-billion final year; or 18.9 percent of those overall earnings.

It’s hard to make comparisons, both because the nature of the companies is different and because Netflix doesn’t report its subscriber numbers or its earnings in Canada. But, Solutions Research Group Consultants Inc. estimates that Netflix has approximately 5.9 million Canadian subscribers, covering approximately half of their overall Internet-connected households in the nation. After a change in costs announced last month, Netflix subscriptions will now range from $8.99 to $13.99 per month; supposing that many subscribers take the typical plan, which will be $10.99 per month, a very rough estimate would place Netflix in the array of $778-million in Canadian subscriber revenue within the next year. Meaning that Netflix’s agreed minimum spending on Canadian programming is closer to 13 percent of its earnings, which is significantly less than the almost 19 percent that the Canadian TV businesses pay into the system.

And Netflix is forecast to grow significantly: Solutions Research Group anticipates that by 2021, roughly 70 percent of Internet-connected families in Canada is going to have a subscription. If it does, that percentage might be lower.

“We notice that the Netflix contribution will be voluntary, and a fraction of what Canadian companies like Bell Media have been expected to cover,” Bell Media spokesperson Scott Henderson said in a statement.

Netflix noted, however, that $500-million is merely a floor for its intended spending.

“Today’s announcement affirms there is more to come as Netflix launches Netflix Canada, our permanent manufacturing presence in Canada. We look forward to continuing our work with Canadian talent, producers, broadcasters and other regional partners to make Netflix originals in Canada for several years to come,” chief content officer Ted Sarandos said in a statement.

Corie Wright, Netflix’s manager of international public policy, said more information about the deal are coming.

“Every industry is different. … Our minimum guaranteed investment of $500-million was approved [Thursday,] and we have not yet incorporated. Be on the watch for more statements,” Ms. Wright said in an e-mailed statement.

Netflix accounts for approximately 90 percent of the paid streaming market in Canada now, not including free services like YouTube, but more competition is on the horizon: CBS has announced it will launch its very own streaming product in Canada, and many others might be eyeing the market. Amazon Prime Video, which isn’t a separate service but is embedded in Prime subscriptions, reaches approximately 500,000 families in Canada now, according to Solutions Research Group.

“The world revolves around streaming, culturally, and Netflix is in the centre of it,” SRG president Kaan Yigit said. “It is a real coup to attain this sort of partnership. With time, you will see these things evolve.”

“We assert that the broadcast model in Canada is in structural decline and judging from the statements is quite unlikely to receive a government lifeline,” Macquarie Capital Markets analyst Greg MacDonald said in a research note on Thursday.

The authorities also made no sign that it might require Netflix to charge sales tax on its own subscriptions, a step some had hoped would help “level the playing field” with Canadian rivals. Such a move might have accumulated nearly $100-million annually (though this is hard to calculate because Netflix doesn’t report its subscriber numbers by state.)

“The government is saying it is not there to raise the tax being paid by the middle class. On the other hand, they stated that the declines in the Canada Media Fund will be [made up for by the authorities and therefore] financed by taxpayers,” said Quebecor Inc. chief executive officer Pierre Karl Péladeau, speaking to Ms. Joly’s announcement that the government would constitute the fund to compensate for lower contributions because of declining TV revenues. “Why would they cover that while Netflix isn’t taxed? It’s simply not fair. I really don’t see the logic in that.”

With reports from Christine Dobby in Toronto and Chris Hannay in Ottawa.

Courtesy: The Globe And Mail

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