Canada Wants Streamers to Start Paying More Taxes

Amid pressure from regional governments, Amazon and Hulu are likely to follow Netflix and support local content.

Are the streaming giants enjoying a free ride in Canada? That's been an increasingly vocal complaint from content creators and regional governments north of the border as Netflix and Amazon continue to take full advantage of generous Canadian shooting incentives and state-of-the-art facilities in an environment that is largely free of regulation. Now, as the streaming wars intensify with the arrival of Disney+, Apple TV+, Peacock and HBO Max, pressure is mounting for the streamers to start giving back.

"They are already spending money in Canada. All we're asking is for them to do it in a more organized way [toward] Canadian cultural content available for Canadians, and for audiences around the world," Steven Guilbeault, the Canadian heritage minister responsible for broadcasting, told THR while attending the Prime Time conference in Ottawa in January.

Unlike local broadcasters and cable players that put a share of their revenue toward subsidizing local TV producers, Netflix and other U.S. tech giants remain unregulated in Canada. Such local subsidies result in significant funding for Canadian TV shows like Schitt's Creek, Anne With an E and Orphan Black that sell widely into the U.S. and other world markets.

Defying long-standing calls from regional indie producers and broadcasters to impose a direct levy on the revenues of Netflix, Google and Amazon, upcoming legislation to revamp broadcast and telecom rules is expected to leave such U.S. big-tech players mostly unregulated and untaxed.

An exception to the above is an expected legislative mandate that tech giants must collect a goods and services sales tax (GST) from their customers, which Canadians routinely pay on all goods and services.

"I think that's about fairness," Guilbeault says. "Everybody is paying the GST in Canada — I don't see why some of the richest companies in the world shouldn't pay GST in Canada."

But it's likely GST funds will not go directly toward subsidizing Canadian content, which means that streaming services won't be going far enough to change their business models to satisfy traditional TV distributors.

"We have long been concerned by the undue regulatory burden faced by Canadian broadcasters versus foreign internet broadcasters, and we hope the government will move forward with creating a more equitable competitive environment," says Doug Murphy, president and CEO of local broadcaster Corus Entertainment.

Canada has so far not shown any inclination in following France, which recently proposed a 3 percent levy on sales generated by digital giants. The U.K. and Italy are considering national plans for digital taxation as well.

Canada, by contrast, has far more at stake because so many U.S. streamers shoot their productions north of the border. The challenge for those pressuring the streamers is that few want to risk a direct confrontation with a sector that is already pumping millions into the Canadian economy (an estimated $1.4 billion in 2019 alone). Money from streaming TV's arms race flowing to Canadian programming sits well with local producers who increasingly work with American digital platforms to spread their content worldwide. But at the federal level, the issue is expected to be front and center during legislative sessions this year.

"We're not telling them what categories of content to produce, we're not telling them where to produce it — we're just telling them that they have to take a certain amount of the money they're already spending in Canada and make sure it complies with Canadian-content requirements," Guilbeault says.

Netflix already appears to be making concessions. Later this year the streamer will debut its first indigenous Canadian movie, Jusqu'au Déclin, directed by Patrice Laliberté in Quebec.

"We all have a role to play in supporting the future of film and television being created in Canada," a rep for Netflix says in a statement. "We look forward to working with the government as it proceeds to modernize Canada's broadcasting and telecommunications laws."

By opting to push for mandated spending commitments by foreign streamers over direct taxation, Guilbeault has taken his cue from Janet Yale, a former cablecaster and industry lobbyist who led a seven-member panel that in late January unveiled a 235-page report on restructuring Canada's broadcast sector for the streaming era. Yale's report argued against an extra levy on U.S. streamers operating in Canada. "Streaming services like Netflix would have spending obligations. It's not a tax," Yale tells THR. "They would directly spend and invest in content that meets Canadian-content requirements." Adds Brad Danks, CEO of Canadian cable channel and service OutTV, which has programs available to stream online and on Roku, Apple TV+, iOS and Android apps, "The idea of protecting our market has gone away. The goal is to create an ecosystem that allows Canadian companies to flourish."

Asking foreign tech players to invest in local programming has a precedent: Netflix in 2017 negotiated a five-year deal with Ottawa to establish a production hub that avoided taxes and local content obligations. In return, the streamer committed to spending $400 million on its own content shot in Canada by 2022. In late 2019, the streamer reported that it had met that threshold three years ahead of schedule; its local expenditures included pricey shoots for The Umbrella Academy, Chilling Adventures of Sabrina and Another Life.

That investment comes as Amazon, Hulu and other U.S. streaming rivals increasingly make Canada their base for ambitious original productions. Amazon, for instance, recently wrapped shooting the eight-episode sci-fi series Tales From the Loop in Morden, Manitoba.

For OutTV's Danks, Ottawa is answering criticism that its 2017 deal with Netflix gave that dominant player a pass on being regulated like domestic broadcasters. "We're going to let people in if they play by the rules," Dank says. "We'll decide where their contributions go."

This story first appeared in the Feb. 12 issue of The Hollywood Reporter magazine. Click here to subscribe.