CRTC Releases Decision on Funding Distributions in Online Streaming Act

The CRTC has released a decision on the distribution of free money taken from platforms to their lobbyist pals and there was a bit of a surprise to be had.

The Online Streaming Act is contentious for a multitude of reasons. It risks content creators getting downranked, it takes money from platforms who deliver content that people want to consume and gives it to traditional outlets that people are leaving in droves, it introduces market distortions by giving traditional producers a permanent source of income for, what amounts to, no real good reason, and it puts creators at a financial disadvantage over the establishment (as if the 4establishment needed any more advantages in the first place). That isn’t even close to a comprehensive list of all the pitfalls of this new law.

A major reason why we have yet to see the affects of the Online Streaming Act is the fact that it is currently working its way through the CRTC consultation which, as we noted earlier, is getting delayed by a whole year. Not exactly something the CRTC likely wanted to see happen after telling lawmakers that regulating the internet was no big deal (LOL!), but the situation that the regulator currently finds itself in.

Like many other observers, though, I had thought that the delays would mean the effects would be delayed by at least that amount of time. Obviously, any delay is excellent news for creators because they are staring down the barrel of a regulatory shotgun held by a regulator with a rather itchy trigger finger. For a number of creators, the moment the effects hit is the moment that their careers take a hit or, even worse, their careers are over.

Unfortunately, it seems that the CRTC regulatory process is anything but straight forward. As we noted over the weekend, there have been the suggestion that the regulator could start meddling in the algorithms even before a consultation took place on what Canadian content even is. The suggestion was that this could happen sometime later this year on top of it all. So, apparently, when we are talking about a delay, the real question is, what part are we talking about? After all, depending on the part of the legislation, the delay could be non-existent or very delayed. It’s a regulatory process that is clear as mud and one that even I’m not sure I fully understand (which is saying a lot about the process, really).

One aspect that has been controversial is who gets what money under what circumstance. While there are some elements that the large media companies would rather not touch on, how much free money they are getting out of a new system that they lobbied for is definitely something they love talking about. Usually, their arguments are prefaced on something along the lines of how absolutely important and vital their services are. They are important because, well, because they said so. As a result of that, a portion of any revenue that the platforms make should be siphoned off onto them because the platforms are a bunch of meanies for delivering a superior product to consumers. The traditional outlets are entitled to success, therefore, “GIMME!!!”

Thanks to the CRTC being the poster child of regulatory capture, the regulator largely just did everything they said. Hey, their corporate buddies are in trouble, so therefore, they need all the unfair help that they can get. I mean, the last person the CRTC wants to say “no” to is their beer buddy. Sure, the little people were there begging for their livelihoods, but they are nothing but “cat videos“, so screw them, their lives don’t matter. That money is better spent on executive Rolex watch budgets.

Now, one specific question was whether or not revenue generated through the creation and distribution of user generated content should be taxed as well in this system. I’m going to come straight out and say that such an idea is completely insane. We’re talking about content that traditional legacy outlets had no part in creating or distributing, but somehow, the revenues derived from that should be redirected from creators straight to the legacy media companies. I consider the concept to be straight up theft at that point. What’s more, the concept would provide a platform like YouTube a financial reason to trigger its cost passthrough system so that they don’t take the financial hit.

Last month, we learned that the CRTC told Google that this is exactly what they are expecting from the platform. Google, mercifully, wasn’t a fan of this and sent the regulator the fees as calculated without the revenues created by user generated content. The CRTC accused Google of more or less skipping out of their regulatory obligations and demanded the fees associated with the creation of user generated content. Google did pass along the revenue, but then subsequently sued the CRTC, saying that revenues derived from user generated should be excluded from the calculation.

So, you can imagine my surprise when I learned that the CRTC made an announcement (while locking out people who might raise uncomfortable questions in the process) which said that revenues derived from user generated content are to be excluded:

To make sure that the Commission focuses only on content that is subject to the Broadcasting Act, the Commission will continue to consult on the role and importance of online undertakings that broadcast user-generated content, along with the underlying question of how to define terms such as “social media service.” This will ensure that the Commission clearly delineates which online undertakings and what content are subject to the Broadcasting Act as the markets and technologies associated with these services continue to evolve.

In light of the above, the Commission is not requiring base contributions on revenues associated with the broadcast of user-generated content. Accordingly, it has broadened the current definition of “excluded revenue” for the purposes of annual contributions revenues. For these contributions, advertising and subscription revenues associated with the broadcast of user-generated content will be excluded. At this time, the Commission understands user-generated content to be any program that is generated and uploaded by a user of a social media or similar service for the primary purpose of interaction with other users of the service.

I think you can understand my confusion given that I have, well, nothing, to fill in the blanks between the Google lawsuit and this announcement. I can speculate on a number of possibilities as to what happened within that time frame. One possibility is that when the CRTC found out they were on the receiving end of a lawsuit on these grounds, they realized that they had no legal standing to extract revenues from user generated content and decided to wave the white flag. Another possibility is that the CRTC is announcing that this isn’t calculated, but telling platforms in the background that it is calculated, and trying to seek political cover for all of this. There’s, really, a million different plausible theories as to what happened here, but it’s leaving me with a lot of question marks.

While there now appears to be the possibility that creators won’t get stuck with the legacy media’s “you produce better content than me, so pay me anyway” tax, consumers may not be let off the hook so easily. After all, that money has to come from somewhere and if it is not coming from the creators, then it’s the consumers who are going to be forced to pay up. From Michael Geist:

The CRTC has released its much-anticipated Bill C-11 ruling on the initial mandated contributions from Internet streaming services. The headline the Commission and government will promote is that the services will be required to contribute 5% of their Canadian revenues to support various Canadian funding programs that support film and TV production, news, and music. The decision is a perfect illustration of a sector that is too often focused on regulatory payments rather than market-based success with incredible micromanagement of funding in which the CRTC is turned into a policy funding machine of the government (no surprise that government officials spent last week calling stakeholders for advance supportive comments). For the moment, the actual contributions from Internet streaming services are ignored, an updated definition of Canadian content doesn’t exist, commercial success is irrelevant, and subsidies for the news operations of companies such as Bell and Rogers are encouraged. To top it off, the streaming services are required to pay but are unable to access the funds even as they invest in production in Canada. Bill C-11 was about “making web giants pay” and that is what the CRTC was determined to do even if it is consumers that will ultimately get the bill.

The CRTC key objective appears to have been to ensure that the competing groups hoping for some of the streamer pot of gold all get something: 2% for the Canada Media Fund (divided by 0.9% maximum for English and at least 0.6% for French), 1.5% for news, 0.5% for the Indigenous Screen Office, 0.5% for Diversity and Inclusion Funds, and another 0.5% for independent productions. These numbers are significantly above the typical international standard that is closer to the 2% total range, which will make Canada less competitive globally in terms of regulatory costs. There is a similar breakdown on the audio side, with money allocated to everything from new music production to radio station news. Given that audio streaming services already operate on thin margins with the majority of revenues going to licensing, the services may be unsustainable in Canada leading to a market exit (as happened briefly in Uruguay) or significant price increases. At a time when affordability is a major concern, Canadian consumers should prepare for a new Bill C-11 fee on their bill.

Further, 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. Perhaps to show that it is not entirely beholden to the cultural lobby groups, the Commission upped the minimum Canadian revenue target to $25 million (it was $10 million for registration) and excluded user generated content and podcast revenues from the mix. Yet the bottom line is that companies will likely reduce their existing investments in Canada as the money is reallocated to these regulated payments. In other words, the dreams of massive new film and television production in Canada is an illusion.

Just to add insult to injury, not only have lobbyists effectively wrote the bill, but the CRTC is asking those same lobbyists to help them figure out how to allocate the money on top of it all:

The creation of even more regulated funding for the news sector raises further concerns. There is no system in place to adequately address how this money will be allocated, so the CRTC has given the Canadian Association of Broadcasters a month to figure out an operational plan for a temporary fund. Unlike the faulty Bill C-18, which was premised on paying for the benefits of linking to news, these payments have no correlation to benefits from news at all. Indeed, requiring Disney or Netflix to pay for news – including to radio stations dominated by companies such as Bell and Rogers – is just a cross-industry subsidy between corporate giants with no veneer of actual linkage between the services and the news sector.

The situation is so comically bad, a part of me almost wants the CAB to just drop all pretense and say that they should be entitled to 100% of all revenues, no strings attached, funnelled directly into the directors personal bank account, and scream at the end of their proposal “YOLO!!!” It’s obviously not going to happen, but it would just be so fitting given how badly the rest of the process has gone up to this point.

The CRTC announcement raises a number of questions. Examples include: why is the Online Streaming Act directing money to news production when it’s clear that stealing money for news companies is more of an Online News Act thing? What kind of market distortions are being introduced by propping up failing productions like this while making it harder for new entrants to break into the market? Is it right that Canadian online creators are effectively barred from being able to use that money to produce Canadian content on the platforms?

These are all, of course, perfectly valid questions. However, the media isn’t exactly in a question asking move over receiving free money. Instead, they are seemingly channelling their inner (outdated) Billy Idol and pushed their usual debunked talking points of “levelling the playing field” (when the Act does the exact opposite of that). From CTV:

Online streaming services such as Netflix and Spotify are being told they must start contributing money toward local news and the production of Canadian content.

On Tuesday, the Canadian Radio-television and Telecommunications Commission directed foreign streamers to pay five per cent of their annual Canadian revenues into a fund.

That fund will be devoted to producing local TV and radio news, Indigenous content, French-language content and content created by those with a diverse background.

The CRTC said the fund is expected to inject about $200 million into Canada’s broadcasting system every year beginning in September.

Companies that are not affiliated with a Canadian broadcaster, and that make at least $25 million from Canadian broadcasting, would be required to pay.

The move is meant to level the regulatory playing field between tech giants and cable companies as they compete for views — and sometimes broadcast the same content, such as sporting events or live shows.

“At a high level, we heard that Canadians care about content. We heard concerns that certain types of content like local interest stories will not be made or distributed anymore,” said Vicky Eatrides, CEO of the CRTC, said during a speech in Toronto.

“Or that they will become less available because they will not be funded by market forces alone.”

CTV wasn’t the only ones pushing their biased views on a story that they have a financial conflict of interest in. The CBC also pushed similar propaganda talking points:

The measure was introduced under the auspices of a law passed last year designed to make sure that companies like Netflix make a more significant contribution to Canadian culture.

The government says the legislation will ensure that online streaming services promote Canadian music and stories, and support Canadian jobs.

Dave Forget, the national executive director of the Directors Guild of Canada, says he believes the decision will ultimately benefit Canadian audiences.

“It increases the offer of great international productions that they have now available to them, as well as shows that get made here, and that reflect their own experience a little bit more closely,” he told CBC News.

While Forget noted that the directors guild has worked extensively with U.S. and international streamers, helping build up a talent pool and creating employment opportunities, “we have stories to tell as Canadians.”

The CRTC’s measures will ensure “we have a world where we are expressing ourselves as Canadians and we are participating in this global industry,” he said, with content created by Canadian writers, directors and performers.

Obviously, the Online Streaming Act does many things, but benefiting Canadian audiences is obviously not one of those things. It’s more like the legacy media companies are benefiting themselves so they can worry less about producing quality content because, no matter what, they’re going to be getting free money anyway. Heck, why put in any effort at all of producing something good? It’s not like traditional media companies would have to go through all that work of attracting an audience in the first place.

So, at this point, the media companies are popping the champagne. They punched their ticket to the free money gravy train and they can continue to produce content people have no interest in watching.

Now, there’s still a number of open ended questions still to be addressed. The big one is how the CRTC algorithmic interference will work. How badly will the CRTC’s manipulation of algorithms affect digital first creators? Will the likely greatly altered results cause a backlash from the audience? That is to be determined. The CRTC is seemingly trying to barrel through this part and pushing for force feeding Canadian content that the government feels you should watch.

Canadian creators are rightly worried about all of this. How much they could stand to lose is unclear, but there doesn’t seem to be much of a limit to how much. We’ll continue to monitor for developments in this.

Drew Wilson on Mastodon, Twitter and Facebook.