Netflix Inc. is pushing back against calls to regulate online streaming services in Canada, arguing it already contributes significantly to Canadian content production and should not be subject to the same rules as traditional broadcasters.

Millions of people now watch at least some shows and movies through the internet rather than on TV. But that does not mean streaming services are effectively broadcasters, Netflix said in a submission to a federal government-appointed panel reviewing Canada’s Broadcasting Act and Telecommunications Act.

The U.S.-based streaming giant is making its submission public on Friday morning, responding to suggestions from others, including CBC, Bell Media, Rogers Media and the Canadian Radio-television and Telecommunications Commission, that online players should be required to set aside a percentage of their revenues in Canada to fund Canadian content.

In its submission, Netflix argued “market forces” are sufficient to motivate foreign-owned companies to invest in Canadian productions, and holds up its own spending on content in this country as an example. The submission reiterates that Netflix is on track to exceed its 2017 commitment to spend $500-million on Canadian production over five years.

That deal with the federal government was met with skepticism from critics, who saw it as a way for Netflix to avoid collecting sales tax from Canadian customers (Netflix has tried to clarify that that isn’t the case). More recently, Quebec and Saskatchewan have imposed a sales tax on Netflix and the company said it complies with local tax laws wherever it operates.

Imposing content spending requirements would hamper competition and consumer choice, Netflix argued. The submission points out existing companies that pay into the system have access to production funding from sources such as the Canadian Media Fund, which Netflix as a foreign-owned player does not (unless it co-produces a show with a Canadian broadcaster).

“Either we’re brought into the system and we don’t access any of those sources of funding – which is potentially discriminatory – or we’re contributing to it and drawing out of it, and in that scenario we’re becoming much more directly in competition [for funding] with Canadian broadcasters,” Stéphane Cardin, Netflix’s director of public policy in Canada, said in an interview.

Netflix hired Mr. Cardin in August, after he spent more than a decade working at the Canadian Media Fund. He added that broadcasters’ commitments include funding for news and live sports, neither of which appear on Netflix – and that asking the company to spend a comparable percentage of its revenues only on entertainment and fictional programming would be unfair.

Players such as Bell Media and CBC have said companies that make a significant amount of revenue in Canada have a responsibility to support Canadian content. Because of the cultural dominance of American television and movies, the regulatory system has always been premised on the idea that market forces, left to their own devices, would not uphold a sufficient creative sector to ensure that Canadians see themselves reflected in popular culture.

Mr. Cardin said even without the threat of possible regulation providing an incentive to demonstrate a commitment to Canadian production, Netflix would continue to invest in the country.

“Our production activity in Canada is attributable to the faith we have in the high quality and competitiveness of Canadian creators, talent, crews, facilities – the quality of the ecosystem overall in Canada,” Mr. Cardin said.

The company’s submission also resists suggestions it should make Canadian content more “discoverable” on its service. In particular, Netflix argued it tailors the home screen based on each users’ viewing habits, and surfacing shows that are Canadian but that may not be of interest would affect the user experience.

However, Netflix exercises some control over recommendations beyond analyzing viewing habits, including giving prominence to its original productions. Netflix has already created a “Canadian” category in its drop-down menus for both shows and movies, the submission said. The company would not disclose what proportion of viewers use that menu as opposed to browsing for content through the home screen.

Netflix’s investments in Canada take different forms, with different thresholds of what might be considered Canadian:

  • There are what’s known in the industry as “service-based” productions, where the story may be developed elsewhere and cast mostly American stars, but are shot or edited here using Canadian crews and some Canadian actors, writers or directors. Such Netflix productions include Riverdale and Chilling Adventures of Sabrina;
  • Netflix has invested in co-productions with Canadian broadcasters, where the streaming service contributes financing to create a show or movie, in exchange for the rights to distribute it (often after a first run on the Canadian channel). Such co-productions include Frontier with Bell Media; Alias Gracewith CBC; and Degrassi: Next Class with DHX Media. They qualify as “Canadian content” for the purposes of accessing money from such sources as the Canadian Media Fund, because they will air on television via a Canadian broadcaster and because they meet a points-based threshold of Canadian talent making them;
  • Finally, Netflix also pays for the streaming rights to shows or movies it did not finance in production, after they have appeared elsewhere. Those include CBC shows Schitt’s Creek and Kim’s Convenience, as well as movies such as The Red Violin and Les Affamés.

Netflix’s submission calls on the panel to “unambiguously exclude online services” from any regulation under a modernized Broadcasting Act.

“In some respects,” the submission states, “[online services] appear to be achieving results where decades of regulation have not.”

The Globe and Mail, January 25, 2019