Net­flix to ‘set record straight’

Stream­ing gi­ant at­tempts to clar­ify ‘sweet­heart’ deal

Northern News (Kirkland Lake) - - BUSINESS - EMILY JACK­SON

Net­flix Inc. wants to “set the record straight” on its prom­ise to in­vest half a bil­lion dol­lars on pro­duc­tion of orig­i­nal con­tent in Canada after “con­spir­acy the­o­ries” and mixed re­ac­tions from lo­cal play­ers who feel the Amer­i­can stream­ing gi­ant inked a sweet­heart deal with Ot­tawa.

On Tues­day, Net­flix re­leased a state­ment de­fend­ing its $500-mil­lion in­vest­ment over five years un­der the In­vest­ment Canada Act, a deal that was an­nounced in late Septem­ber as a corner­stone of Cana­dian Her­itage Min­is­ter Mélanie Joly’s new plan for the cul­tural sec­tor.

Some cre­ators, broad­cast­ers and politi­cians, par­tic­u­larly in Que­bec, ar­gued that Net­flix re­ceived an un­fair ad­van­tage be­cause it doesn’t play by the same rules as Cana­dian broad­cast­ers: it doesn’t charge and re­mit sales tax, it isn’t re­quired to spend 30 per cent of its rev­enue on Cana­dian pro­gram­ming and it doesn’t need to fol­low Cana­dian con­tent rules. These is­sues are com­monly con­flated and re­ferred to as a “Net­flix tax.”

But Net­flix in­sists taxes had noth­ing to do with the deal and that it fol­lows tax laws ev­ery­where it op­er­ates, global pub­lic pol­icy di­rec­tor Corie Wright said. Wright noted that since Net­flix is an on­line ser­vice, not a broad­caster, it doesn’t have to fol­low CanCon quo­tas. The same rules ap­ply to Cana­dian on­line stream­ing ser­vices such as CraveTV and Club il­lico.

“Some say Net­flix got spe­cial treat­ment be­cause the gov­ern­ment didn’t force us to meet spe­cial con­tent quo­tas as part of our in­vest­ment — that’s wrong,” Wright said, adding Net­flix doesn’t re­ceive the same reg­u­la­tory pro­tec­tions as broad­cast­ers or use pub­lic re­sources such as spec­trum.

Net­flix will also spend $25 mil­lion on mar­ket de­vel­op­ment in Que­bec, Wright said, ac­knowl­edg­ing the com­pany has “more work to do” when it comes to sto­ry­telling in French in Que­bec.

Last week, Que­bec voted to ap­ply its 9.975 per cent pro­vin­cial sales tax on Net­flix. Joly, who was skew­ered by French me­dia over the deal, said that was Que­bec’s de­ci­sion to make.

But the Depart­ment of Fi­nance has no plans to im­pose a fed­eral tax. “The fed­eral gov­ern­ment has al­ready stated that it will not tax Net­flix,” Fi­nance Min­is­ter Bill Morneau’s press sec­re­tary said in an email Friday.

In an emailed state­ment,

Cana­dian Her­itage con­firmed the deal had noth­ing to do with tax and that all stream­ing ser­vices are ex­empt from CanCon re­quire­ments un­der the CRTC’s new me­dia ex­emp­tion or­der cre­ated in 1999. It em­pha­sized the in­vest­ment — one that’s en­force­able re­gard­less of the ex­change rate or econ­omy — will cre­ate jobs for Cana­di­ans to make con­tent that Net­flix will push glob­ally.

The gov­ern­ment ap­proved the deal in late Septem­ber after twodozen meet­ings be­tween Net­flix and of­fi­cials from Cana­dian Her­itage, the Prime Min­is­ter’s Of­fice, the House of Com­mons and Global Af­fairs Canada since Joly an­nounced her sweep­ing Cana­dian con­tent re­view in 2016, ac­cord­ing to the lob­by­ist registry.

The gov­ern­ment lauded the deal as a way to get new in­vest­ment with­out tax­payer money or forc­ing a new en­tity into the tra­di­tional way of do­ing busi­ness. Some writ­ers and pro­duc­ers are op­ti­mistic this will mean more busi­ness for Cana­dian cre­ators, as Net­flix promised to tap lo­cal tal­ent to make con­tent.

Yet some Cana­di­ans still ques­tion the fair­ness of the deal, which is con­fi­den­tial un­der the act. Net­flix may be fol­low­ing the rules, but some think the rules should change given the sheer size of Net­flix’s busi­ness in Canada. Re­searchers es­ti­mate Net­flix has 5.9 mil­lion sub­scribers in the coun­try. About 11 mil­lion house­holds also have TV sub­scrip­tions.

If Net­flix charged sales tax, rough math in­di­cates it could pull in $100 mil­lion per year. (This as­sumes a 13 per cent tax on top of the stan­dard rate of $10.99 per month. Ob­vi­ously, tax rates vary by province and prices vary be­tween $8.99 and $13.99.) If Net­flix con­trib­uted the same per­cent­age (i.e. 30 per cent) of rev­enue as lo­cal broad­cast­ers to Cana­dian pro­gram­ming, that would amount to about $230 mil­lion an­nu­ally based on the same rough math.

While Cana­dian stream­ing ser­vices don’t con­trib­ute to the fund ei­ther, they do have to col­lect and re­mit sales tax, said tele­com con­sul­tant Mark Gold­berg. This means they have less money to play with than Net­flix if they charge the same rate but in­clude tax in the price, Gold­berg said.


The Net­flix com­pany logo is dis­played at Net­flix head­quar­ters in Los Gatos, Calif.


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