Netflix to ‘set record straight’
Streaming giant attempts to clarify ‘sweetheart’ deal
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.