Online Streaming Act showdown may spook streamers.

The Online Streaming Act, which the House of Commons passed last year, requires foreign streaming services that earn $25 million or more in Canada to contribute five per cent of revenue to Canadian cultural funds. At the same time, tech companies are signaling their opposition to compelled contributions across the globe.

For audio and video streamers, the five percent is divided between various cultural funds, including the Canada Media Fund and the Indigenous Screen Office for video streamers, and FACTOR and Musication for audio streamers.

The CRTC estimates the payment scheme will funnel approximately $200 million each year to Canadian media. The plan is currently in the consultation phase and the CRTC is targeting late next year to implement it.

All the above causes are worthy of funding and should receive support. Canada needs more programming that reflects Canadian stories and experiences. But by using the law to force particular support to particular pots, the federal government could risk alienating foreign tech companies and may make them reconsider their place in the Canadian market.

The five per cent funding requirement is not small potatoes for any foreign streamer, especially when it’s on overall revenue — not profit.

Peter Menzies raises a good point in an article in The Hub ; Spotify’s highest net profit ever was five per cent. Asking them to pay five per cent of revenue might make the company unprofitable in Canada.

If a company is unprofitable in Canada, it has no reason to stay. The financial burden and risk of operating here may prove too much for some, especially for smaller streamers. If companies start pulling out, it means Canadians have fewer choices for what they watch and less competition for their dollars.

It’s a vicious cycle and could mean fewer companies paying to fund Canadian cultural development. Fewer streamers equals less money for culture.

We don’t have to look back far to see similar government decisions coming home to roost. In 2023, Meta flew the coop when it began blocking Canadian news content on Facebook in response to the Online News Act. Meta removed itself from the scope of the law by blocking all news links in Canada. Similar to the Online Streaming Act, the federal government initially promised tech giants would contribute hundreds-of-millions-of-dollars to Canadian cultural causes.

Facebook is still available in Canada, just minus news, but that delicate balance might not be available with online streaming platforms. Unlike Meta, streamers operating in Canada don’t have a quick way to remove themselves from the legislation’s scope while still operating in Canada. The Online Streaming Act applies to all activities in Canada.

While the threat of leaving Canada doesn’t appear to currently be on the table, some platforms are already airing their grievances.

In July, the Motion Picture Association - Canada filed for a review of the CRTC’s decision to compel foreign streaming services to contribute to local news. Crunchyroll, Netflix Canada and Paramount Entertainment Canada are also listed as parties on the Federal Court of Appeal’s website. The companies aren’t opposing the entirety of the five per cent levy in the case, just the amount going toward local news.

Then, in late September, the Digital Media Association launched a campaign aimed at scrapping the Online Streaming Act’s mandatory contributions. Dubbed “the streaming tax,” DIMA President and CEO Graham Davies called it an “unnecessary burden” and warned it will lead to increased costs for Canadian consumers.

The same displeasure with forced funding isn’t unique to Canada and similar tensions are playing out internationally. In New Zealand, Google is currently threatening to block news links. From its search engine in response to the country’s government proposing legislation similar to Canada’s Online News Act.

When tech platforms leave Canada or reduce service no one is happy. Canadians are poorer for choice, the service doesn’t operate in Canada anymore and the federal government gets egg on its face.

Instead, giving platforms more choice in how they contribute to these types of funds may be a better option. The government could allow platforms to invest five per cent of Canadian revenue in media production and cultural funds where they see fit.

Allowing platforms to choose where to invest in Canadian cultural production may help alleviate concerns about mandatory contributions. Streamers can fund the areas they see as most beneficial to the Canadian market and that help grow their Canadian offerings. This would allow the free market to determine where funding for Canadian culture goes, growing the industry organically.

It may also soothe consumer concerns if prices rise in response to the Online Streaming Act. If streaming platforms are allowed to choose where they contribute, it makes economic sense for platforms to invest in areas that produce the most popular and profitable content. Allowing Canadians’ viewing preferences to direct contributions will result in more of the programming they want to watch, allowing demand to shape supply. Canadians are generally not fans of the federal government choosing what they watch and listen to. Under this proposal, higher prices for consumers may be offset by more of the Canadian content subscribers watch the most.

However, this option may not result in “meaningful participation” by streamers in immediate areas of need as designated by the CRTC. These areas include local radio and television news, French-language content, Indigenous content and content by equity-deserving groups. A middle-of-the-road option could be to compel some contributions the CRTC mandates to specific funds, but allow streaming platforms to decide where to invest a portion of their contributions. Under this option, the government can still direct money equitably to specified areas of need, but streamers have some choice in where their dollars end up.

The key is the choice. When the government doesn’t allow for choice, the regulations feel heavy-handed and restrictive. Technology companies are frustrated with compelled to contributions to Canadian cultural funds, but offering some flexibility in directing their investments could make compliance more palatable. This approach ensures worthy causes get support and the government isn’t ruffling streamers’ feathers.