Behind the Scenes of Ontario's Campaign for a Netflix Tax

The prospect of a "Netflix tax" will be back in the spotlight this week as Canadian Radio-television and Telecommunications Commission chair Jean-Pierre Blais unveils the CRTC's latest round of rulings stemming from its review of broadcast policy. While it is unlikely that the commission will impose a new fee on Netflix subscribers to support the creation of Canadian content, it will not be for lack of lobbying on the issue.

Despite the fact that a Netflix tax would yield less than one per cent of the annual expenditures on Canadian television financing (about $15 million in support for a sector that spent $2.3 billion last year), most content groups called for mandatory Canadian content contribution funding from online video providers during the CRTC's TalkTV hearings. Amidst the clamour for new funding, there was one voice that attracted the most attention -- the Government of Ontario.

The Ontario government's public position on the need for a Netflix tax was premised on creating a "level playing field" with conventional broadcasters by expanding the regulation of new media services. After Canadian Heritage Minister Shelly Glover flatly rejected the Ontario proposal last September ("We will not allow any moves to impose new regulations and taxes on Internet video that would create a Netflix and YouTube tax"), Ontario Minister of Tourism, Culture and Sport Michael Couteau tried to backtrack. In fact, a spokesperson claimed that "the [Ontario] government is not advocating any CanCon changes, or that any specific regulations be imposed on new media TV, until more evidence is available."

Yet according to documents obtained under the Freedom of Information and Protection of Privacy Act, Ontario government officials spent months developing its submission in support of a Netflix tax. Work on the issue started in early 2014 as the government retained McCarthy Tetrault, a leading Bay Street law firm, to produce a report on policy options, and hired Rita Cugini, a former CRTC commissioner, to provide editorial services. By March 2014, an internal government presentation identified the government's preliminary position as supporting expanded regulation of new media TV, including CanCon requirements and increased regulation of foreign online video providers.

Consumer interests ignored

Several months later, the Ontario position solidified with a recommendation that officials acknowledged "represents a significant change to the regulatory system." The recommendation? Expand new media TV regulation, despite expectations that such a change would be opposed by virtual all non-creator stakeholders, including consumers and broadcasters.

Deputy minister Kevin Finnerty presented the position to the CRTC in early September, resulting in a political firestorm that internal documents reveal left officials scrambling to engage in damage control. Initial drafts of speaking lines for Premier Kathleen Wynne sought to downplay the government's position, stating that the minister had revised his position and was not advocating for any CanCon changes or regulations. Those lines were amended to state that the government was supportive of a separate proceeding on the issue.

However, the weakness of the Ontario government position could be found in one other speaking line, which stated "the ministry is recommending an approach that responds to the wants and needs of Canadian consumers while continuing to promote a wide variety of programming, programming services and Canadian content."

Yet the reality is that the Ontario government spent months developing a position in which the interests of consumers were entirely ignored. Internal documents repeatedly emphasized support for more regulation, while admitting that consumers would be unhappy with change. This week the CRTC is likely to side with consumers, effectively rejecting an expensive Ontario government campaign to convince the regulator to establish a Netflix tax.