Netflix launches campaign to set record straight about $500M Canadian investment
Foreign online services like Netflix aren't required to collect and remit sales tax
Netflix Inc. offered more details on Tuesday about the streaming company's plans to spend $500 million on making Canadian content, as it defended its tax status in Canada.
The maker of Emmy-winning shows such as House of Cards and Black Mirror announced last month it was in talks with the Canadian government about setting up a dedicated pool of funds to produce Canadian stories and then broadcast them in Canada and to other markets around the world.
Those talks eventually turned into a commitment from the company to spend $500 million on movies and television shows produced in Canada, both in English and in French, over the next five years. It would also set up the company's first permanent production presence outside of the U.S.
"We have invested in Canada because Canadians make great global stories," Netflix said Tuesday. "That says more about the quality and strength of Canadian content, talent and crew than a commitment of any dollar amount."
Market development for francophone market
The company also said it will spend an additional $25 million on what it calls "market development activities," funds it will use "to host pitch days, recruitment events, and support local cultural events to ensure Netflix Canada reaches vibrant Canadian production communities, including the French-language community in Quebec."
Netflix's move comes against the backdrop of a broader review of cultural policies under Canadian Heritage Minister Mélanie Joly that includes plans to modernize funding review copyright, broadcasting and telecommunications legislation.
As part of that review, many critics had called for a so-called "Netflix tax" to charge the company a special levy when it offers its services in Canada, because Canadian alternatives may suffer as a result. But the details the company trumpeted on Tuesday make clear that there was no taxation deal made as part of its Canadian plans.
"We have not made any deals about taxes," Netflix said. "Our investment was approved under the Investment Canada Act. No tax deals were part of the approval to launch our new Canadian presence."
How to ensure the promise is kept
Spending $500 million would represent a major commitment to Canadian content producers. But making sure the company sticks to its word will be no easy task, as Ottawa doesn't have the same sort of weapons available as it does when dealing with conventional broadcasters, whose licences can be suspended.
Instructor Irene Berkowitz, the FCAD Cultural Policy Fellow at Ryerson University in Toronto, says Netflix is not held to the same rules as broadcasters.
When this era of disruption settles down, what Canadian producers are going to have is the same business model that Hollywood has had for 100 years: Make great content [and] exploit it globally- Irene Berkowitz, Ryerson University
Rules governing content creation have to catch up with the times, she said in an interview. "If they are getting great content, they will continue to spend and stay," she said.
"When this era of disruption settles down, what Canadian producers are going to have is the same business model that Hollywood has had for 100 years: Make great content [and] exploit it globally."
There is still no formal "Netflix tax," in that it doesn't charge sales tax to Canadian customers for its services: it doesn't have to, because it is a foreign company. So unlike Canadian-based streaming services, the company does have a taxation advantage.
"Netflix follows tax laws everywhere we operate. Under Canadian law, foreign online services like Netflix aren't required to collect and remit sales tax," said Corie Wright, Netflix's director of global public policy.
The company also stresses that while it shouldn't be subject to the same regulations that governments put on broadcasters, it also isn't trying to usurp any of their advantages, either.
"Internet-native, on-demand services like Netflix are consumer-driven and operate on the open internet," the company said.
"We don't use public property like broadcast spectrum or rights of way, and we don't receive the regulatory protections and benefits that broadcasters get (and, by the way, we're not asking for them)."
Berkowitz said Netflix's expanding footprint in Canada will be a boon for content producers here, and the government's latest guidelines to modernize the rules are a step in the right direction.
If Canadian content producers "feel that they have a government that has their back to create content for a global stage, it's going to be like a warm wind," she said.
Price hike in Canada
The company may not charge its Canadian customers sales tax, but it will nonetheless be making its service more expensive in Canada.
Netflix recently told its existing customers in an email that it would be raising prices in late October and early November. The company will charge $8.99 a month for the basic service in standard definition on one device at a time, $10.99 for high-definition on two devices at a time, and $13.99 a month for ultra high definition on four screens at the same time.
The low and middle packages went up by $1, while the premium package went up by $2 a month.
"The recent price increase has nothing to do with our investment or commitments," Netflix said. "That price increase was planned a long time ago."
- A previous version of this story mistakenly said Netflix announced Canadian price hikes on Tuesday, In fact, it announced them in August.Oct 10, 2017 6:28 PM ET