Why Ontario’s “YouTube Tax” is a terrible idea

If Canada took a pound of flesh from YouTube, would other regions follow?

The Ontario government raised more than a few eyebrows on Monday with a recommendation that a new tax should be imposed on YouTube, Netflix and other foreign-owned internet video providers.

Traditional broadcasters are currently required to air a certain amount of Canadian programming and must pay a percentage of their revenues into the Canada Media Fund, a pool that helps fund the development of that programming. YouTube, Netflix and the rest don’t have those requirements, a fact that has stuck in the craw of those traditional broadcasters for some time.

Appearing before the Canadian Radio-television and Telecommunication’s “Let’s Talk TV” hearings, Kevin Finnerty, the assistant deputy minister for Ontario’s Ministry or Tourism, Culture and Sport, took a page right out of the broadcasters’ playbook in calling for a realignment of the rules:

“In order to create a more level playing field, the ministry recommends decreasing this regulatory imbalance. The ministry believes the best way to accomplish this is to expand the regulation of new media TV, rather than by lightening the current regulation of traditional TV.”

The Ontario government — which is coincidentally looking to sell its lottery operations to those traditional broadcasters, according to a report — suggests foreign online video providers should be forced to contribute to the CMF once they hit a certain size.

Failing that, other online video services — those produced by Canadian companies — could be given other advantages, such as the ability to exempt their products from internet data caps.

The federal government is correct in assuming that such a tax would not go down well with consumers

As University of Ottawa internet law professor Michael Geist notes, that would be a violation of the CRTC’s net neutrality rules.

A call to the ministry for further comment Monday evening was not returned.

The federal Conservative government was quick to condemn its provincial Liberal counterpart.

“The CRTC has in the past declined to regulate such services — a position that our government continues to firmly support,” said federal Heritage Minister Shelly Glover in a statement. “Canadian consumers can rest assured that our government will continue to stand up for them. We will not allow any moves to impose new regulations and taxes on internet video that would create a Netflix and YouTube tax.”

The federal government is correct in assuming that such a tax would not go down well with consumers. Many respondents to an earlier phase of the CRTC’s wide-ranging review of the broadcasting landscape let the organization know that in no uncertain terms.

Moreover, supposedly neutral supporters of regulating so-called over-the-top video services probably haven’t thought through how such a tax could actually be implemented, or what its repercussions might be.

For Netflix, a paid subscription service, it would be relatively easy. The company would simply pay a percentage of its revenues into the CMF, and then, in all likelihood, increase its monthly subscription fees accordingly.

But for YouTube and other free services, the implementation is hazier and the fallout could be more interesting. Because YouTube doesn’t charge viewers for its service, there’s no way it could pass the cost of regulation on to them. Its owner Google would simply have to eat that cost.

But YouTube is global, and if Canadian regulators were to take their pound of flesh, others would follow. France, taking Canada’s lead, is also talking about a cultural tax on online video providers.

Is Google willing to risk such a domino effect, where country after country could line up and demand its own respective cultural tax?

A while back I suggested the company could instead opt for a scorched-earth approach and simply pull YouTube out of countries making such demands. That’s an extreme option, but other, strong reactions are possible.

What if, for example, YouTube lowered advertising payouts to users in taxing countries? In this way, content producers would bear the brunt of regulatory costs rather than content consumers.

That could in turn result in Canadian video makers hosting their content and associated businesses outside of the country, which would be a perversion of the whole point of the regulatory taxes in the first place.

Imagine that: a cultural tax intended to help produce Canadian content forcing the producers of that content to flee the country.

The Ontario government is also calling for a separate hearing to determine how such regulation could work. The CRTC should indeed follow through so that supporters of an Internet video tax could see just how full of holes the idea is.

Update, Tuesday September 9: A spokesperson for Minister Michael Coteau’s office provided the following statement, which appears to walk back the ADM’s remarks: “Yesterday’s presentation provided elements for CRTC consideration as it undertakes its review. Ontario is not advocating for any Canadian content changes or for any specific regulations regarding new media TV.”

This story originally appeared in Canadian Business

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