Netflix in Canada: Binge-Watching! Tax Issues! Regulatory Uncertainty!

Apr 5, 2018

A report by [email protected] Management Inc. that quantifies Netflix's subscribers and revenues in Canada and discusses the public policy implications of the streaming giant's model.

Source: [email protected] Management Inc.

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Introduction

Since it was introduced in Canada on September 22, 2010, Netflix has grown to the point where it now is present in almost half of Canadian households. In a 2017 filing with the CRTC, Corus Entertainment Inc. used data from Numeris to demonstrate that, by Fall 2016, in primetime viewing by Canadians 25-54, Netflix exceeded the time spent with CTV, Global, or CBC. And, in Fall 2017, Solutions Research Group found that English-speaking Canadians ranked Netflix as one of their top five TV brands.

Along with that commercial success has come a series of debates about how Netflix should be treated in relation to the Canadian broadcasting/programming services against which it competes – not only other streaming services, but also conventional TV broadcasting, specialty and pay television, and the distribution platforms that deliver those services.

By the time the 2015 Canadian federal election was held, Netflix had become an issue, with the then-Conservative government proclaiming “no Netflix tax”, and, in the 2015 campaign, the other two major parties also promising not to tax the U.S. streaming service. Since the 2015 election, the new Liberal government has maintained that Conservative policy.

Yet the rallying cry for a tax-free Netflix has been subject to a number of interpretations and justifications. Some have argued that it should be interpreted as meaning that Netflix should not have to pay into program production funds to support Canadian producers. Others have argued that it means that Netflix should not – or could not – be required to pay federal or
provincial sales taxes. And, most recently, Canada’s Prime Minister, Justin Trudeau, stated that the Conservative policy has been maintained because the current Liberal government “doesn’t want to hurt Canadian taxpayers”.

The purpose of this discussion paper is not to argue, per se, with the decisions not to levy program spending requirements or sales taxes on Netflix. Rather, our purpose is twofold:

  1. First, to attempt to quantify Netflix’s size in Canada (in terms of subscribers and revenues), and to provide more detail on who subscribes to the service, by age, by language, by income, and by province; and
  2. Second, to discuss Netflix in public policy terms – not only whether the different treatment for Netflix is fair to Netflix’s Canadian competitors, but also (and perhaps even more important) the fact that Netflix is an indicator of a rapidly-changing television system, for which a very different regulatory approach will be required in the future.

© [email protected] Management Inc.