By Paul Vieira 

Canada proposes to compel online streaming services to set aside part of their revenue to fund domestic television and music production as the government looks to force global digital players to make a bigger contribution to the local economy.

The move, unveiled Tuesday by Canadian officials, would also order streaming services such as Netflix Inc., Amazon.com Inc.'s Prime Video, Walt Disney Co.'s Disney+, and Spotify Technology SA to meet certain Canadian-content requirements, such as more programming to serve the country's francophone and indigenous populations.

Canada's broadcast regulator estimates, according to its most recent financial data, that streaming services record annual revenue of roughly 5 billion Canadian dollars, or the equivalent of $3.77 billion. Canada is eyeing nearly C$1 billion a year to finance the making of Canadian television shows, films and music.

Canada's regulatory reach is the latest example of how countries are trying to ensure a level playing field between domestic industries and large global technology companies, which aren't necessarily subjected to local laws when it comes to providing their wares, such as entertainment, and paying taxes.

"This is about our cultural sovereignty. It's about investment and jobs. It's about equity," said Steven Guilbeault, Canada heritage minister. "We are asking these large and wealthy companies to invest in Canadian artists, in the same way Canadian broadcasters already have regulatory obligations."

Mr. Guilbeault said Canada's Liberal government intends to pursue additional tax-related issues focused on bigger companies in the technology sector, such as Facebook Inc. and Alphabet Inc.'s Google. The discussion of digital taxes, as proposed by European countries like France, has triggered trans-Atlantic friction and the threat of tariffs from Washington on European goods and services for unfair targeting of U.S. technology companies.

The changes are outlined in legislation to be introduced to the Canadian legislature for approval. The Liberal government runs a minority government, so it would require the support of another party to put through changes. Some of the crucial regulatory details will be established by Canada's broadcast regulator, the Canadian Radio-television and Telecommunications Commission, after legislation is passed.

Officials said the changes are meant to address a regulatory imbalance, as streaming services from abroad are making inroads in the Canadian economy at the expense of the domestic cultural industry. Under the proposed revamp, online-streaming services would be defined as broadcasters under Canadian law, and thereby subject to the same rules as legacy domestic broadcasters.

Under Canada's regulatory framework, the broadcasting industry must contribute a chunk of its revenue to fund the Canadian production of TV shows, movies and music. In 2018, or the most recent annual figures available, Canada's broadcasters contributed roughly 20% of revenue to finance Canadian programming. Based on their projections of revenue from streaming services, officials expect Netflix and the others to contribute at least C$1 billion toward financing Canadian programming, starting in 2023.

A spokeswoman for Netflix said the company was reviewing Canada's proposed changes, and stood ready to work in partnership with Canada's cultural sector. In 2017, the Los Gatos, Calif.-based company signed a deal with the Canadian government, in which it pledged to spend a minimum C$500 million over a five-year period on original Canadian productions. The deal came at a time when global policy makers worried about the streaming service's rapid growth.

Representatives from Walt Disney, Amazon and Spotify didn't respond to a request for comment.

The changes would apply to both foreign and Canadian streaming services, such as Crave, which is operated by Montreal-based BCE Inc.'s Bell Media unit. (Crave holds licensing rights in Canada to HBO programming.)

Michael Geist, a law professor at University of Ottawa with a focus on the internet and technology, said the changes represent significant regulatory hurdles for streaming providers. He said completing the rules could be a yearslong process, and warned that could lead some streaming services to pare back on planned spending in Canada or avoid the market altogether.

Write to Paul Vieira at paul.vieira@wsj.com

 

(END) Dow Jones Newswires

November 03, 2020 16:18 ET (21:18 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.