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Will U.S. streaming companies play ball with the CRTC?: Peter Menzies

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From the MacDonald Laurier Institute

By Peter Menzies

Domestic streamers have to live with the rules the CRTC comes up with, not so when it comes to global streamers

The fundamental weakness in Canada’s Online Streaming Act will be exposed for all to see on Nov. 20, when the Canadian Radio-television and Telecommunications Commission (CRTC) comes face-to-face with American streaming companies.

For the first time, the regulator will be dealing with companies that, if they don’t like the rules and the financial burden the CRTC imposes, are free to leave the country.

To be clear, neither Netflix, Disney+ nor any other company has yet suggested they are prepared to quit Canada. There have been no threats to do anything similar to what Meta did and Google might – stop carrying news – in response to the Online News Act. But there is nothing that compels foreign companies from continuing here if CRTC decisions make it no longer sensible for them to do so.

That shapes the conversation in a way that the commission, which commences a three-week-long hearing Nov. 20 involving 127 intervenors, isn’t accustomed to. Throughout its history, the primary players in CRTC procedures have always been captives of “the system” – domestic companies that depend for their existence on a commission license or rely upon the regulator’s decisions for their sustenance. They may not like the rules the CRTC comes up with, but they have to live with them.

Not so when it comes to global streamers that, as it turns out, are global.

Netflix’s base here is robust – 6.7 million subscribers – but that is just 10 per cent of its U.S. audience and only 2.8 per cent of its global subscriber base. According to its submission to the CRTC, it has already invested $3.5-billion in film and TV production since launching here in 2010 – roughly equivalent to the Canada Media Fund’s spend over the same period. And, it claims, people are 1.8 times more likely to view a Canadian production on Netflix than on TV. Let that sink in.

Disney+ makes similar arguments. It has 4.4 million Canadian subscribers out of a global total of about 147 million (down significantly this year). It points out that it has invested $1.5-billion in Canada, which is one of its top four production markets. As it gently states in its submission to the CRTC: “We encourage the commission to adopt a modernized contribution framework and a revised, modern definition of a ‘Canadian program’ that provide sufficient incentives for global producers and foreign online undertakings to continue to bring large-scale productions to, and make capital investments in, Canada.”

Large domestic companies that have been forced by regulation to contribute to the production and airing of certified Canadian content, meanwhile, argue for their “burden” in that regard to be reduced and shifted onto the backs of foreign companies.

In its submission, BCE Inc., which has a current profit margin of 21.2 per cent, describes the broadcasting system as in crisis, accuses streamers of having “contributed precious little to the Canadian system” and calls for its contributions to be reduced from 30 per cent to 20 per cent of the media division’s revenue – a figure it believes should be applied to all offshore streamers with more than $50-million in Canadian revenue.

BCE Inc. goes on to argue that if the commission takes its advice and forces the streamers to pay 20 per cent of their revenue directly into Canadian content funds, an additional $457-million – growing to $678-million by 2026 – will pour into the pockets of ACTRA, the Writers Guild and others involved in the creation of certified Canadian TV and film content.

And that, right there, is where Netflix, with a profit margin of 13 per cent clears its throat. Politely but firmly, it says the CRTC appears to have already made up its mind that streamers should be paying into funds and “submits that this is not an appropriate starting point.”

The decade prior to the introduction of the Online Streaming Act was by far the most prosperous in the history of the Canadian film and television industry, including in terms of Canadian content production.

Most of that growth took place beyond the reach of the CRTC, which was in charge of an increasingly irrelevant system upon which many legacy companies had grown dependent. But instead of fostering what was working, the government chose to sustain what wasn’t.

So now, as with the Online News Act, it’s playing at a table where it no longer holds all the cards.

Peter Menzies is a senior fellow with the Macdonald-Laurier Institute, a former publisher of the Calgary Herald and a previous vice-chair of the Canadian Radio-television and Telecommunications Commission (CRTC).

Alberta

Alberta’s fiscal update projects budget surplus, but fiscal fortunes could quickly turn

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From the Fraser Institute

By Tegan Hill

According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.

The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.

For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).

And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.

In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.

This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.

Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.

Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.

Of course, if the government falls back into deficit there are implications for everyday Albertans.

When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.

According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.

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Alberta

Alberta fiscal update: second quarter is outstanding, challenges ahead

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Alberta maintains a balanced budget while ensuring pressures from population growth are being addressed.

Alberta faces rising risks, including ongoing resource volatility, geopolitical instability and rising pressures at home. With more than 450,000 people moving to Alberta in the last three years, the province has allocated hundreds of millions of dollars to address these pressures and ensure Albertans continue to be supported. Alberta’s government is determined to make every dollar go further with targeted and responsible spending on the priorities of Albertans.

The province is forecasting a $4.6 billion surplus at the end of 2024-25, up from the $2.9 billion first quarter forecast and $355 million from budget, due mainly to higher revenue from personal income taxes and non-renewable resources.

Given the current significant uncertainty in global geopolitics and energy markets, Alberta’s government must continue to make prudent choices to meet its responsibilities, including ongoing bargaining for thousands of public sector workers, fast-tracking school construction, cutting personal income taxes and ensuring Alberta’s surging population has access to high-quality health care, education and other public services.

“These are challenging times, but I believe Alberta is up to the challenge. By being intentional with every dollar, we can boost our prosperity and quality of life now and in the future.”

Nate Horner, President of Treasury Board and Minister of Finance

Midway through 2024-25, the province has stepped up to boost support to Albertans this fiscal year through key investments, including:

  • $716 million to Health for physician compensation incentives and to help Alberta Health Services provide services to a growing and aging population.
  • $125 million to address enrollment growth pressures in Alberta schools.
  • $847 million for disaster and emergency assistance, including:
    • $647 million to fight the Jasper wildfires
    • $163 million for the Wildfire Disaster Recovery Program
    • $5 million to support the municipality of Jasper (half to help with tourism recovery)
    • $12 million to match donations to the Canadian Red Cross
    • $20 million for emergency evacuation payments to evacuees in communities impacted by wildfires
  • $240 million more for Seniors, Community and Social Services to support social support programs.

Looking forward, the province has adjusted its forecast for the price of oil to US$74 per barrel of West Texas Intermediate. It expects to earn more for its crude oil, with a narrowing of the light-heavy differential around US$14 per barrel, higher demand for heavier crude grades and a growing export capacity through the Trans Mountain pipeline. Despite these changes, Alberta still risks running a deficit in the coming fiscal year should oil prices continue to drop below $70 per barrel.

After a 4.4 per cent surge in the 2024 census year, Alberta’s population growth is expected to slow to 2.5 per cent in 2025, lower than the first quarter forecast of 3.2 per cent growth because of reduced immigration and non-permanent residents targets by the federal government.

Revenue

Revenue for 2024-25 is forecast at $77.9 billion, an increase of $4.4 billion from Budget 2024, including:

  • $16.6 billion forecast from personal income taxes, up from $15.6 billion at budget.
  • $20.3 billion forecast from non-renewable resource revenue, up from $17.3 billion at budget.

Expense

Expense for 2024-25 is forecast at $73.3 billion, an increase of $143 million from Budget 2024.

Surplus cash

After calculations and adjustments, $2.9 billion in surplus cash is forecast.

  • $1.4 billion or half will pay debt coming due.
  • The other half, or $1.4 billion, will be put into the Alberta Fund, which can be spent on further debt repayment, deposited into the Alberta Heritage Savings Trust Fund and/or spent on one-time initiatives.

Contingency

Of the $2 billion contingency included in Budget 2024, a preliminary allocation of $1.7 billion is forecast.

Alberta Heritage Savings Trust Fund

The Alberta Heritage Savings Trust Fund grew in the second quarter to a market value of $24.3 billion as of Sept. 30, 2024, up from $23.4 billion at the end of the first quarter.

  • The fund earned a 3.7 per cent return from July to September with a net investment income of $616 million, up from the 2.1 per cent return during the first quarter.

Debt

Taxpayer-supported debt is forecast at $84 billion as of March 31, 2025, $3.8 billion less than estimated in the budget because the higher surplus has lowered borrowing requirements.

  • Debt servicing costs are forecast at $3.2 billion, down $216 million from budget.

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