Music streaming services come out swinging against Canada’s new ‘discriminatory tax’ that requires them to hand over 5% of their Canadian revenues

An industry group that represents Amazon Music, Apple Music and Spotify has criticized a new regulation in Canada that requires major streaming services to pay 5% of their revenue to various groups supporting the creation of Canadian content.

“We are deeply concerned with today’s decision to impose a discriminatory tax on music streaming services that are already making significant contributions to Canadian artists and culture,” Graham Davies, President and CEO of the Digital Media Association (DiMA), said in a statement issued on Tuesday (June 4).

“Streaming is the main source of revenue and engine of growth for music in Canada, benefiting the industry, creators, fans and consumers. And this is effectively a protectionist subsidy for radio.”

Canada’s Online Streaming Act, a new law enacted in 2023, expanded the power of the federal broadcast and telecom regulator – the Canadian Radio-television and Telecommunication Commission (CRTC) – to include online content.

In one of its first regulatory changes under the law, the CRTC announced on Tuesday that, starting on September 1 of this year, any digital service providers (DSPs) not affiliated with a Canadian broadcaster that have revenues of at least CAD $25 million (USD $18.3 million) in Canada annually will have to contribute 5% of that revenue to a number of programs designed to aid Canadian content creators.

The rules echo similar requirements that have been enforced on Canadian broadcasters for decades.

“Streaming is the main source of revenue and engine of growth for music in Canada, benefiting the industry, creators, fans and consumers. And this is effectively a protectionist subsidy for radio.”

Graham Davies, DiMA

Among the affected platforms are Netflix and Disney+ on the video side, and Spotify, Apple Music, and Google Play Music on the audio side.

Music streaming services – what the CRTC calls “audio online undertakings” – will have to pay into a number of funds and organizations, including the Foundation Assisting Canadian Talent on Recordings (FACTOR) and its French-Canadian equivalent, Musicaction.

Other beneficiaries will be the Canadian Starmaker Fund, which provides touring and promotional support to emerging Canadian artists, and was created in collaboration with Music Canada, an industry group that represents the country’s major labels, including Sony Music Entertainment Canada, Universal Music Canada, and Warner Music Canada.

DSPs’ revenue will also go to the Community Radio Fund of Canada, which provides financial assistance to local radio stations, the Indigenous Music Office, and a new fund to support Indigenous music.

Perhaps most surprisingly, 1.5% of music DSPs’ revenue will go towards “a new temporary fund supporting local news production by commercial radio stations.”

Higher prices for streaming subscribers?

The Online Streaming Act was supported by many broadcasters and content creators, as well as unions representing workers at Canada’s major media companies. It was opposed by operators of global platforms like Google and Spotify, as well as by consumer advocacy groups concerned that new levies on streaming services will be passed on to subscribers.

Unifor, a union that represents employees at vertically-integrated Canadian broadcast and print media companies such as Bell Media and Rogers, praised the CRTC’s new rules.

“Foreign streamers have been competing directly with Canadian broadcasters, and they should have the same responsibilities and obligations to support local news and Canadian storytelling,” Unifor National President Lana Payne said in a statement.

“Canadian artists earn more from streams outside of Canada than they do domestically… Canada has been the third most successful country globally in exporting its artists through Spotify.”

Spotify

However, the rules received mixed reviews from consumer advocacy group OpenMedia.

“Price increases seem likely for Canadian consumers” in the wake of the CRTC decision, tweeted Matt Hatfield, the group’s Executive Director. “For low margin businesses like Spotify, they may pass most of this 5% levy on to us.”

Hatfield also criticized the new regulations for focusing the lion’s share of the money towards traditional broadcasting, and not towards digital creators.

“That MUST change,” he wrote.

In a submission to the CRTC earlier this year, Spotify said it already contributes significantly to the creation of Canadian and Indigenous music, and a new levy on its revenue would force it to cut back on those supports, or raise prices on consumers.

“Spotify’s sustained investment in local music teams supports the Canadian music ecosystem. Our music teams…carry out Spotify’s mission to be the best home to creators by partnering with Canadian artists and industry and promoting Canadian and Indigenous artists at home and around the world,” the company said.

“While traditional broadcast radio is only capable of playing Canadian artists to Canadians, Spotify allows listeners all around the world to discover and hear Canadian artists. In fact, Canadian artists earn more from streams outside of Canada than they do domestically… Canada has been the third most successful country globally in exporting its artists through Spotify.”

Spotify also noted that the company “has not previously been regulated by the Commission or any other regulators elsewhere in the world in this manner.”

In its statement issued Tuesday, DiMA said it will be reviewing the CRTC’s decision with its members “in order to plan next steps accordingly.”Music Business Worldwide