Three of the world’s largest music streaming services – Amazon, Apple and Spotify – have filed legal challenges against a new regulation in Canada that requires non-Canadian streaming services to pay a 5% streaming tax on their Canadian revenue.
At the same time, the Motion Picture Association (MPA)–Canada, which represents Netflix and a number of major Hollywood studios, including Disney, Paramount, Sony, NBCUniversal and Warner Bros. Discovery, have filed a challenge against a similar 5% tax being imposed on video streaming services.
The three streaming services and the MPA – Canada all filed separate challenges on Thursday (July 4) with Canada’s Federal Court of Appeal, requesting a judicial review of the new regulation. They say the regulation goes beyond the authority of Canada’s broadcast and telecommunications regulator, the CRTC.
The music streaming tax “is backward-looking and bad public policy from the current Government of Canada, and fails to acknowledge streaming’s existing contributions to music production,” said Graham Davies, President and CEO of the Digital Media Association (DiMA), which represents Amazon, Apple, and Spotify, and which has been spearheading the effort to stop the tax.
Under Canada’s Online Streaming Act, a law passed in 2023, the CRTC’s authority was expanded from broadcasting and telecoms to include online content.
In June, the CRTC announced that, starting this fall, music streaming services that are not affiliated with a Canadian broadcaster and who earn at least $25 million in revenue in Canada will be required to hand over 5% of their Canadian revenue, which will be put into a number of different funds that support Canadian music creators and broadcasters.
Among those are the Foundation Assisting Canadian Talent on Recordings (FACTOR) and its French-Canadian equivalent, Musicaction, as well as the Community Radio Fund of Canada, which provides financial assistance to local radio stations, the Indigenous Music Office, and “a new temporary fund supporting local news production by commercial radio stations.”
Similarly, video streaming services like Netflix and Disney+ will have to pay 5% of their Canadian revenues towards funds such as the Canadian Media Fund, which subsidizes Canadian film and TV production, and the Independent Local News Fund, which funds news produced at independent TV stations in underserved markets.
The rules are an echo of regulations that have existed for decades that require Canada’s broadcast carriers, such as cable and satellite providers. to pay into funds that support Canadian content creation.
“Imposing a 5% levy on streaming services is unsustainable, bad for consumers, and fails to follow the policy directive by [the Department of] Canadian Heritage and the Online Streaming Act.”
Graham Davies, DiMA
The music streaming companies have argued that the new rules effectively require them to fund their competition; and both the music and video streaming services say that requiring them to fund news production in Canada goes beyond the authority granted to the CRTC under the new law.
“The CRTC’s decision to require global entertainment streaming services to pay for local news is a discriminatory measure that goes far beyond what Parliament intended, exceeds the CRTC’s authority, and contradicts the goal of creating a modern, flexible framework that recognizes the nature of the services global streamers provide,” said Wendy Noss, President of MPA–Canada.
“Our members’ streaming services do not produce local news nor are they granted the significant legal privileges and protections enjoyed by Canadian broadcasters in exchange for the responsibility to provide local news.”
“Imposing a 5% levy on streaming services is unsustainable, bad for consumers, and fails to follow the policy directive by [the Department of] Canadian Heritage and the Online Streaming Act,” DiMA’s Davies said in a statement.
“This levy risks raising costs for Canadians and may also violate trade obligations, exposing Canada to economic repercussions.”
Canada is party to a number of free trade agreements, such as the US-Mexico-Canada Agreement (USMCA, formerly known as NAFTA) and a trade agreement between Canada and the European Union (CETA), which prohibit Canada from discriminating against foreign companies, for instance, by taxing them differently than Canadian companies.
However, in its trade agreements, Canada has carved out exemptions to these rules for cultural industries.
“Global studios and streaming services have spent over $6.7 billion annually producing quality entertainment in Canada for local and international audiences.”
Motion Picture Association – Canada
The legal challenges from global streaming services received a frosty reception from representatives of Canada’s broadcasting industry.
“The MPA–Canada’s lawsuit fully demonstrates the foreign global streamers’ avaricious approach to the Canadian market,” said Kevin Desjardins, President of the Canadian Association of Broadcasters (CAB), as quoted by the Globe and Mail.
“As the foreign global streamers remain focused on sucking billions of Canadian dollars out of the Canadian-owned media system, the CAB remains focused on ensuring that we keep Canadian journalists in Canadian newsrooms.”
The streaming services object to the notion that they are “sucking” money out of Canada. Spotify has stressed that its platform has given Canadian artists access to a global audience,
In its recent Loud & Clear report, Spotify said that 92% of all royalties generated by Canadian artists on the platform came from outside Canada. Those royalties reached CAD $435 million (USD $322.25 million) in 2023, an increase of 15% YoY, and outstripping the country’s music industry revenue growth of 12%, Spotify said.
Meanwhile, Netflix has repeatedly stressed that it has invested millions in Canadian-produced content.
“Global studios and streaming services have spent over $6.7 billion annually producing quality entertainment in Canada for local and international audiences and invested more in the content made by Canadian production companies last year than the CBC, or the Canada Media Fund and Telefilm combined,” the MPA–Canada said in a statement.
The MPA–Canada also reportedly raised concerns that the CAB, which will be responsible for distributing the money raised from video streaming services, will be in a position to disclose confidential financial information about the companies paying into the fund – a concern rejected outright by the CAB.
“The CAB has historically received similar confidential financial information from cable and satellite distributors and dealt with it appropriately and without issue. We have the ability and the integrity to do so going forward,” CAB’s Desjardins told the Globe and Mail.Music Business Worldwide
