Foreign streaming services’ spending in Canada not trickling down, independent producers say

In September, Netflix announced it had spent more than $500 million in the last two years producing television shows and movies in Canada. The news came ahead of schedule; in 2017 the firm had promised to spend that sum over a half-decade, in a deal that played the starring role in the federal government’s new creative industries policy.

Netflix won’t say how much of the money went to Canadian production companies. But independent Canadian producers say they haven’t benefited much from the huge sums streaming services like Netflix are spending as they compete for subscribers. “At its core, this is really an issue of market power, one where giant foreign corporations are subsidizing their operations on the backs of small and medium Canadian production companies,” Andrew Addison, vice-president of communications and marketing at the Canadian Media Producers Association (CMPA), told The Logic.

While Netflix and its rivals are bolstering their content libraries with exclusive original programming to fight the increasingly competitive streaming wars, industry groups say that focus on originals is actually hurting Canadian creators’ long-term prospects because of the streaming companies’ focus on owning worldwide rights. Independent producers worry it’s undermining the sector’s funding model. 

Analysts and executives expect Netflix, Apple and Amazon Studios to spend as much as a combined US$27 billion this year on original content, while Disney has budgeted US$1 billion for the 2020 fiscal year for Disney Plus, which launched this week. 

“Each platform, because there’s increasing competition between them, is really looking to stamp their brand on the projects they’re behind,” said Bob Moore, a producer at Montreal-based EyeSteelFilm, which has licensed some of its documentary features to Netflix and Amazon post-production. 

Though producers say the streaming services are usually willing to pay appropriately for those worldwide rights, Canadian industry associations and granting agencies are concerned the country is giving up valuable intellectual property, the royalties from which could fund more homegrown content. 

In May, Netflix released Good Sam, a film that Montreal-based Muse Entertainment developed from a book of the same name. “We considered the possibility of retaining ownership ourselves, but the terms they offered were so onerous—both in terms of payment schedule and the rights availability—that it made no sense to us,” said CEO Michael Prupas. 

The company chose to sell Netflix complete ownership of the film and simply produce it for them instead. “It’s been our experience that Netflix really wants all world rights,” he said. “They don’t want to parcel out rights on a territory-by-territory basis, because they have an international footprint.” Other streaming services that operate in only a few countries, like Hulu, are more open to restricted deals, and pay correspondingly less. 

Industry associations and funding bodies are particularly concerned about full-ownership deals like the one Netflix struck for Good Sam. Streaming services are “increasingly requiring Canadian producers to enter into all rights licensing agreements,” the Canada Media Fund (CMF) said in a January submission to a federal government-appointed panel reviewing the country’s broadcasting laws. The model delivers lower “returns on investment from Canadian Intellectual Property.”

The CMPA expressed similar concerns in its submission to the panel. For the sector to remain healthy, it stated, producers need to keep “meaningful ownership in their content” and be able to sell it both domestically and abroad. But the CMPA said members report doing deals with foreign streaming services in which “they are hired to produce an entire show from script to final delivery, yet do not own, control, or share in any exploitation rights in the IP.”

Netflix negotiates rights agreements “on a case by case basis with producers,” said spokesperson Bao Nguyen. “As a consumer-centric company, we want our members all over the world to access great stories from Canada.” He cited the French-language horror film Les Affames and the sitcom “Workin’ Moms” as examples of Canadian stories that have been watched in countries like the U.S., U.K., France, Japan and Sri Lanka. 

Some independent producers have also taken issue with the financial terms Netflix offers Canadian producers. “We are increasingly hearing from members about troubling payment terms and practices,” Addison told The Logic.

At a Canadian Radio-television and Telecommunications Commission (CRTC) hearing earlier this month, Edmonton documentary producer Adam Scorgie said Netflix provides around 10 per cent of funding upfront, “won’t give you anything until you deliver” and pays out quarterly over the subsequent three to five years. 

Prupas said when Netflix has licensed projects from his production company after they’ve aired on other networks, they similarly paid out over three years, “which did not make our bankers particularly happy.” However, he said, “the money came in like clockwork.”  

By comparison, the primary funding stream of the Canada Media Fund (CMF), a government- and broadcaster-backed agency which finances domestic many productions, requires broadcasters to pay 20 per cent of the licensing fee before production or filming starts, and they can’t withhold more than 15 per cent until after the project is delivered. 

Nguyen said Netflix pays “market (and often top of market) to work with the best producers,” and that it buys rights for long periods, frontloading a large share of the payments.

The pool of domestic money spent on Canadian film and television production, excluding tax credits, has been almost stagnant over the last five years, according to the CMPA’s annual report. Private broadcasters’ licensing fees dropped to $361 million in the 2017–18 fiscal year, down from $594 million in 2013–14, although an increase in contributions from public broadcasters made up some of the difference. 

Meanwhile, foreign financing increased to $465 million over the same period, up from $292 million. Netflix and its rivals are a big part of that increase, but aren’t bound by the CRTC’s rules for Canadian content, and don’t contribute to the CMF or participate in the rest of the domestic financing system. Canadian producers can’t access that funding when they make originals for streaming services, so don’t have the protections of the CMF’s strict project rules.

Of course, Canada has been a popular place to make shows and movies since before the streaming services began their spending spree. Warner Bros. Television’s Arrowverse franchise, which airs on The CW, is mainly filmed in Vancouver, while moviemaker Guillermo del Toro shot The Shape of Water and the original Pacific Rim in Toronto. 

But Prupas said the arrival of the streaming platforms is “driving costs up substantially,” citing expenses for renting studio space and hiring film crews, among other examples. He estimated production expenses have risen 15 to 20 per cent in the last two or three years—at a time when he said broadcasters’ licence fees have been dropping. “In many cases [the streaming services] are producing things on their own, using local Canadian talent, but not companies,” Prupas said, noting that platforms often hire freelance producers. “They’re squeezing out companies.”

According to the CMPA’s annual report, foreign investment in production in Canada hit a new high of $5.62 billion in the 2017–18 fiscal year, up from $3.36 billion in 2015–16. Almost all that growth was driven by increased spending on either visual effects, or movies and shows filmed in Canada primarily by foreign producers.  

Moore said the problem isn’t the business practices of streaming services, but the fact that the platforms aren’t integrated into the Canadian film and TV sector’s funding programs. Since many platforms have cut back on their acquisition of finished documentaries, companies like his increasingly have two options: fund their projects via the streaming services’ original-content budgets, or partner with a Canadian broadcaster to access granting-agency funding.

“It’s not that realistic to go pitch your film to Netflix or Amazon directly, compared to CBC or TVO,” Moore said, noting that EyeSteelFilm has long-standing relationships with domestic broadcasters. But per the CMPA report, domestic funding is standing still, while foreign financing is growing. 

“The entire system was built to prevent American domination and ownership and direction of Canadian content,” Moore said. “If most people are consuming content on those platforms, how [is the mandate of] telling our own stories going to be achieved by working with primarily international companies?”