CRTC Hearings: Amazon Calls for Flexibility for Contributions

In our continued coverage of the CRTC hearings, we are checking out what Amazon had to say.

We are continuing our series on the CRTC hearings as the regulator works out how to implement the Online Streaming Act. One of the major themes that came out of this is the calls for a flexible contribution system. Indeed, Google called for a system that also benefits the digital ecosystem. Spotify, for their part, worried that an inflexible system would jeopardize their investments in Canada. Netflix made similar calls to that effect. Paramount worried about their financial viability in Canada should the regulatory requirements prove inflexible.

The growing concerns among streamers has some speculating that some of these platforms might exit the country, leaving only the largest players in the industry able to afford the upfront cost of making ransom payments to legacy corporations just for the privilege of offering their services to Canadian’s.

Amazon also made an appearance before the CRTC. As you know, Amazon offers multiple streaming services including Amazon Prime and Amazon Music. So, little surprise why they are in these hearings in the first place given how much these regulations would likely affect them. Their comments can be found on the CRTC website.

Like many other streaming services, Amazon pointed out the investments they have made in the country:

8040 We believe a key part of that success in delivering on that vision is for our customers to see Canadian stories, and our track record supports this. For me as a born and raised Montrealer, Canada has personal importance. I moved back to Canada after having worked on the U.S. Prime Video business in Seattle, because I believe in the company’s mission statement for Canada and in the role that we could play for the Canadian film and television community that we are a part of.

8041 Our contributions are diverse and significantly positive, impacting multiple areas across the sector and benefiting talent, creators, distributors and broadcasters alike. We film dozens of TV series and movies in Canada, including hits like The Boys, Reacher and Gen V.

8042 We have been making content in Canada for almost a decade, investing significantly in Canadian storytelling and global productions starting with The Man in the High Castle back in 2015 in Vancouver.

8043 Our global productions in Canada are key growth drivers for the sector, made with best‑in‑the‑world Canadian crews and production companies, supporting local talent while adding major economic benefit across the Canadian film and television industry.

8044 In a report we commissioned from Deloitte, it was estimated that Amazon’s more than 40 projects in Canada between 2021 and 2022 contributed $1.4 billion to Canada’s GDP and more than 13,000 jobs.

This is another instance where platforms are pushing back against the notion that platforms are just showing up in Canada, making lots of money off of Canadians, and leaving the country without contributing anything back to Canada in any way. This is another great counterargument to that notion.

From there, Amazon made their case clear about what they are looking for in this process:

8066 It is our view that any contribution framework should be in line with the Minister’s Final Policy Direction to be flexible, adaptable and “use tools that are based on incentives and outcomes.”

8067 We encourage the CRTC not to apply any mandatory contributions until the full scope and scale of contributions made by online undertakings have been assessed, data‑driven outcomes have been set, and a flexible framework to recognize varied contributions and differentiated business models is built.

8068 Once that understanding is in place, we urge the Commission to allow undertakings to satisfy these requirements through at least in part their own direct investment. This will allow us to continue to invest in the areas we outlined for you today and which position us to best serve our customers in the long term.

8069 The allowance of direct investment to satisfy obligations under the new framework will also promote competition, diversification, affordability, and innovation in the online broadcasting space.

8070 We do not support the channeling of contributions to a small number of legacy funds. This will limit our ability to respond quickly to customer demand and interest and slow our creative process. What we’ve outlined today is proof that there are different ways of achieving the outcomes we believe the Commission is seeking, and we further encourage the Commission to evaluate whether legacy funds sufficiently support the diverse film, TV, and music talent of the future.

8071 Additionally, we believe it is inappropriate at this time to require contributions from revenues generated from unique transactions, or what we also call TVOD, and online content storefronts. These are low‑margin businesses, providing services with the bulk of the revenue already going to producers, distributors, and broadcasters and over which streamers have limited creative control. Just as the Commission did not extend its scope to brick‑and‑mortar video stores, it would be undue regulation to include these businesses for streamers. We need to foster the technological and new business opportunities that keep Canada competitive and delivering the most options for our customers.

So, really echoing the calls that when a streaming service is expected to contribute, that investments already being made to produce Canadian content and contribute to the success of Canadian creators should be considered.

During the question and answer section, the CRTC seemed to be wondering if the profit margins for music streaming are razor thin, citing Spotify on this assessment. Amazon agreed that the profit margins are, indeed, razor thin:

8088 VICE‑CHAIRPERSON SCOTT: Great, thank you. We’ll look at what’s already been filed, and maybe we can follow up with an RFI as necessary. Thank you.

8089 Yes, Spotify was before us earlier in the week, and they described their margins on music streaming as razor‑thin or negative. How would you describe your margins on the music business, and is it similar on TV?

8090 MR. MURPHY: Thank you for the question, Vice‑Chair. Yeah, I would echo the razor‑thin sentiment towards margins in music streaming. Music‑streaming services, essentially, we all have the same catalogue of songs. You know, we’re not an exclusive‑driven business. We license the rights of those songs from the rights holders. So we’re all operating in the same space where we’ve got the same content. We’re offering, you know, consumer products and apps to services to go and engage and listen to music. So we’re in the same world and reality of margins as are, you know, other services that are encountered too.

8091 MS. GRACE: As it comes to Prime Video, we’ve split out our businesses into our transactional businesses and our ASVOD or streaming businesses. On the transactional front and in our submission, we communicated that they are low‑margin businesses where a majority of the revenues, similar to the streaming music space, goes directly to the licensors and rights holders. And then a portion of the remaining revenue is for the management of the service, including hosting costs, customer service fees, things like that, billing costs. So they are low‑margin businesses. That’s what we’ve called online content storefronts and one‑time transactions.

8092 VICE‑CHAIRPERSON SCOTT: Okay. And are the margins low because such a high proportion of the funds are going towards artists and creators? Because that’s not the sense we’ve been getting from the artists and creators that have been appearing before us.

8093 MR. MURPHY: Yeah, thanks. So the deals we have in place with the rights holders, so that’s the record labels and collecting societies on behalf of the songwriting community, so we don’t make direct payments to artists. It goes through the rights holders that then, through their commercial arrangements, make payments to the artists and creators of the music works.

8094 Roughly 70 per cent of our revenues from customers are what goes through rights. And that left ‑‑ leaves, you know, 30 per cent, assuming, you know, we’ve passed the 70 per cent through to the rights holders, to manage the rest of the business, which also includes developing, you know, hopefully a world‑class product for Canadian customers to enjoy and discover new Canadian artists and music, local teams on the ground here in Canada. You know, we’re really excited to be here to represent Canada. We have people, you know, from across the whole country that are like working day to day to go and build, you know, amazing and deep relationships with Canadian artists and creators.

8095 And then there’s also, you know, other operational costs, customer service, credit card fraud. There’s a long list of things that like eat into the remaining part of the, you know, pie, so to speak, from you know the revenue we make from customers.

8096 So yeah, it is, unlike traditional broadcasts, which I think the estimate is eight per cent, we’ve got 70 per cent of our revenues flowing through to the rights holders that then, you know, at their discretion, and that they always distribute to artists and songwriters on the music side.

8097 VICE‑CHAIRPERSON SCOTT: And on the AV side is it similar dynamics apply?

8098 MS. GRACE: I would say it’s similar to on the music side. It is we’re basically offering the service to pass through content on behalf of distributors to customers. We don’t curate any of the content, own any of the content. It’s effectively like we’re a service offering that facilitates the distribution of that content to customers directly.

8099 The exact structure is obviously ‑‑ there’s different societies, collecting societies and things like that on the AV side. But I would say from, you know, the pass‑through of revenue, it would be a generally similar structure.

There has been tensions between creators and royalty collecting societies. Some artists have contended that collection societies are not re-distributing enough of what they collect back to the artists. So, that has been a long-standing feud as to why artists aren’t getting paid much. Then, on the flip side, there is that argument that platforms are only paying out huge sums of money to the top creators while leaving pennies for everyone else at best. So, there is a lot of dynamics at play there to say the least.

At any rate, Amazon does agree with the notion that streaming can only have a thin profit margin as the platforms try to keep everyone happy. At least for some of the platforms, profitability is still a goal as a number of competitors to Netflix collectively lost $5 billion last year. That has resulted in a number of these players thinking of consolidation or bowing out of the streaming market altogether.

Either way, if you’ve listened to the comments of other streaming platforms, Amazon’s comments aren’t particularly surprising when it comes to what they are seeking. The data they provide certainly adds to the overall conversation, though.

Drew Wilson on Twitter: @icecube85 and Facebook.

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