Australia’s Master of Coin Proposes Netflix Tax

Words by: Trilokesh Chanmugam
Image credit: HBO

This story takes place only a few weeks ago. It’s a Monday night. You’ve popped your popcorn and plumped your cushions. The latest episodes of ‘Game of Thrones’, illegally obtained, are on your trusty USB device, ready to be played. You’ve read the books and know how these episode are supposed to go down, but resolve to stay silent so that your friends don’t disown you. The rules of the movie night are sacrosanct; theories about Jon Snow’s mum can wait until after the show.

Your first guest turns up.

“Did you download these episodes? HBO might be tracking you.”

You’re saddened, but not surprised. You’ve read of the recent legal battles between ‘The Dallas Buyers Club’ and various internet service providers, which forced ISPs to divulge information about the offending clientele. It makes sense for HBO to take similar legal action over the first four episodes of season five which leaked online. Your movie night goes as planned, but it’s tainted by the knowledge that indulging in this guilty pleasure might not go unpunished.

An era of unprosecuted crime is coming to an end, you realise. With a sigh, you reluctantly concede that it’s too risky to go on living the life of a swashbuckling pirate. You throw down your eyepatch and kneel before the might of the Foxtel armada.

A full Foxtel home cable service costs at least $500 (for standard definition TV), plus $200 for installation and equipment costs on a 12 month plan. Foxtel Play provides an alternative for people who don’t want to sign up for the full year contract and pay the cable installation fee, but it’s still not cheap: $25 per month for the basic Foxtel Play streaming service, plus an additional $20 per month for the Premium movies and Drama package, which includes ‘Game of Thrones’.

Foxtel is the only legal option for Australian HBO viewers to access the content at the same time that it is shown in the USA. Any self-respecting fan will tell you that waiting for a series to come out on DVD is out of the question, since the only way to safely avoid spoilers is to isolate yourself from the internet and anyone who has access to social media. iTunes pay-per-view is a poor alternative as well, with inexplicable delays between the episode release date and its availability on iTunes.

So, you, the recently retired pirate and television aficionado, find yourself hamstrung; peg-legged. You swallow your pride, check your bank balance, and join the 2.8 million other Australians with a Foxtel subscription. Foxtel is co-owned by News Corp Australia (50%) and Telstra (50%). These subscriptions provide them with big revenue – even after reduced subscription costs were implemented by Foxtel in September last year as a response to growing competition from on-demand internet television.

Netflix, which took the country by storm when it was officially launched in Australia on March 24th of this year, is one such competitor. Netflix is an American provider of digital media, but was only available to the most enterprising of Australian internet users prior to March 2015, due to its geo-blocking policy. To get access to area-restricted content, Australians were forced to use a VPN to subscribe to Netflix USA; an effort which might appease those with ethical objections to piracy, but is of questionable legality. When Netflix announced that it was being made officially available to Australians, it seemed that a panacea to Australia’s piracy epidemic was at hand. For the bargain price of $8.99 per month, or $11.99 for HD streaming, Australia finally had legal, and affordable access to TV and movies which were streamed at the same time as the USA.

The kicker? Limited content. Netflix Australia has a drastically reduced range of titles when compared to Netflix USA; 1100 titles in Australia compared to around 7000 titles in the USA. That’s roughly six times more entertainment if you live in the United States. More notably, neither Netflix AU nor Netflix USA have access to HBO content. HBO and Netflix are arch-rivals, and HBO is starting up its own subscription based streaming service in the USA. ‘HBO now’ will offer HBO exclusive content but, predictably, is not going to be accessible by Australians, except via VPN (legal grey area). That means no ‘Game of Thrones’, no ‘Boardwalk empire’, and no ‘True Detective’. Suddenly the $8.99 monthly price tag for Netflix AU seems more appropriate.

Throw Australia’s slow internet speeds into the mix, as pointed out in this article, and the value of a Netflix subscription becomes even more questionable. The same difficulty is faced by all of the other subscription video on demand (SVOD) companies as well. Australian internet service providers struggle to offer the internet speeds required for smooth HD streaming. It doesn’t matter whether you’re subscribed to Foxtel Play, Netflix, Quickflix, Presto (also owned by Foxtel), or Nine group/Fairfax’s Stan, you’re not going to be able to enjoy watching anything if everyone in your neighbourhood is trying to stream ‘House of Cards’ in HD at the same time on a Friday evening.

Is this knowledge enough to make you return to your buccaneering ways? Maybe you feel that you have a legal-ethical obligation to pay for your entertainment, but think that a $45 Foxtel Play subscription is a bit steep. Perhaps you’re simply fed up with the idea of paying Rupert Murdoch $45 a month just so that you can watch Game of Thrones. $8.99 sounds a lot better than $45, even if it excludes HBO content.

Not so fast. A new tax on “intangible”, digitally imported goods will be introduced in the 2015 budget, Joe Hockey announced last week. Affectionately referred to as the “Netflix tax”, this measure basically forces foreign companies which sell digital goods in Australia to charge GST on their products. This “Netflix tax” won’t apply exclusively to Netflix, but also various other providers of digital goods: Steam games, e-books, and even AirBnB will all fall within this category. The legislation will come into effect from July 2017, and puts Netflix on a level playing field with the aforementioned local SVOD providers which already have to charge the GST; Quickflix, Presto, Stan, and Foxtel Play. Makes sense right? It makes Australian companies more competitive with their overseas counterparts. At least, that’s what is argued in this article.

Except that the local SVOD providers are not Netflix Australia’s main competitors. Piracy and accessing Netflix USA via VPN are the alternatives that Netflix Australia has to compete with. This article suggests that 340,000 Australians were already accessing the US version of Netflix prior to the launch of Netflix Australia, and this article suggests that Australia has the highest per capita piracy statistics of any country in the world. Neither piracy nor Netflix USA provides the Australian government with taxable revenue. The proposed tax only contributes a 10% GST price increase. Although this is not a huge amount (Netflix will only increase to $9.99 per month), it might be the difference between consumers choosing to subscribe to the less glamorous Australian Netflix, and the more enticing Netflix USA.

This doesn’t stop local SVOD providers from rooting for the tax reform though; from their perspective, it makes perfect sense for Netflix to pay the same government taxes as them. The chances are that it will slightly reduce the current trend of market share slipping away from Quickflix, Foxtel Play and the other players in the game. News corp, Telstra, Nine entertainment group, and Fairfax all have a considerable stake in the market.

With the confirmation of draconian metadata laws to be implemented soon, many Australians are already opening their eyes to the value of VPNs to protect their internet privacy. It’s only a small step towards using the same services to access a larger selection of semi-legal entertainment, and I predict that the next few years will make VPN use far more prevalent among Australian internet users. The “Netflix tax” is bound to contribute to this.

Is this a bad thing? I’m not prepared to comment on the ethical ramifications of piracy, VPN use, or the taxation of digital goods in general, but I do believe that this “Netflix tax” comes at a bad time. Australia is frantically trying to provide legislation for the digital landscape. The National Broadband Network, the metadata retention laws, the trans-pacific partnership, and the Copyright Amendment Online Infringement Bill 2015, collectively represent an enormously tangled intersection of intellectual property issues, personal privacy, and tensions between online rights and responsibilities. Until it becomes clear how this is all going to play out, it seems remiss for the government to add to the mess by slapping a new tax on digitally imported goods.

I’m aware that the tax will raise a certain amount of revenue for the government, and that local entrepreneurs are lobbying for the tax, but I can’t help but feel that internet habits need to be examined more closely before consumers of netflix, steam games, and other digital goods have to shoulder the tax. While we wait to see how this all pans out, keep watching your favourite shows using any reasonable means necessary. And in the meantime, we can rest easy with the knowledge that Joe Hockey is no Littlefinger, and that the Australian government, despite its shortcomings, will never screw itself as thoroughly as Westeros has.