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The Netflix Fear: Competition (But Not the Competition You Might Think)

The CRTC’s deadline for submissions to the over-the-top video “fact finding” exercise passed yesterday. While many notable submissions will likely appear on the CRTC site today, there are enough there already to get a good feel for where this is headed. I wrote last week about the perceived bias against consumer interests in this consultation, but the reality is that the industry arguments are thus far so devoid of actual evidence that the Commission should be well positioned to leave the issue alone at least until the next new media hearing in 2014.

The submissions include the usual fear mongering about services like Netflix. The winner so far comes from the Stingray Digital Group, which warns:

Just as Napster wreaked havoc on the record label industry in the early 2000’s and played a major role in the collapse of the music retail industry, so too will the new breed of OTT music services materially disrupt licensed Canadian music services and the Canadian broadcasting system if the status quo is left unchecked.

Other submissions contains lots of rhetoric about the dangers of an unregulated over-the-top services market, but no actual evidence of real harm.

For example, Corus notes “we have no evidence that OTT is hurting the market for premium TV services in the markets we serve.” MTS Allstream acknowledges that “although there has been explosive growth in network bandwidth demand, this has not translated into consumer cord pulling in regards to MTS Allstream’s traditional (conventional) television distribution product.” SOCAN admits it “has no direct evidence on subscription reductions.” Astral produces plenty of statistics about the growth of Internet video, but has little to say about the impact on consumers (other than the laughable claim that OTT will mean consumers will either be forced to accept lower quality programming with less diversity or pay far more for multiple services).

While evidence is hard to find in the submissions, the fear of competition comes out loud and clear. Interestingly, the fear isn’t the competition for the over-the-top market (for which there are no barriers for Canadian providers) nor lost subscribers to the new entrants. Rather, the competitive fear comes from the expectation that the costs of licensing foreign (ie. Hollywood) content will increase with more competitors vying for the same rights. SOCAN says “the acquisition of North American rights reduces the supply of content available to broadcasters who serve the Canadian market. Reduced supply will drive up the costs of foreign content.” Corus says the effect of Netflix “is to drive up the costs of content,” while Astral worries about “an even more ferocious battle and a significant increase in the cost of rights, as well as a splitting of content among many services.”

As I wrote earlier this week, competition in the Canadian broadcast sector may hold the key to the regulatory challenges since increased costs on foreign content may be a good thing from a public policy perspective. Years of coddling Canadian broadcasters with policies such as simultaneous substitution (based on the premise that highly profitable U.S. programming would subsidize Canadian content) have failed, leading to a market committed to creating Canadian content for regulatory purposes but which seems less interested in whether it actually gets watched. It is true that competition for foreign rights may increase the cost of acquiring those rights for the Canadian market. Rather than viewing that as a threat, however, it is better seen as an opportunity as it helps narrow the profitability gap that currently exists between creating homegrown content and licensing foreign content, making the creation of Canadian content a more attractive proposition.

13 Comments

  1. You mean someone other than the CBC might have to make Canadian content hat isn’t a duplicate of some American TV game show? Perish the thought.

    As for the competition, it can really only be a good thing. Sure some of the current companies are going to end up going under, but such is the market system.

  2. Not ready yet to replace cable
    The simple answer is that services like Netflix don’t yet have enough content to replace cable TV. While Netflix has been increasing their selection, they still don’t have things like just aired TV shows, or all the new release DVDs. Eventually these things will come. when there’s a service like Netflix that offers everything your Cable/Satellite provider offers, then you will see people start dropping contracts.

  3. Kerry Brown says:

    Just a guess but maybe an easy to reach world wide market with increased pricing due to more bidders for the product will do more for Canadian content creators than all the years of regulated CanCon.

  4. OTT works great for our family…
    @Kibbee,our family has cut the cord. We use Netflix for kid entertainment, and http://www.streaming-guide.com as one stop for legally available online TV in Canada. We get enough content to satisfy our TV entertainment needs…of course we do not get HBO, but on the other hand we are not interested in paying over $100 per month for that privilege (basic cable+premium charge)…

    @Michael, thank you for interesting continuing commentary

  5. Kerry
    Kerry, the world wide market has always been there, and Canada does very well at it — Geist is not very familiar with the TV business, but on the world stage our profitability is in fact remarkable. Unless English-Canadians start speaking a different language or adopt a new culture, though, we will never do as well as Hollywood. That’s simple reality. The Hollywood stuff has made it through their insane gantlet, enabled by their huge English-speaking market, of tossing out scripts, tossing out pilots, tossing out big bucks on audience testing, and running major promotions. Whoever controls it will control the Canadian eyeballs. At some point Canadian companies will stop controlling it, at which point the decision-makers for the Canadian industry will have moved from Toronto to California. Geist doesn’t see that as “real harm”, and indeed it may not be a bad thing — if we’re not, culturally, a distinct market, then why should we try and pretend we are? Still, we should acknowledge that that is where we’re headed. It’s really just a question of what happens in the meantime.

  6. end user says:

    Can we just stop protecting these companies. If you can’t keep up with market development and customer demands then you have no right to try and legislate your failed business model. Pretty simple.

    As for canadian programming, well I rarely watch any since there’s nothing worth watching. The Lorne Greene New Wilderness days are over let global content rule.

  7. @end user
    Agreed. I don’t think I’ve watched anything Canadian since Corner Gas and pretty much nothing other than PBS stuff before that. A vast majority of what I watch either originates from the BBC in the UK or from the plethora of choices in the US. “These companies” pay a lot of money for political “protection” all in the name of Canadian content. I call BULLSHIT!!! It’s all about protecting their huge profit margins. They want to force the OTT providers to have CanCon to support our culture, then place tariffs on them because they have CanCon. They’re basically saying, “You have to have the content available AND you have to pay us for those rights”. That’s NOT going to fly.

  8. I just reviewed my ADSL package…
    And Netflix isn’t even in the cards for me, at least as long as I live in BC. Telus and all the resellers (I’m on Smartt.com) has a 10GB cap. That’s what, 1/2 a HD movie?

  9. Jerrycan says:

    Can’t wait for “The littlest Hobo 2015”!
    I see myself as a early adopter I suppose, but cable is gone and long forgotten from my house. Luckily, I don’t watch sports, but if I did, CTV/CBC OTA has whatever I may need, like the olympics. One thing I do miss is what I watch most on cable. 24 news channels.

  10. Yes John, I think this is clever ūüėČ
    Just as record label industry wreaked havoc on Napster in the early 2000’s and played a major role in the collapse of the music retail industry, so too will the licensed Canadian music services and the Canadian broadcasting system materially disrupt the new breed of OTT music services if the status quo is left unchecked.

  11. lol, that gets funnier the more I read it … because it’s so true!

  12. Kerry Brown says:

    Serge
    Canadian content providers have indeed done quite well in the existing world market. OTT is a new delivery paradigm that should help them do even better. They are used to being a small player in a big market and know how to compete in those conditions. The market with OTT will get much bigger as eventually there will be no local restrictions. Any jurisdictions trying to enforce local restrictions will eventually fail in that endeavour. People want the content at a reasonable price. If it’s available they will find it despite attempts to stop them. My belief is the best long term strategy for content creators would be to embrace OTT.

  13. The existing players
    Are doing their job: attempting to protect their revenue streams in order to maximize the returns for their investors (for instance, pension plans). While I don’t agree with them, I can’t fault them for that. The trick is to ensure that the CRTC is aware of how much is rhetoric and how much is fact.