Why Creators and Consumers Should Welcome the “Netflix Threat”

The examination of the proposed Bell acquisition of Astral Communications took place last week in Montreal with the Canadian Radio-television and Telecommunications Commission hearing from a wide range of supporters and opponents of a deal that only last year was rejected as contrary to the public interest.  

As Bell and Astral sought to defend their plan, a familiar enemy emerged – Netflix. What does a U.S.-based Internet video service with roughly two million Canadian subscribers have to do with a mega-merger of Bell and Astral?  

My weekly technology law column (Toronto Star version, homepage version) notes that for the past few years, it has become standard operating procedure at CRTC hearings to ominously point to the Netflix threat. When Internet providers tried to defend usage based billing practices that led to expensive bills and some of the world’s most restrictive data caps, they pointed to the bandwidth threat posed by Netflix. When cultural groups sought to overturn years of CRTC policy that takes a hands-off approach to Internet regulation, they argued that Netflix was a threat that needed to be addressed. So when Bell and Astral seek to merge, they naturally raise the need to respond to Netflix.

This is an age-old strategy that seems to resurface every decade. In the 1980s, it was the effort to keep large U.S. specialty channels such as ESPN and MTV out of the market that led to the creation of TSN and MuchMusic. In the 1990s, the U.S. satellite television providers were branded the “death stars” and kept out of the market to allow for Canadian entries. In the 2000s, it was U.S. satellite radio services that were denied entry until acquiescing to minimum Canadian content requirements.

In this decade, it is the Internet’s turn as over-the-top video services such as Netflix are viewed as threats to established Canadian broadcasters, broadcast distributors, and content creators.

To date, the CRTC has largely skirted the issue by pointing to studies that suggest that Netflix and other over-the-top video providers have only had a minimal impact on the consumer market. But that won’t last. Whether Netflix or the myriad of other online video services – from YouTube’s forthcoming subscription services to the National Film Board’s documentary film Netflix competitor (scheduled to launch in 2014) to sports leagues offering season packages for Internet distribution to film studios launching their own services – the online distribution model is only going to increase in popularity.

Rather than claiming limited impact, the CRTC should embrace the trend by concluding that the services are a boon to both consumers and content creators consistent with its policy mandate that does not require regulatory change or protection for established Canadian broadcasters.  

For consumers, the benefits are obvious with more choice, greater convenience, and lower prices.

Creators also benefit from the proliferation of these services by virtue of the heightened competition for their content. In years past, the competitive landscape in Canada was limited to a handful of broadcasting organizations. The entry of new competitors means there will be a larger ecosystem of distributors, intermediaries, and original producers all vying for enough content to make a compelling offering to consumers.

The established players unsurprisingly view the new entrants as a threat since they offer competitive content at a fraction of the price of a typical cable or satellite bill, increase acquisition costs, and free consumers from being locked into a small number of service providers.

Broadcasters and some content creator groups may be comfortable with a highly regulated system that provides a steady stream of revenue, but the new environment creates a more competitive landscape and the promise of increased demand for new creative works. Viewed in that light, the shift toward a robust online video market should be welcomed by the CRTC with open arms, not viewed warily as a threat in need of regulatory intervention.

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  1. pat donovan says:

    region 1 censorship zone
    And all this will fall to the need to censor don cherry’s quebec remarks. I betcha.

    Security will be the excuse for FOX, sun, bell
    and other corp ploys. (And they have the ability to deliver the country’s BEST blackmail system.

    And pass the costs on to consumers for it.

    Social-be’s have fail built right into their systems, too. An exclusive network, expensive, limited in content, and targets only those involed? The method of beating them is built right in, AND they’ll do it to themselves.

    The next step should be a canada-only You-tube they can safely steal from; ie: the brit method of stripping IDs, calling it orphan and abusing it to your hearts content.

    Off topic, yes. Part of a larger gestault, yes.

    And since questioning authority makes you a traitor, prepare to be admin’d to death.

    Sat-services for me. My dish still does what i tell it to.

  2. This is an very old argument…
    Every budding monopolist will eventually play the “foreign competition” card. This is not really specific to any particular industry.

    History has shown that this is exactly backwards. Industries with little domestic competition fall quickly to outside companies from highly competitive places. Such domestic industries simply do not know what to do. Size just makes the process take longer. The real defence against foreign competition is a competitive domestic market.

  3. Crockett says:

    Easy as 1,2,3 …
    For consumers netflix is nothing but wonderful, for incumbent media industries it’s a wake up call.

    Creators stand to benefit in three ways.

    First – digital distribution opens up Canadian content to a worldwide audience, greater market access should mean greater opportunities.

    Second – Decreased distribution costs and possibly greater creative control could mean increased margins of return.

    Third – To compete in a larger marketplace one needs excellence to stand out and be noticed. If Canadian content, by necessity, can be inspired to greater excellence then we are all winners.

  4. Hey, guess what?
    Netflix Canada is fully, and voluntarily, compliant with Canadian content laws. Reed Hastings has been prepared for this type of attack on Netflix for several years.

    Right now I think the only think Netflix doesn’t offer, or isn’t in the process of establishing is enhanced 911 services… but hey, maybe right?

    I strongly support the Netflix business model, their Canadian content, closed captioning efforts, royalty payouts, infrastructure development and of course their pricing. Sooner or later the flood gates will burst and Netflix will have more power then the entrenched media that is attempting to bury them so hard.

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  6. Two years ago it was estimated that Netflix uses approximately 1/3 of the bandwidth in the US. That sounds like a good argument for companies to argue against its expansion into Canada and other countries, but the spread of content across cultures is worth the extra bandwidth. Without Netflix very few Americans would have seen such programs as Slings and Arrows. It’s a new model, but it is time for cable and satellite providers to realize that they no longer own the market and that they need to become competitive in order to survive.
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  7. Jean-Francois Mezei says:

    What is important for the CRTC and James Moore is to start to consider ways to wein canadian content producers from their dependence on vertically integrated companies, and shift funding for “essential” services such as CPAC away from BDUs.

    The 9-1h hearings showed how many content producers still rely on what is essentially content welfare decided by the CRTC instead of boldly launching their services on the internet and do away with their dependence on BDUs/linear TV regulatory infrastructure.

  8. Gary Jones says:

    The whole entertainment industry is myriad of contradictions in Canada.

    Although we are forced to buy “packages” with all sorts of channels we don’t want, and at outrageous prices, we still can’t watch half the content we want. Channels like Sundance, TVLand, the CW and many others great channels aren’t available.

    I worked at a Bell Satellite TV third party call centre and customers who wintered in the US were really upset that they couldn’t watch their favorite programs at home.

    The internet is rapidly becoming the source for TV programs. Why? Because we are sick and tired of being told to bow to the broadcasters’ schedules, especially when they change all over the place at random. We want to watch what we want to watch, when we want to watch it and on any device. Only the internet can satisfy that need.

    Netflix is as close to subscription TV as we have right now. Yes, their programming is older, but with series like House of Cards and Arrested Development they are going to be the content provider of choice soon.

    Big Media is shooting itself in the foot by insulting their customers with as many as eighteen ads in a given commercial break, many of them back to back duplicates, plus these new overlay ads running on what little program minutes we have left. They bounce programs all over the schedule, then wonder why they can’t garner an audience. Case in point – Rookie Blue. It comes back with a big fan fair, then suddenly isn’t on for three weeks!

    Look at the much anticipated and hyped “live” Hot In Cleveland episode. Not available to Canadians.

    How about “this video is not available in your country”. Why not? Are we second class citizens or what? We’re good enough to stomach their broadcast programming with all the ads, but not over the internet.

    If the CRTC wants to stifle what content we can watch in Canada, in response to their buddies in Big Media who love their license to print money, that what about American made movies showing in our theaters? Are we only going to get Canadian movies now?

    Why is everyone so hell bent on isolating Canada from the rest of the world? If it’s to support Canadian programming, then make good programs that people will watch, like Flashpoint. All kinds of movies are made in Canada with Canadian crews. Why doesn’t this qualify as Canadian content?

    And, lastly, why is the government so anxious to destroy the only public broadcaster we have left? The CBC has long been a bastion of decent programming with limited advertising. Now the government is slashing their budget and forcing them to run as many commercials as Ma Bell. Who is this serving?

    Big Media has had it good for too long. They want to force out any competitors like Netflix so that we are stuck with their price gouging and total control over what we see.

    As that famous line in the movie says, “we’re mad as hell and we aren’t going to take it anymore”. It’s high time for change in the interest of consumers.