FAIL! by John Pasden (CC BY-NC 2.0) https://flic.kr/p/7w4eB3

FAIL! by John Pasden (CC BY-NC 2.0) https://flic.kr/p/7w4eB3

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Canadians That Access U.S. Netflix May Be in a Legal Grey Zone, But They Are Not Stealing

Netflix is enormously popular in Canada with millions using the online video service. While the Canadian version of Netflix has improved the scope of available titles since it launched, there are still differences with the U.S. service, leading some subscribers to use virtual private networks to mask their address and access U.S. Netflix. Are those subscribers “stealing” something? The Globe and Mail’s Simon Houpt apparently thinks so.

This weekend he wrote a column titled Even the Content Creators are Stealing Content, which focused on content creators who unapologetically download television shows or use virtual private networks to access U.S. Netflix from Canada. Accessing the U.S. Netflix service is common in many countries including Canada (see stories on Australia, New Zealand, and the U.K.). Houpt argues that accessing the U.S. Netflix from Canada deprives creators of their fair share of earnings and make the creation of future shows less likely:

Paying for the Canadian service means your money goes to whoever holds the Canadian rights for the shows on Netflix. If you’re watching the U.S. service, the rights holders – that is, those who pay the creators to make the shows you’re actually watching – aren’t getting their fair share. That means they’re less likely to help get the next round of shows or movies green-lighted, making it harder for artists to get their projects off the ground.

Yet while the legal issues associated with accessing U.S. Netflix may be in a legal grey zone, the argument that creators are not paid seems wrong.

First, Netflix spends billions each year licensing content in bulk so that it can be viewed an unlimited number of times. Unlike songs played on a radio or television programs aired in syndication, the Netflix model does not pay based on views or the number of times aired. The company notes:

Our licensing is all time-based, so that we might pay, for example, $200,000 for a 4 year exclusive subscription video-on-demand (SVOD) license for a given title. At the time of renewal, we evaluate how much the title has been viewed as well as member rating feedback to determine how much we are willing to pay. How many similar titles we have is also a consideration.

In other words, there are no additional payments to rights holders regardless of how many times a title is viewed during the licence period. In fact, a Canadian viewing a title on the U.S. Netflix would simply add to the number of views and potentially increase Netflix’s willingness to pay when the licence expires.

Second, many of Netflix’s most popular titles (House of Cards, Orange is the New Black) are licensed worldwide and which geographic service is used to access the title is irrelevant. There is growing overlap between the two services (popular shows such as Breaking Bad and Lost are similarly available on both services), so whether the U.S. or Canadian service is used, much of the content is the same.

Third, neither Netflix nor rights holders seem particularly troubled by the practice. Netflix is well aware of the practice of accessing the U.S. service, but has not taken steps to stop it (other than the inclusion of provision on access and geography in its terms of use). If rights holders were seriously concerned with the practice, they would presumably pressure the company to crack down or refuse to licence their works. To date, I can find no reports of that happening. There are some Canadian groups concerned with respect for geographic licensing, but no reports of the rights holders whose work actually appears on Netflix publicly objecting or refusing to licence on those grounds. By comparison, Hulu has attempted to block non-U.S. users from using VPNs.

It is possible that there are rights holders that have licensed their shows to Netflix in the U.S. and to different companies in Canada (where they also license to Netflix in Canada there is no difference in which service is used to view the show). In such circumstances, it can be argued that accessing the show through the U.S. Netflix would deprive the Canadian licensee of an opportunity to commercialize their licence (though Canada is without an obvious competitive alternative). Yet those instances involve questions of which intermediary is paid, not whether the rights holder that created the original work is compensated.

If Houpt’s concern is that rights holders get their fair share so that new projects can get off the ground, what matters is not which intermediary is paid, but rather whether the viewer is ultimately paying for access to the program so that the creator is paid. The availability of Netflix has reportedly been linked to a decrease in unauthorized, unpaid access by Canadians, suggesting that more people are paying for content. The characterization of copyright infringement as “stealing” often seems inappropriate given that theft involves the loss of the object, which does not occur with an extra copy or viewing. Even if the term is expanded to include a loss of revenue for the creator, that still does not apply in this case. Accessing U.S. Netflix may sit in a legal grey zone, but the concerns associated with ensuring that the original creators or rights holders are paid by those that view their content seems unfounded.

31 Comments

  1. I think it’s important to point out that regardless of the legal status, viewing streaming content from Netflix or Hulu or whatever is not stealing anything. Stealing, theft, larceny or whatever has no place in discussions about content rights, copyright and licensing.

  2. Maybe Simon was sticking up for companies like Shaw & Rogers that wish Netflix would just go away so that Canadians would be forced to continue to purchase their old fashioned cable services.

  3. Right on! I use a VPN to stream but Netflix has made it slightly harder to use them by hardcoding Google’s 8.8.8.8 DNS into the application. Not a huge deal if you know how to work around it but it is somewhat of a deterrent for the average user if they are using certain services.

    The way I see it, I am still paying Netflix and they are still paying the content creators for licensing rights, it is not stealing if I pay for it.

  4. I’m by no means a pitchfork shaking “old media” traditionalist, but out of territory viewing absolutely hurts domestic content creation (disclosure: I’m a independent producer who also has very close ties with an Canadian niche distributor).

    1) Netflix licensing for non US territories is a *tiny* fraction of what they pay for US territories. As such it’s not sustainable for many domestic Canadian rights-holders to make their titles available on Netflix as the cost of delivery is *higher* than the license fee. “Just license to the US isn’t always an option given the reality of how independent multi-territory financing, music licensing and union territory bonuses work either. What Netflix is willing to pay for non-US territories (like Canada) is arguably skewed significantly by large number of viewers accessing out-of-territory content, and therefore significantly distorting what the fair market economic value of the territory should be for all the non-US players.

    Absolutely out-of-territory viewers isn’t an issue for Netflix – nor anyone with a worldwide deal with them, but it’s *absolutely* a major issue for any rightsholder who depends on sharing territory income (ie, everyone other than the major US studios).

    Now, if everyone was properly accessing their territory – would the “value” of a Canadian license to Netflix increase to a sustainable level? Hard to say – but it doesn’t help. I think the biggest issue here is that I think most people are *vastly* overestimating what Netflix is paying in independent license fees. When I talk with filmmakers I find their expectations about the level of Canadian Netflix license fees are usually about 50-100x higher than the reality.

    2) A consequence of the above is that there’s no value to domestic distributors to acquire Canadian rights to material that has already been licensed on Netflix US. I am aware of several cases of films that are on US Netflix, where a Canadian distributor own local rights, and Netflix has no interest in licensing for Canada at any price. Even though making that title available would, presumably, require the change of one line of code somewhere, since the title already exists on Netflix servers. Not even for free.

    Why this is I have no idea – but it means that I know of several entities who will no longer license any film, documentary, or series for Canada that’s available on US Netflix. So Canadian non-Netflix viewers are getting less access to content, and distributors are doing less overall business so there’s significantly less money to reinvest into domestic production… and the cycle continues.

    I’m certainly not going to lay all these faults at the feet of out-of-territory viewing, but to say it has no impact on creators or rights-holders is demonstrably false (or presumes the international distribution landscape is a lot simpler than it actually is).

  5. I think big business should take a lesson from Youtube advertising. People get paid based on how many people view the ad.

    We should open up netflix to all content. Then divide a portion of the subscription costs based on the shows actually watched. Would pretty much eliminate the need for copying if the content was always accessable and from any platform. (granted with that said Netflix still won’t work on Linux so there’s a big gap there)

    • You can use pipelite to get netflix on Linux now. It will also install the latest flash on Linux. You install it by using their ppa.

      • Not native and requires a bit of haking but I’ll take it.

        Thanks for the tip. Saves one thorn in my side.

  6. Ottawa Canuck says:

    Thanks, @Brad Fox. I don’t agree with everything you wrote (or everything Michael wrote), but I think you did a good job presenting the opposing POV.

    I’m going to go Realpolitik and suggest that this isn’t about “fair” or “unfair.” Theoretically, there’s no reason a rights holder shouldn’t always be paid per viewer; practically, that happens in the movie theater because it’s enforceable, and not in front of a TV at home, because it’s not. A music rights holder gets royalties when a song is played on the radio, but not when it’s played at a private party, again, not because the two are morally or ethically different, but simply because the latter is unenforceable.

    In FM radio and cable TV, geographically-defined rights were enforceable (aside from the occasional blurry bootleg VHS in a flea market); now they’re not. The industry can resort to loud public whining, or to increasingly draconian enforcement attempts, but it will fail either way.

    So it’s time to rethink the entertainment industry, and come up with a revenue model that *is* enforceable in 2014, rather than trying to cling to what worked in 1974.

  7. I have no argument against users paying a fair price for access to desired material, and having the resulting funds paid to creators. My view about distributors and other parasitic organizations is not so benign. I am not a party to he arcane machinations that decide which distributor has the right to steal money from me or the creators. I treat them as fair game for circumvention.

  8. Michael Geist says:

    Thanks to @Bradfox for an enlightening comment on the impact of out-of-territory viewing on Canadian independent producers. You make a good argument for why this can hurt the eco-system for domestic producers who have trouble licensing into Netflix or other services.

    However, that wasn’t Houpt’s argument. I read his argument to be that watching the US Netflix stream is akin to stealing it because the creator isn’t being paid. I still don’t think that’s right. You raise the valid point that content may not be licensed at all (ie. you reference no Canadian licensing for some content or the inability to license to the US), but that does not speak to the notion that the creator of the specific work that is being accessed is not being compensated. As far as I can tell, they are still being compensated under the Netflix model and the increased views that come from Canadians may ultimately result in increased payments for the creator.

    MG

  9. Canadians hop across the border to buy goods and services from US retailers all the time. Crossing the border to buy a DVD of a movie is perfectly legal. Yet if you cross the border virtually, it’s a ‘grey area’.

    Why is this not treated like cross-border shopping? The effect is the same. You’re contributing to US companies instead of Canadian companies. People do it every day and no one bats an eyelash.

  10. we pay the same thing monthly. if you want people to not bounce an IP to the states for American Netflix, make the content available across the board.

  11. @Ottawa Canuck – In practice I agree with everything you say. However the way that the global entertainment media landscape has grown “blockbuster models” are much more insidious than other mediums (novels, music). Some portion of the *global* film and television industry is (significantly) underwritten by US tent-pole films, and US network television series. What no one really wants to come out and say is “we need to assume that nothing but “The Hunger Games”, “Transformers”, and “Real Housewives of something” is actually sustainable and I’m sorry if you like other things, those are your only options, until audiences learn to enjoy different *types* of programming in different ways (and either pay for them, or support their creators in different ways).

    I’m not even saying that’s a *bad* thing long term, just that it’s a tough sell, especially in Canada with our constant navel gazing about US hegemony.

    @Ray – I understand the distaste for the “go between” in many/most creative industries, but there’s a significant difference (at least in my mind) given the exponential difference in capital cost when we’re talking film and television. There’s no question that writers can just go write a novel without a publisher (or Amazon), musicians go record an album without Sony (or iTunes), but the same isn’t true for even the most modest indie film. Only US Studios and television networks are big enough to solely finance content and in exchange they demand entire ownership of creative product. In the indie world the distinction between “creators” and “distributors” is pretty thin as everyone is pretty much working in both camps as each project needs to be pieced together from a myriad of different sources.

    I’m open to the arguments that geographic territories are an outdated model – but I also firmly believe they’re the only thing keeping independent production viable anywhere in the world. It’s (admittedly) a failing stop-gap – but I don’t hear a lot of people acknowledging that the absolute outcome of “one media territory” is a global mono-culture of super hero movies, poker shows, and singing contests.

    @mgeist – I don’t think Houpt is correct in his argument either (he seems to assume that people watching US Netflix are paying subscription fees to Netflix US vs Netflix Canada which isn’t true (in most cases Netflix Canada is still getting the $9/month regardless of which “library” the viewers are accessing ). Where I find your argument is equally problematic is that there is no “per viewer” value to the creator based on subscription fees in the netflix system. There’s no additional value to creators if Canadian’s watch US netflix (or if people watch something 1000x times, or if they watch it never). Creator value vis a vis Netflix is “will this content bring us subscribers”, and Netflix is – essentially – gaming the system. US deals are being done on the basis of US subscribers, and territorial deals are done on the grounds that demand for domestic titles is a tiny fraction of demand for US shows. Meanwhile the company looks the other way at the massive % of paying subscribers viewing out-of-market content that Netflix hasn’t paid for (and has no interest in ever paying for).

    So Netflix gets all the benefits of having worldwide licensed content – without actually having to pay creators for it. And if anyone’s at fault, well, go after the users.

    It’s an equally crummy system for subscribers *and* rights-holders as the only one profiting at the detriment of them both is Netflix.

  12. @AL the problem with that, is that it’s not *NETFLIX* getting punished when someone does that – It’s the content creators. I’d seriously rather someone pirate one of my films outright from a torrent rather than watch it bounced from the US. At least with the former Netflix isn’t being *rewarded* for not licensing my film.

    But neither is “compensating creators”.

  13. None of the Canadian providers that hold Canadian rights are licensing anything to the Canadian Netflix anyway because had they were then the motive to VPN just to watch US Netflix would be greatly reduced.

    Bell, Rogers and Shaw are just greedy and annoyed that people can watch the same content that they licensed from the US content studios directly instead. They would rather you go to CTV, Citytv or Global’s horrible websites to stream and watch their ads every few minutes (which most now require you to have a valid Cable TV sub just to watch online!).

    Follow the money.

    • Quick tip – download and install the Firefox Extension called AdBlock Edge. Kills commercials delivered via browser video plug-ins and kills a lot of other ads online. Makes watching the Global website videos for instance quite tolerable.

    • @Spike – The companies you mentioned aren’t generally the “rights-holders” in productions so they wouldn’t be in a position to license to Netflix (outside of broadcaster produced shows like sports, or news) It’s the actual independant producers of content who tend to control most their on-line rights for films and television series. There’s industry wide agreements so broadcasters can’t force producers to give up *all* their rights, in exchange for television licenses.

      That being said most Canadian rights-holders aren’t licensing to Netflix, because Netflix has no interest in licensing our work. I know a tonne of producers willing to license content to Netflix who can’t even get a return phone call from them.

      • That being said most Canadian rights-holders aren’t licensing to Netflix, because Netflix has no interest in licensing our work. I know a tonne of producers willing to license content to Netflix who can’t even get a return phone call from them.

        ** The reason is because the demand is just NOT there. In a free market system it is all about what people are willing to pay for. That said given a choice the majority vote with their wallets and do not want to watch CDN content.

        Just last week CBC started on about how Netflix should pay into the CDN fund even they could not get anything back. CBC has been on the government dole forever. How many channels are you forced to view when you buy services in Canada? Right. I could care less about the stale bread that CBC calls broadcast product. 1940′s movies with little of no copyright fees, re-runs of shows that were junk 8, 10, 12 or more years ago…… We want Choice !

  14. John Mitchell says:

    The simple truth is that if I sneak into a theater without paying, I’m not infringing the copyright. The theater owner paid for the right to perform the movie publicly. I may be cheating the theater owner, but I’m not infringing copyright any more than reading the newspaper over the shoulder of the person who bought it. Thanks to digital technology, there is a dangerous temptation on the part of copyright owners to reach into the audience. Lawmakers should prevent that. Copyright owners have the exclusive right to license Netflix to show the movie, not the right to have the Netflix show them the audience.

    • @John Mitchell

      Theatres don’t pay for the rights to perform movies publicly.

      They split ticket revenue. If you sneak into a theatre you are denying money directly to the people who made the film. We don’t get a cut of concessions, we don’t get a piece of ad revenue… *we* have to pay for the copy of the film that’s sent to the theatre (and often to pay them hundreds of dollars per screen to help them pay for their new digital projectors).

      The only money that goes to filmmakers is a % of ticket sales. If you don’t buy a ticket, the filmmakers get nothing.

  15. Anthony Murphy says:

    A message board without shrill extremist views or trolls? What gives, internet?

    As for the issue at hand, I tried viewing US Netflix for a while using an app called Hola, and over one week-end saw a massive spike in my data usage. This caused me to reconsider for the very practical reason that it seemed somewhere along the line someone was padding data numbers to make the practice less palatable.

    After reading some posts here, particular Mr. Fox, I am glad I stopped the practice after a few days. I have no quarrel with Canadian artists and would hate to hurt them. My issue is with the Canadian cable companies whose aim is always to have their cake and eat it too. If I want basic cable and 1 extra channel I have to subscribe to 20+ unwanted channels and pay $30-$40 more per month at least? Don’t ask why people are looking for alternatives, legal grey area or not.

  16. Stealing you say ! Ok riddle me this….Why is it that all the companies in Canada STEAL USA Satellite TV and DO NOT PAY anything for the content. Example. Telus, Shaw etc all steal the Satellite signal from PBS stations and DO NOT PAY a penny. Now that is what I call stealing. Further they charge for the content they steal.

    • @ Sam – Broadcast isn’t my specialty but there’s no “stealing” involved. In the case you site – cable companies are allowed to re-transmit broadcast stations for convenience (since they’re freely available to anyone) – and a number of PBS stations broadcast into Canadian markets (like KCTS Spokane or WNED Buffalo), so can be carried by Canadian cable companies in those respective markets.

      • Sorry Brad but they are stealing content and not paying any copyright fees. Just because a signal reaches Canada means nothing. U.S. Stations get paid when cable companies re-broadcast their signal. The recent U.S. Court case killed Aereo a company that picked up off air stations and did not pay copyright fees. The court ruled that it was a copyright violation & poof they are done. For years satellite companies talked about people stealing their signal in Canada all the time they were in fact picking off U.S. TV without paying copyright fees. We are in a different country but, the Movie people have been screaming about this on a global basis for years. I use the PBS stations as an example – We are charged for something that costs the provider nothing! Are we getting screwed? Yes. We have no freedom of choice in Canada only the few doing it to the many. If our content or any content sucks we should not be forced to live with it. That is why the Internet has changed the world. As for being billed for KSPS that Telus – Shaw – Bell all steal from their satellite link to the remote sites in the U.S. ?? The CRTC needs to get off their butts and stop it – Force them to pay the copyright fees. These companies never think twice about raising their prices, making millions.

        FYI: See what happened to Aereo https://www.aereo.com/

        • I don’t really get your argument Sam, I’m aware of the Aereo case in the US and the laws are different in the US (and I’m glad Canadian law isn’t the same).

          There’s no “copyright fees” – the shows are paid Canadian use fees by the original broadcaster into the market (PBS) – that’s why PBS is allowed to broadcast into Canada. So creators and rights holders have been paid.

          The broadcaster (PBS) *wants* as many people as possible to see their signal as they’re either supported by advertising, public mandate, or some mixture of both… so the more eyeballs seeing their content – the better (that’s why it’s available for free to anyone who puts up an antenna).

          Cable companies re-transmit as a matter of convenience (so their subscribers don’t have to constantly swap antenna and cable lines into their TV) which helps out the original broadcasters.

          If someone is *only* are interested in signals being broadcast for free, they don’t have to buy cable at all. Just get a decent antenna and never pay cable fees again (which is something I did for years).

          There’s lots of reasons to get mad at the BDU’s (I testified at the CMPA hearing on Useage Based Billing… so I have *no* love for Rogers or Bell) but this isn’t one of them – they’re actually doing the broadcast networks a favour by increasing their market penetration.

          • You are using the same claim that Aereo did in the U.S. PBS stations are broadcasting over the air as well as via connection to the U.S. cable companies as well as U.S. satellite. PBS only pays copyright fees for the U.S. subscribers – period. Canadian companies pickup the satellite signal that is sent by the PBS stations to their translator sites in remote areas. These signals are NOT intended for viewing by the general public. Yes we are in Canada however, copyright law still applies. If say PBS in Seattle we forced to pay for the “extended viewers ” they get from being on cable and satellite in Canada it would break them. So far no one has pressed the issue from the U.S. side & it would have to come from the U.S. The reason the PBS stations do not make a fuss is people here in Canada want good content. So much so that many people in Western Canada support via memberships various PBS stations. The fact that you might be close enough to the border to get a U.S. signal is a different story vs: say Telus, Bell, and Shaw etc picking off their satellite signal then re-selling it to us as a commercial product. Yes, they are supposed to have permission as well as pay fees to cover the use of copyrighted materials. We all know they pay nothing but collect $ from us.

            I for one am tired of the poor selection as much as the over charging for stations that in many cases cost these companies nothing.

            As to you comment about extending their range that went away years ago. Ted Turner setup a signal antenna in a shack outside of Atlanta years ago. He then sold the off air signal from WTBS Atlanta as a Super Station for the price of 10 cents per cable subscriber. We all know how big Ted became and how rich he is today. DirecTV for example must pay local stations a carry fee as required by the FCC. It was another way to make the owners even more cash. The claims were not based on the fact that their advertisers could reach a larger amount of people but, they needed the cash to offset ad revenue loss.

            Anyone know of even one U.S. station owner that is not well off ???? Very well off.

            Telus & Shaw all these companies have a monoploy. Free & Open business models would die here because the current group wants no part of allowing me, you or anyone in their cash cow markets.

            J.P. Morgan once said: ” I like a little Competition.”

            I still say we get stale bread here in Canada and are paying full price for nothing more than junk. Ads that run over and over with nothing new… Makes me ill. I cut the cable.

            Thanks for the debate. Have a great day.

  17. Hmmm. I think it’s arguable that a 4 year exclusive deal limited to the United States could cost less money than a 4 year exclusive deal North America wide. Money must exchange hands a second and/or a third time when content is subsequently licensed for new geopgraphical area. So, in theory, if everyone in Canada has seen it, that could impact the price that a show could command in that market? But, I doubt that would ever actually happen.

    • Licensing anything North America wide absolutely costs more than USA only doesn’t matter what media (music, images, video).

      Secondly It’s not that Canadians seeing “bounced” content is reducing the value of licenses… it’s eliminating the value to zero. There’s no real competitor and broadcasters and traditional VOD won’t take anything that’s on any Netflix.

      Meanwhile Netflix just continues to ignore domestic licensing. They can get bulk deals on a bunch of stuff through US majors – and get the subscriber income either way, so why would they pay $1 more than they have to?

  18. I live in Canada but I also have a place in Arizona and I subscribe to US Netflix. While Netflix allows me to access Canadian content store, I use a VPN to access US content because it’s has a better selection – eg. Tudors. Am I breaking the law?

    Another thing that bugs me is if I lived in a Can/US border town in Canada, I would have access to rich/free over-the-air HD content from the US – life’s great! However living in Edmonton (no cable sub) I don’t have this access and anything I do to get it over internet makes me a criminal – nice!

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