Netflix - Generic Photo - Creative Commons by Matthew Keys (CC BY-ND 2.0) https://flic.kr/p/vsTUgA

Netflix - Generic Photo - Creative Commons by Matthew Keys (CC BY-ND 2.0) https://flic.kr/p/vsTUgA

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The Case Against the Bell Coalition’s Website Blocking Plan, Part 3: Piracy Having Little Impact on Thriving Digital Services and TV Production

The case against the Bell coalition’s website blocking plan continues with an examination of the state of new digital business models and Canadian content production (earlier posts looked at Canadian copyright law and weak evidence on Canadian piracy). Given the high threshold needed to gain CRTC support for website blocking (which requires exceptional circumstances), the coalition proposal must not only make the case that there is a significant Canadian piracy problem, but also that piracy is having an enormous impact on the business and creative sectors.

The proposal tries to meet that standard by claiming that Canadian piracy “makes it difficult if not impossible to build the successful business models that will meet the evolving demands of Canadians, support Canadian content production, and contribute to the Canadian economy.” Yet as with the actual data on Canadian piracy, which firmly rebuts claims that Canada is a piracy haven, the Canadian data on the digital economy and Canadian creative sector show a thriving industry.

Supporting Canadian Content Production

As I noted in a recent post on the latest data from the Canadian Media Producers Association, the total value of the Canadian film and television sector exceeded $8 billion last year, over than a billion more than has been recorded over the past decade. In fact, last year everything increased: Canadian television, Canadian feature film, foreign location and service production, and broadcaster in-house production.

If the standard the CRTC is to consider involves support for Canadian content production, the situation has never been better. Canadian content production hit an all-time high last year at $3.3 billion, rising by 16.1%. Notably, the increased expenditures do not come from broadcasters, who lead on the website blocking proposal and whose relevance continues to diminish year-by-year. In fact, the private broadcasters (led by Bell) now contribute only 11% of the total financing for English-language television production. Their contribution is nearly half of what it was just three years ago (now standing at $236 million) in an industry that is growing. Yet despite the private broadcaster decline, money is pouring into the sector from distributors (who see benefits of global markets) and foreign financing (which has grown by almost $200 million in the past four years) leading the way. The sector remains heavily supported by the public, with federal and provincial tax credits now accounting for almost 30% of financing.

The increase in foreign investment in production in Canada is staggering. When Netflix began investing in original content in 2013, the total foreign investment (including foreign location and service production, Canadian theatrical, and Canadian television) was $2.2 billion. That number has doubled in the last five years, now standing at nearly $4.7 billion. While much of that stems from foreign location and service production that supports thousands of jobs, foreign investment in Canadian television production has also almost doubled in the last five years

The increasing irrelevance of private broadcasters for financing Canadian television production is particularly pronounced in the fiction genre (ie. drama and comedy shows). This is easily the most important genre from an economic perspective, with $1.29 billion spent last year. Private broadcasters only contributed $59 million or five percent of the total. By comparison, foreign financing was $285 million. In sum, the data confirms that there has never been more money invested in film and television production in Canada.

Supporting Digital Business Models

The Canadian data on digital business models also points to a steady stream of success stories that refute claims that it is difficult if not impossible to create successful business models in Canada.  Online video services, which the Bell coalition suggests are harmed by streaming sites, are experiencing rapidly expanding revenues, now generating more than $1 billion per year. In fact, two Canadian online video services – CraveTV and Club illico – are estimated to have earned $373 million last year, up from just $13 million four years earlier.

Bell CEO George Cope confirmed the success during a recent quarterly conference call, stating:

Crave strategy continues to work for us number of customers up 22% year-over-year, allowing us to have a product that you can view through traditional linear TV or and over-the-top environment.

The positive data sparked a question from Drew McReynolds about the rate of cord cutting:

on cord cutting, cord shaving trends overall, you are obviously doing quite well on Crave and Alt TV, wondering if you’re seeing in the TV market a real structural acceleration, let’s say over the last 6 to 12 months or is it more of a steady acceleration or steady kind of rate of cord cutting, cord shaving?

Cope’s response:

It seems steady to me – clearly we have not seen some acceleration, but we notice a growing share and we got to be in, you know we absolutely have to be in that space in the market place, so we actually saw some growth and you know from a pay sub perspective, but we haven’t seen a sudden acceleration and you can – the industry will now take the total TV net adds and be able to see that you know the decline in, and I don’t think that rate has accelerated

Simply put, Canada is now one of the world’s leading markets for online video services. According to the Reuters Institute Digital News Report 2017, Canada ranks among the top countries for consumers paying for online video services. There are now approximately 20 subscription streaming services in Canada and surveys indicate that more than half of all English-language households subscribe to Netflix. In fact, the data indicates that a higher percentage of Canadians pay for online video services than consumers in countries with site blocking such as Australia and the U.K.

That is not a market where digital business models can’t succeed due to piracy. Rather, the data confirms Canadians’ willingness to pay for well-priced, convenient services, which has presumably prompted CBS to expand its streaming service to Canada, following on Amazon’s recent streaming video entry. Record earnings, a top tier global ranking for subscribers, and new market entrants are the sign of a thriving market, not one struggling to survive due to claims of piracy.

The Canadian success story is not limited to online video as the online music market has experienced similar growth. According to industry data, the Canadian music market is growing much faster than the world average (12.8% in 2016 vs. 5.9% globally), streaming revenues more than doubled last year to US$127.9 million (up from US$49.82 million) growing far faster than the world average, the Canadian digital share of revenues of 63% is far above the global average of 50%, and Canada has leaped past Australia to become the 6th largest music market in the world. The numbers are big for music creators as well. SOCAN, Canada’s largest music copyright collective, recently reported that its Internet streaming revenues rose 46% last year, nearly hitting $50 million annually. In 2013, that number was only $3.4 million.

Nordicity recently issued a detailed look at trends in the creative industries, summarizing the situation in the following manner:

In 2016, it was noted that OTT (over-the-top video) takes a piece of subscriber revenues from BDUs, as well as from pay/specialty broadcasting services. Newly recognized is both the disruptive impact on television and also the opportunity for content producers.

The opportunity for creators is the theme of Canadian Heritage Minister Melanie Joly’s vision for the sector, which focuses on encouraging investment in Canada and sales to foreign markets. The data suggests great success in this regard, demonstrating that the Bell coalition’s claims about the impossibility of building successful business models due to piracy bear little resemblance to the reality of the Canadian market.

8 Comments

  1. Dear Michael Geist,

    I just wanted to inform you that you should do more research before writing this article. I will be closing my video rental store shortly for good forever because of online piracy. The online streaming that people pay (nextflix)for doesn’t effect me like the streaming boxes/programs. The people who illegally use the Android & other streaming boxes with programs are the cause. I have kept my prices low for new releases at 2.99 but the dishonest people feel that this is too much. Why? Because they can pay for these boxes & feel they are entitled to everything else FREE. Canada in particular has this attitude towards illegally downloading/streaming. Please respect the people in the Movie industry more because they are working honestly.

    • I am respecting film industry.
      Got 3000 dvd/bluray/digital movies & tv shows. :)-~

    • There’s no real way to nicely say this but rental stores are dying because they’ve become obsolete.

      Not because of piracy but because online video services are just too convenient to keep using physical rental stores. Haven’t used one in at least 5 years, You don’t have to leave the house to find something new to watch, the movie you want to watch can never be rented out to someone else, no late return fees, just a steady flat fee I can pay each month without any hassle. Hell, we have this free rental every month thing from a video store and we only used that one time.

      You can keep blaming piracy all you want, it won’t make you any more correct. It’s the same reason many newspaper have gone out of business or only print weekend issues. Everything is more easily found online from legitimate sources.

    • For crying out loud man…
      It’s not practical that’s the problem, is your failure to adapt to progress and change…

  2. Sorry for your loss of video store, but for the average renter wanting to watch a new release rental, nothing beats renting online. I rent frequently. The actual expense is such a small component, that pirating is not even a consideration. It takes almost no effort to rent a movie digitally, and totally worth the small fee for the convenience.

    I can select a movie rental on my phone, pay for it, and start the movie on my TV in less than a minute. I just saved time and gas on 2 trips to the video store, incl. next day return, with no chance that my desired movie is already rented out, all in less time that it takes to put my coat on, and I don’t need to buy/own/upgrade a dvd player just to rent an occasional movie. There’s just no comparison.

  3. Pingback: The Case Against the Bell Coalition's Website Blocking Plan, Part 5: The Inevitable Expansion of the Block List Standard for "Piracy" Sites - Michael Geist

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