The key determinant will obviously be money. Once U.S. rights holders conclude that it is more profitable to retain the Internet rights so that they can stream their programs online to a global audience and capture the advertising or subscription revenues that come with it, Canadian broadcasters may find that they can only license broadcast rights with the U.S. rights holders competing directly with them via the Internet.

The emergence of streaming television over the Internet has generally been viewed through the prism of Internet providers (do data caps unfairly limit the viability of Internet-based streaming?) or broadcast distributors (will streaming services allow consumers to drop their cable subscriptions?). The forgotten story involves the impact on Canadian broadcasters and the future of Canadian content regulation.

The Canadian broadcasting bargain has long recognized that it is more profitable to license the rights to popular U.S. programs - aided by simultaneous substitution of commercials for Canadian viewers - than to create and promote original Canadian programming.  Indeed, even the best Canadian programs face an uphill battle since commercial success requires licensing the program for broadcast in dozens of other countries around the world.

Canadian broadcasting has therefore involved a trade-off that allows private broadcasters to benefit from cheap, profitable U.S. programming in return for meeting their Canadian content obligations. The Internet is on the verge of disrupting this model by rendering the U.S. programs far less profitable for Canadian broadcasters, since acquiring broadcast-only rights means missing out on the fastest growing piece of advertising pie.

While this sounds like bad news for the creation of Canadian content, it might actually be its savior. Creator groups will likely focus on pressuring the foreign based video streamers to contribute to the creation of Canadian content, but Canadian broadcasters may become the bigger champions as they gradually recognize that owning the full suite of broadcast and Internet rights are essential to commercial success.

If those rights cannot be obtained through conventional licensing models from U.S. rights holders, the broadcasters may begin to create their own Canadian content in earnest. The approach may not be a slam dunk, but producing Canadian content for commercial reasons - rather than due to licensing requirements - may lead to a new made-in-Canada Cinderella story.

Canadian law currently features both foreign ownership restrictions and content requirements. The foreign ownership rules generally limit licensees to 20 percent foreign ownership (up to 33 percent for a holding company). This covers all types of broadcasters including television, radio, and broadcast distributors.

The Canadian content requirements apply to television, radio, and specialty television stations. Television stations must carry a certain percentage of Canadian content, with additional requirements for “priority programming” that includes Canadian dramas, documentaries, music, and variety shows.  At least 35 percent of music played on radio stations must be Canadian in order to meet Cancon requirements.

Many observers appear to assume that Canadian ownership and content requirements go hand-in-hand, fearing that a foreign owned broadcaster would be less likely to comply with Canadian content requirements. Yet there is little reason to believe this to be so.  

The Canadian Radio-television and Telecommunications Commission’s active involvement in setting Canadian content requirements is a direct result of Canadian-owned broadcasters regularly seeking to limit the amount of Canadian content they are required to broadcast. Producing original Canadian content is simply more expensive than licensing foreign (largely U.S.) content.  These fiscal realities - and the regulations that have arisen as a response - remain true regardless of the nationality of the broadcaster.

Foreign owned businesses face Canadian-specific regulations all the time - provincial regulations, tax laws, environmental rules, or financial reporting - and there is little evidence that Canadian businesses are more likely to comply with the law than foreign operators.  
Cultural businesses may raise particular sensitivities, but broadcasters that are dependent upon licensing from a national regulator can ill-afford to put that licence at risk by violating its terms or national law.

In fact, a review of other developed countries reveals that many have eliminated foreign ownership restrictions in their broadcasting sector but retain local content requirements.  For example, Australia has no foreign ownership restrictions on broadcasters (Canwest was once the majority owner of one of its television networks), yet employs a wide range of local content requirements.

The same is true in many European countries - Germany has eliminated foreign ownership restrictions but retains daily regional programming requirements, Ireland has no foreign ownership restrictions but establishes programming requirements for each broadcast licensee, and the Czech Republic has dropped its foreign ownership restrictions but relies on broadcasting licences to mandate local programming.

In the absence of content requirements on private broadcasters, some countries rely more heavily on their public broadcasters to be a key source of domestic programming.  For example, Norway does not have foreign ownership restrictions but has established regional programming requirements for its public broadcaster (in addition to local programming expectations in the licensing process).

Although few are calling for Canadian broadcasting to be opened to foreign ownership, the reality is that the cultural concerns associated with greater foreign ownership are vastly overblown. As a growing number of viewers venture outside the traditional broadcasting system for their news and entertainment, the cultural community must find better tools than foreign ownership restrictions to help support the creation and broadcast of Canadian content.

The U.S. merger resulted in a year-long review by the Federal Communications Commission (the CRTC’s counterpart) and the Department of Justice (DOJ).  The DOJ alone interviewed more than 125 companies and individuals in the industry and reviewed over one million documents from the merged companies.

While the deal was ultimately approved, the U.S. regulatory bodies focused on the prospect that the new media giant could lead to anti-competitive behaviour. For example, the emergence of the online video distributors such as Netflix, GoogleTV, iTunes, and Hulu were identified as particularly vulnerable with the FCC concluding that “Comcast-NBCU will have the incentive and ability to discriminate against, thwart the development of, or otherwise take anticompetitive actions against OVDs.”

As a result, the FCC established a host of rules designed to maintain a competitive environment and restrict the merged Comcast/NBCU from discriminating against these new competitors.  Moreover, it forced Comcast to drop off the Hulu board of directors and even extended net neutrality rules to the set top box, which will increasingly be used to distribute both digital TV and the Internet.

The exhaustive nature of the review and the focus on preserving a competitive market for the distribution of content on multiple platforms including the Internet is striking when compared to the Canadian situation.  

The CRTC received more than five hundred comments on the merger, but the majority fall into two categories that have little, if anything, to do with future media distribution models.  The first category are hundreds of letters of support for the merger from charities, retailers, restaurants, sports teams (including the Ottawa Senators), and politicians, all expressing their admiration for Bell and CTV, ignoring the competitive implications, and urging the Commission to swiftly approve the transaction.

The second category come from creator groups such as the Directors Guild of Canada, the Documentary Organization of Canada, and the Canadian Media Production Association, who focus almost exclusively on the size of the benefits package that should be paid as part of the transaction.  This payoff – designed to help fund the creation of new Canadian content – might provide some short term benefits but does nothing for the longer term implications of a converged, vertically integrated marketplace with the prospect for excluding new competitors and stifling the distribution of the very content the groups hope to create.

While the CRTC is scheduled to address the vertical integration issue in a separate hearing in June (originally planned for May but postponed when Canadian broadcasters advised the Commission that they would be in Hollywood purchasing rights to U.S. programs that month), it may come too late.  Companies such as Telus, Cogeco, and Eastlink raised concerns (as did ACTRA), but BCE has responded that “vertical integration is typically accompanied by economic benefits which should be encouraged by regulators.”

The CRTC’s take remains to be seen, but it is the comparative approaches between the U.S. and Canada that tell a bigger story - one focused on long-term competitiveness and marketplace innovation in using the Internet to find new ways to distribute content and the other jumping at short-term gains that come with the benefits package payoff without regard for how their work will ultimately be distributed.