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Why are U.S. Net Services Slow to Migrate North?

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Friday October 15, 2010
Netflix, the popular online movie rental service, launched in Canada last month, providing consumers with the option to download an unlimited number of movies and television shows for a flat monthly fee.  While the Netflix debut was marred by an ill-advised public relations stunt that involved actors masquerading as excited consumers, my weekly technology law column (Toronto Star version, homepage version) notes that the long delays in migrating the service north once again raised questions over why popular online services rarely view Canada as a priority destination.

Canada's legal framework makes for a convenient explanation, but the reality is that subtle legal differences are rarely the primary rationale for business and marketing decisions.  Moreover, Canadian privacy, e-commerce, and intellectual property laws are compliant with international standards and recent surveys have found that business executives view Canadian protections as better than those in the United States. As the Canadian government readies its national digital economy strategy, identifying the real reasons behind delayed entry into the Canadian market is a crucial piece of the puzzle.  

At least three explanations come to mind.

Topping the list is the fact that Canada's geographical advantage is lost in the online world.  In the physical world (ie. retail stores and services), Canada's close proximity to the U.S., common language, and similar culture, long made it the obvious choice for U.S. businesses thinking of expanding beyond their domestic market.

The online world diminishes those advantages.  Establishing an online presence is as easy to do in Britain or Japan as it is in Canada and the size of those markets is considerably larger.  Canada remains on the to-do list of many companies, but the small market size makes it less attractive in an environment where physical barriers are largely eliminated.

Canada's broadband market is a second key factor given the widespread use of bandwidth caps.  The caps, which are far more restrictive than comparable caps in the U.S., create a significant hidden cost for consumers anxious to use online services that require considerable bandwidth.

For example, Netflix advises consumers that the average HD movie consumes 2 gigabytes of bandwidth per hour.  Monthly bandwidth is capped at 15 gigabytes with the Rogers Lite service, with an additional charge of $4.00 for each additional gigabyte.  While there are other, more expensive options that offer more bandwidth, a Canadian consumer could easily use their entire monthly bandwidth allocation by watching one movie a week.  By comparison, Comcast, the leading U.S. cable Internet provider, has a monthly cap of 250 gigabytes (Rogers does not offer any comparable package).

A third factor appears to be licencing requirements, which are particularly complex and costly in Canada.  Online video services may be disappointed to find that popular content has already been licenced for Internet distribution on an exclusive basis by large Canadian broadcasters, effectively shutting out Internet upstarts.

Further, the licencing costs for available content is often prohibitively expensive when compared to the U.S. market.  For example, Pandora, a popular online music service in the U.S., notes that recent licencing demands for online streaming services run as high as 45 percent of gross revenues.  That places Canadian licencing costs far above those found in the U.S. and Britain forcing many providers to look for more cost-competitive markets. For a service like Pandora, the costs mean that the Canadian market is a non-starter.

Attracting new online services - as well as nurturing homegrown alternatives - depends upon a multitude of factors.  Making legislative changes may appear at first blush to be an easy fix, but a more competitive broadband and licencing market would likely to do far more to bring popular services streaming north of the border.
Comments (36)add comment

... said:

Hrm
And it should be noted that the caps across all ISPs were actually made significantly worse at the exact moment that Netflix was announced as coming to Canada...

If our ISPs are working against business models like these, is it any surprise that they avoid us like the plague?

Our ISPs need to be regulated. Badly.
October 15, 2010

Napalm said:

...
Because CRIA doesn't want them to?

In other news:

http://www.theinquirer.net/inq...bum-prices

Nap.
October 15, 2010

Stephen Downes said:

...
> For example, Netflix advises consumers that the average HD movie consumes 2 gigabytes of bandwidth per hour. Monthly bandwidth is capped at 15 gigabytes with the Rogers Lite service, with an additional charge of $4.00 for each additional gigabyte.

Not only that, but I'm dollars-to-donuts certain that Rogers throttles streaming video, meaning that Netflix playback (which I do use at home) is frequently interrupted (YouTibe videos are similarly difficult to play on Rogers).
October 15, 2010

IamME said:

...
The problem as I see it is that Canadian broadcasters, the CRIA, ISPs, et. al. don't want large streaming / download services coming to Canada. It's serious competition that's impossible to compete with without overhauling business models. If they keep us repressed, with limited bandwidth and onerous licensing they keep competition out. Even for services we have, like Netflix or eMusic, or the sad excuses we have here, the available selection is vastly larger on the US sites than it is on the Canadian sites or the services are much more expensive. I checked using a VPN.

Our illustrious licensing people greatly limit what we can see, then cry foul when we download something we can't legally download in Canada. Much to their chagrin most people these days don't want a "physical" copy of their music. If they can't buy it on-line, they go without or download it in a more illicit fashion. This is the way the world is moving and whether our lawmakers like it or not, our market is modeled after the US and with much of the media we consume being US based our consumers will increasingly want more and more US-style services.

People are inherantly lazy. With increasingly expensive and busy lives it's the path of least resistance most people will take. Provide cheap easy-to-use services and people will come, without those services, downloading from BitTorrent is still more convenient than going to a store. On top of that, especially so with music, we're an iPod nation and most people, especially teens, don't want nor care to have a physical copy anymore. When I was a kid it was the size and content of a music collection that garnered status amoung peers and what it was played on was immaterial, now, it's the eletronic toys such as console game systems, MP3 players and cell phones than teens hold highest above all as symbols of status. It's been a long time since I was a teen, but it's probably been 4 years since I bought a CD and I will likely never buy another. Hell, I don't own a dedicated CD player. Over the winter I am going to digitize my 500+ CD collection, get rid of the cases and store them to make space...maybe I'll actually listen to them from time to time then. With music, if I can't get it on-line, and for a decent price, I simply wait for it to become available or, more likely, get something else.

And it's not just Interent, for instance, in Canada cell phone packages, especially data, are extremely limited and expensive compared to other parts of the world.
October 15, 2010

IamME said:

...
"For example, Netflix advises consumers that the average HD movie consumes 2 gigabytes of bandwidth per hour. Monthly bandwidth is capped at 15 gigabytes with the Rogers Lite service, with an additional charge of $4.00 for each additional gigabyte."

The highest package my ISP offers is a 60G bandwidth, 10.2Mbit connection at $65/mo. If I hit the 60G, my Internet physically stops works and I have to phone them to purchase another 10G at a whopping $24.99. In reality, due to my location I can't get higher than about 2.8Mbit and like Stephen Downes states, like Rogers, I'm also sure my ISP is throttling streaming video as I also quite often have problems with even low def stuff on YouTube.
October 15, 2010

Hephaestus said:

Just to be funny ....
Its because you are all a bunch of pirates !!! you are on the 301 report ... Big Ole GRIN
October 15, 2010

Gerald said:

...
Well what you posted is interesting with regards to content services, what is your take on telecommunication services like Google Voice, SkypeIn, etc where the regulatory requirements between countries are often quite different. I can see market size as a factor here but licensing should not be an issue, do you view Canadian government regulatory bodies like the CRTC as a hindrance to these services?
October 15, 2010

Anon-K said:

Some good points, but
I would have to add that both Bell and Rogers run On Demand services that would directly compete with companies like NetFlix. Thus, it is in their business interests to try to keep NetFlix out of the country.
October 15, 2010

Crockett said:

They don't even blush ..
As mentioned above [lowering bandwidth caps on the SAME DAY Netfilx Canada launched], the big telco/ISPs don't even try to hide their anti-competitive behavior. Combine that with the recent mergers of telcos and content [CTV] and is it any wonder innovative service are not clamoring to come north?
October 15, 2010

Eric L. said:

RE: Anon-K
Yet another reason why oligopolies suck.
October 15, 2010

... said:

@Anon-K
I was about to add that as well... It's pure anticompetitive behavior - isn't there a law to protect against these kind of actions?
October 15, 2010

jv said:

...
>"Yet another reason why oligopolies suck."

Don't be sad. We won't be stuck with oligopolies for long. With the competition bureau apparently disbanded we should have a monopoly in no time.
October 15, 2010

Chris A said:

...
Despite the slower speed available due to Bell's seeming anti-competitive behaviour with resellers, I'll probably be switching my ISP from Rogers to an one of the smaller ISPs. While there's a somewhat higher upfront costs with them (because some require you to buy your modem), the much cheaper monthly costs work out nicely. And the ones I'm looking at have either really high (200GB range) or unlimited bandwidth caps for DSL at least.

Why? Because based on watching large downloads with Rogers, despite being supposedly able to get up to 15 Mbps, I get maybe 1.2, so I see no harm in switching.

Unfortunately for people like IamME this doesn't help because this country, despite starting out as one of the better for Internet stuff, is not anymore. I blame this on a lack of proper market protected by the CRTC and a lack of direction from the government on how to develop our Internet infrastructure to areas where things like DSL and cable are not readily available.
October 15, 2010

Andre said:

Conflict of Interest
Rogers/Bell would end up competing against themselves. Where in many countries the ISPs only do internet, here Rogers/Bell also own TV stations. Right now, they are not interested in having you watch TV on the web. They want you to subscribe to the largest TV package possible.
October 15, 2010

IamME said:

...
I'm not one to whine. We live where we do by choice...not so much necessity. I'd rather have my 10 acres of land and privacy with mediocre Internet than an apartment or cookie-cutter house with no land in the city with super high-speed Internet. For now I'm just thankful since, there are many areas around here that still only have dial-up as an option, unless they want to cough up the money for satelite or 3G (If it's available). Neither is great. Satelite has terrible latency issues and can be affected by the weather, while 3G is comparitively slow and has a brutally small bandwidth cap. For me, I could put up a tower so I could use a high-bandwidth 5.2Mbps antennae (Not 10.2Mbps as I previously thought), but I just don't care that much and towers are UGLY!!! My wife already complains enough about the yagi that's sitting on the roof now. LOL Just due to the geography of where we live, I don't think we'll see land-line Internet anytime soon.
October 15, 2010

Migzy said:

Wow IamMe! That's some pricey internet
Wow!! 60GB is the largest package? Which ISP are you with that gives such insanely small packages? The smallest package from my ISP is 110GB down AND 110GB up with 20mbps/10mbps bandwidth for $37. If I go over, I have the option of 256kbps speed for the rest of the month or purchase more at a rate of $5 for 10GB in both directions(and I can do this all with a click of a mouse).
October 15, 2010

Degen said:

...
Wow, only the second comment blaming CRIA? This blog is slowing down.
October 15, 2010

Crockett said:

The blame game ...
Seems there is more blame directed at the ISPs, John. The general theme being that the large incumbents will use any means necessary to maintain their advantage even if it is detrimental to their customers. In that sense the CRIA is part of the problem, but not the only player. Conversely, it is because of this behavior that there is the consumer backlash (including file infringement) we see today. Better behavior from both sides of the divide is the solution we should strive for.
October 16, 2010

Brian said:

Migzy: who's your provider?
Migzy, who are you getting "T10GB down AND 110GB up with 20mbps/10mbps bandwidth for $37" from?

I suffer from the cable-co provided 60GB a month.

You know, I think 60GB was very carefully calculated as more than enough to keep people who want to use Internet for regular Internet use happy while prohibiting people from using Internet to cancel their cable-tv subscriptions to use the likes of Netflix as a replacement for their TV addiction.

Yes, very carefully calculated indeed.
October 16, 2010

Eric L. said:

RE: Degen
Hey Degen, just FYI: what you just did is called trolling. Just to make that clear to you before you make any more posts here.
October 16, 2010

jc said:

Government invention.
For this very reason I believe the government needs to get into licencing and ip business. They either have to do initiatives to lower costs or control the whole process by legislation.

Captcha sucks this is my third attempt, it just does not work. Thier service just keeps getting more complex as computers get better at defying it. Eventually the average human won't be able to work it out.
October 16, 2010

James P said:

Re: Government invention
Careful comrade. Talk like that will not be looked upon kindly by our American friends.

But seriously, I definitely agree that the government should step in to some capacity because if we're waiting for the moral compasses of Bell and Rogers to point the same way as ours...well...(insert punchline here)

(CC)please feel free to remix this post to include any punchline that may be witty.
October 16, 2010

Crockett said:

(CC)please feel free to remix this post to include any punchline that may be witty.
"because if we're waiting for the moral compasses of Bell and Rogers to point the same way as ours... they'll never stop spinning their needles.
October 16, 2010

eio31 said:

...
Just check out the approved sites by THE CANADIAN MOTION PICTURE DISTRIBUTORS ASSOCIATION where you can legally watch stuff for Canada.

http://www.cmpda.ca/?q=content/legal-content-sites

Too bad a major portion of them are only open to "within the United States and its territories."

What a joke. Why does the CMPDA even post the list? I guess because the list would look really sad without the American only sites?
October 16, 2010

Chris A said:

RE:Government invention
The government should at least be subsidizing infracture expansion and updates. Of course I'd have the government funding come in the form of "If you want money from us, you need to allow open and competitive access, otherwise you have to pay us back."
October 16, 2010

maebnoom said:

...
2 things:

1. test for throttling: http://broadband.mpi-sws.org/t...bttest.php

2. If you want to switch away from an asinine ISP, go with Teksavvy if you can. They've got their priorities straight. (I'm just an extremely happy customer)
October 16, 2010

end user said:

Any one really suprised?
We all know that the BIG access providers in Canada have been screwing customer since the begging. There's not enough of us in Canada to make a difference to show them in a mass exodus.

Now we see how they are trying to protect their own services by reducing resources to keep competition away.

I was with SHAW for about 9 years and finally switched to NakedAdsl which give me 200gigs per month. Although I still have to pay an extortion fee which goes to Telus for line access.


October 16, 2010

Chris Bruner said:

grunt
I just signed up for the 1 month free trial, and so far it is very interesting. When you go to the supermarket and see all those old dvd's being sold for 2.99? That's the bulk of what netflix will show you. You will also get seasons of shows (heros, entourage etc) but you won't get the latest season. You also won't find classics. I looked for two movies, "The Sound of Music" and "The Third Man", neither was available.

All in all for 8 dollars it is worth it. I just wish it had more selection.
October 17, 2010

Anon-K said:

@IamME
I feel for you brother. Storm Internet is my local wireless provider. Even with a 30' tower and a 10' mast with the yagi on that, they can't get a decent signal at my house. $40 per month, plus $10/mo modem rental, gives up to 3 Mbps up and download speeds, with a 50 GByte cap. $1 per GByte over the cap. Rogers cellular signals are nearly non-existant at my house due to geography. And yet they claim coverage to Industry Canada. I too am unwilling to move just to get high speed internet, so I suffer through dialup at 24,000 bps, 26,400 bps on a good day over POTS. God I hate those graphics intensive or flash websites.

Migzy, the equivalent cap to what you've got would be ~$75 per month, with nowhere near your speeds. Welcome to the rural areas of Canada (not towns, but rather StatsCan rural).
October 18, 2010

IamME said:

@eio31
"Just check out the approved sites by THE CANADIAN MOTION PICTURE DISTRIBUTORS ASSOCIATION where you can legally watch stuff for Canada.

http://www.cmpda.ca/?q=content/legal-content-sites

Too bad a major portion of them are only open to "within the United States and its territories."

What a joke. Why does the CMPDA even post the list? I guess because the list would look really sad without the American only sites?"

Similarly, a while back I received a notice for downloading an episode of Dexter. That notice provided 3 "legal" options for attaining the show on-line. All 3 options where available in the US only...what a joke!!!
October 18, 2010

Doog said:

throttling
In fact, Rogers is currently traffic shaping downloading and dropping connections. Check this out:
http://www.dslreports.com/forum/r24822306-Extreme-Plus-Utorrent-Settings-and-Rogers
October 18, 2010

IamME said:

OK - legal-content-sites
Of the sites listed that were not explictly stated as only availble in the US.

No on-line content
blockbuster.ca

No on-line content...says it coming, but not there yet.
www.cineplex.com

Not bad for what it is.
http://www.thecomedynetwork.ca/

VERY limited content available to Canada
http://www.crackle.com/

No on-line content
http://www.criterion.com/shop

Only new shows for thier lineup. A very limited number of back episodes
CTV.ca

Epix is only available on certain services...Verison, Cox, Charter, DISH and perhaps MediaCom. I'm not sure if any of these services are available in Canada.
http://www.epixhd.com/epixprofile/?skipauth=1

Only new shows for thier lineup. A very limited number of back episodes
www.globaltv.com/globaltv/video/index.html#video

Page does not exist...
http://www.imdb.com/features/video

Itunes works, if you want to pay through the nose...

Looks like a nice site for kid's shows...
jaroo.com

Content limited to clips, trailers and documentaries
http://www.joost.com/

Works for it's limited content...seems to be mostly clips.
www.mtv.ca

Limited on-line content...seems to be mostly clips...kid's shows.
http://www.nick.com/

Of course, only works if you own a playstation. Content is probably limited by region.
us.playstation.com/psn/playstation-store

Promises anyone can join and get access to the content for free. I haven't tested it. "Premium" content is reserved for paying Rogers customers only.
www.rogersondemand.com

Seems to require the user to have a Shaw subscription.
http://vod.shaw.ca

Free. Lots of older shows but very limited content on newer or popular shows.
www.slashcontrol.com

Is a "pay service" offered by Real Media. It promices to have alots of content. BUT, is it limited such as in NetFlix? Does anyone have a subscription?
http://www.real.com/superpass

Telus On-line rental sort of deal...Optik subscription required...not availble in all areas.
http://telus.com/content/tv/iptv/clients/video_on_demand.jsp

Obviously requires an XBox. Content is probably limited by region.
marketplace.xbox.com/en-US/videos

Appears to be on-line movie rental..selection looks decent enough.
social.zune.net/videos

So, in summary...even those site that actually provide content to Canada...even the pay sites, content appears very limited. iTunes seems to be the service with the most content, only if it weren't so damn expensive.
October 18, 2010

IamME said:

@Doog
Use encryption...I'm not entirely sure how the throttling logic works, but it's my understanding that they can't "legally" traffic shape you if they can't tell what you're doing.
October 18, 2010

Napalm said:

...
@IanME: "I'm not entirely sure how the throttling logic works, but it's my understanding that they can't "legally" traffic shape you if they can't tell what you're doing. "

It's all about how you set the "default". Like in the default is throttled and only recognized traffic gets a boost.

Now imagine a world were the ISP is a media provider too (we have two of them, don't we) and they only "recognize" downloads from their media store. Add major banks and government sites to avoid a scandal. Anyone else has to pay in order to get "recognition". LOL.

That's what "net neutrality" is about.

Nap.
October 18, 2010

Migzy said:

@Brian
My internet provider is Novus and only serves select multiple person dwellers(ie. condos/apartments) in and around Vancouver. They typically try to get into all the new buildings after they are done as the new buildings are prewired with in suite ethernet so it makes after completion install fairly easy as all they need to do is run fibre to the building. They also provide TV and phone service.

From what I've seen Shaw cable offers similar speeds(download anyways) and caps. And Novus doesn't provide 24/7 tech support(its limited to like 800-2300 or slightly earlier on weekends) but apart from some initial issues when I got a new HD PVR, i've never really needed any support and the service has been pretty much 100% reliable.
October 20, 2010

Napalm said:

October 22, 2010

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