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Why Isn't YouTube Canadian?: My Appearance Before the Industry Committee

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Monday October 31, 2011
Earlier this month I appeared before the Standing Committee on Industry, Science and Technology, which is conducting a study on the e-commerce market in Canada. A transcript of the hearing is available here and audio of the hearing here.  My prepared opening remarks are posted below. The discussion that followed touched a wide range of issues including copyright reform and competitiveness in the wireless and broadband sectors.

Appearance before the Standing Committee on Industry
October 17, 2011

Good afternoon.  My name is Michael Geist. I am a law professor at the University of Ottawa where I hold the Canada Research Chair in Internet and E-commerce Law. 

I appear before this committee today in a personal capacity representing only my own views.

I want to congratulate the committee for launching this study of e-commerce in Canada.  It is a critically important issue deserving of greater attention.  While the committee has identified some excellent questions, I’d boil the issue down to a single one:

Why have Canadian consumers embraced e-commerce, but Canada has failed to produce many significant global e-commerce success stories?

The Canadian consumer success story is well-known. We are among the global leaders in Internet use and online video consumption. For several years, Canada was the world’s largest per-capita user of Facebook. Netflix launched online-only first in Canada and quickly grew to one million subscribers. Digital music sales have grown faster in Canada than in the U.S. for each of the past five consecutive years.

Yet despite the growth on the consumption side, we punch well below our weight in creating global online companies, an issue recognized in a recent McKinsey study prepared for the G8 meeting in France.  There are exceptions of course – Club Penguin, Flickr, AbeBooks, StumbleUpon among them – but most are bought out by larger U.S. companies before they have the chance to grow into global players. Canada does well in producing e-commerce SMEs, but the multinationals that employ thousands and generate billions in revenue have largely eluded us.

The question is why?  There are no doubt many factors – venture capital, market size, appetite for risk – but, as they say, when you are a hammer everything looks like a nail.  As a law professor, I see legal and policy failures.

Over a decade ago, Canada established the e-commerce law basics including enforceability of online contracts, privacy rules, and some online consumer protections.  But these were the just the price of admission.  The success stories often lie in the countries that went further. I believe companies like YouTube, Google, and Facebook could have been Canadian but legal rules made it less likely.

YouTube could have been Canadian.  The company would have been called iCraveTV, a Toronto-based online video startup that launched in 1999. It streamed television programming online supported by advertising along the bottom of the screen. It was YouTube years before there was YouTube and it relied on Canadian law to do it.  The U.S. objected and within months the service was shutdown and Canadian law changed as we caved to U.S. pressure.

Google could have been Canadian. The company would have been called OpenText.  OpenText is of course Canada’s largest software company based in Waterloo, but before Google was a Stanford graduate student project, OpenText was providing the search technology for companies like Yahoo.  U.S. copyright law has a fair use provision that Google later relied upon to index the Web and become a multi-billion dollar company. Canada still has a more restrictive fair dealing approach and OpenText opted for managing content in the corporate market, which does not raise the same legal issues.

Facebook could have been Canadian. The company would have been called Nexopia. Nexopia is an Edmonton based social network that is still active. It was founded in 2003, a year before the launch of Facebook. But unlike Facebook and thousands of other US companies, Canada does not have a rule that grants legal immunity to intermediaries for postings of third parties. In the U.S., CDA Section 230 has been used by all the giants – Facebook, Amazon, Google, eBay – to limit risk and liability for the postings of their users.  In Canada, we do not have the same protections and the risks faced by anyone operating online is far greater.

I could go on. We could talk about why Skype was unlikely to be Canadian because of the regulatory and competitive environment for telecom companies. We could talk about how Zillow, the online real estate giant, couldn’t be Canadian because of restrictive rules over the use of listings data. We could talk about how Amazon couldn’t be Canadian, because of foreign investment restrictions.

Canada has failed to build competitive legal and policy e-commerce frameworks and we are now living with the consequences.

So what comes next?

There are numerous policy issues that should be put on the table, not all of them a matter for the federal government as some fall within provincial jurisdiction. I will highlight four and perhaps we can discuss more during the question period:

1. Moving ahead with the anti-spam rules, not diluted through regulation as some are calling for.  Ensure swift passage of the just-introduced privacy measures. Moreover, the next round of privacy law review is due this year and we need tougher enforcement measures put on the table and retention of the principle of court oversight for mandatory personal information disclosure.

2. Copyright flexibility. Today and tomorrow’s e-commerce businesses rely far more on the flexibility of copyright law, not the digital locks that form a cornerstone of the current copyright bill. Other countries have adopted fair use or are considering the issue. Canada should do the same.

3. An equivalent for CDA Section 230 for Internet intermediaries is absolutely critical but would require provincial cooperation.

4. Removal of foreign investment and other competitive barriers in many of the sectors that touch on e-commerce. Moreover, foster a more competitive Internet environment with a set-aside for new entrants in the forthcoming spectrum auction. Note that Canada may have been the first with an online-only Netflix, but we also hold the dubious distinction of having had Netflix offer bandwidth reduced versions of its content due to data caps and high costs.  The impact extends well beyond the consumer market as it directly affects e-commerce businesses as well.

Canada may have missed out on a generation of e-commerce leaders. We must not miss out on the next one.
Comments (10)add comment

Byte said:

Observation.
Quote from the transcript:
"I think Canada has the opportunity to actually be a global leader when it comes to cloud-based services and establishing large server farms that are more energy efficient. These actually take care of some of the concerns with putting a lot of your personal data in the cloud, because you know it's being protected by some of Canada's privacy rules. There's actually a global opportunity, and countries are beginning to compete as a location or host for these cloud-based services."

This is of course undisputed, and sounds like an easy sale: don't want the FBI, NSA, RIAA/MPAA, CIA, etc. snooping around in your data? Come to Canada! Unfortunately, this has been foreseen by the other side and they implemented this:
http://www.michaelgeist.ca/content/view/6093/125/
The "lawful access" will tear down the privacy wall.

Other than that, as already suggested by Dr. Geist, Safe Harbour (with a 'u' so it's Canadian) provisions are absolutely vital and make sure it's not limited to third party content, but also for first party content posted in good faith.
October 31, 2011

Napalm said:

...
@Michael:

Very nicely put. However. You couldn't resist mixing wireless into it at the end?

Quote: "Moreover, foster a more competitive Internet environment with a set-aside for new entrants in the forthcoming spectrum auction."

Maybe there are some better solutions than set-asides aka subventions? We've seen how well they went with Solyndra and Beacon Power. These players are playing to skim not to win. Once the cream is gone they're gone too.

October 31, 2011

liam said:

...
@Napalm:
wireless providers are the next big internet providers, so it's sort of required to not ignore them in any online context.
October 31, 2011

Napalm said:

...
@liam:

I'm not sure where wireless is going. We have only so much spectrum, and there's a hard limit on how much information you can transmit over a channel with a given bandwidth and S/N ratio.

Fiber you can deploy as needed.
October 31, 2011

Crockett said:

...
Good to see some nuanced discussion on not just copyright issues but the whole situation with our integrated digital economy and the future of our country.

Thanks for looking at the big picture Michael.
October 31, 2011

Napalm said:

...
Michael you forgot to mention IsoHunt which IS Canadian. LOL.
October 31, 2011

Firedingo said:

No shet Shirlock
Every Canadian knows exactly why Youtube isn't Canadian. If you have to explain it...
November 01, 2011

Eric L. said:

RE: Firedingo
The most hilarious and sadly pathetic trolling I've seen all day.
November 01, 2011

Gregg said:

@ Napalm
Unfortunately our success story there will likely be crushed in the courts :-(

(like our biggest success story, RIM, which is just starting to hit the atmosphere like a defunct satellite)
November 02, 2011

Sudha Krishna said:

Even CBC was in the game then
Interesting Post Michael - I was senior producer of ZeD a pioneering late night trans-media project on CBC that ran from the early 2000s to mid-2000s.
ZeD the online platform provided everything from profile pages, to upload vidoe, audio, images for anyone who had a creative bent - an innovative media CMS. At the time this obscure Canadian media property was receiving about 400 uploads a day. Both the executive producer and I recognized the Global potential of what had been created on Canadian soil - ZeD could easily have been reskinned for News, Sports, and so on. Alas, the big bosses at the time did see the potential that we saw at the time. Youtube was getting bigger everyday and a once promising public media initiative died a slow painful death
November 05, 2011

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