The Working Group believes indeed, like the Standing Committee, that foreign over-the-top services are becoming a significant presence in the domestic market. It is now public knowledge that a foreign over-the-top service operating in Canada has commissioned new exclusive dramatic content, including for the Canadian market. It is buying exclusive rights with studios in the windows of certain linear Canadian programming services. Therefore, the Working Group submits that the Commission should initiate the public consultation recommended by the Standing Committee.
The fight against Netflix is likely to escalate as broadcasters and broadcast distributors wrap themselves up in the Canadian flag and proclaim the future of Canadian content depends on new regulation of online video providers complete with Canadian content requirements and financial contributions (these are the same broadcasters arguing for decreased Canadian content requirements on their own networks).
The battle has been brewing over the past few months (I wrote about Shaw’s about face on regulation in January) and what is particularly striking is how badly Canadian broadcasters and broadcast distributors understood the future impact of the Internet on their businesses. The prospect of the Internet becoming a substitute for conventional broadcast was not exactly a secret at the new media hearing in 2009. In fact, I wrote about the hearing and the Internet streaming of movies in back-to-back columns just before the hearing started. But consider the comments of Canada’s broadcasters and broadcast distributors then and now. Earlier this month, Shaw told the CRTC:
Just two years ago at the new media hearing, Shaw’s view was quite different:
It is not primarily broadcasting. You would not use the Internet. If you were building a broadcasting system right now, you would not use the Internet to do that. You would use a cable system, a broadcast system to do it, satellite, whatever. Those are the ways to do it. What people are using the Internet for primarily is self-generated content. It’s not professionally produced broadcasting. And we can all observe it in our own homes or with our own children. So I guess the problem we have is when you say we are not talking about regulating the Internet, I understand what you are saying but you are by just raising the question of, you know, are incentives or regulatory measures necessary or desirable for the creation and promotion of Canadian broadcasting content in new media, and all we are saying is no.
Shaw was not alone on this. Bell Media had this to say to the CRTC last week:
Make no mistake, so-called over-the-top services, or OTT, they are indeed formidable competitors. For example, Netflix recently announced that in less than a year of operations in Canada it had amassed over one million subscribers in this country. Of course, this is impressive by any standard, but if you add that to the more than 20 million customers they have south of the border, Netflix has achieved unbelievable scale in just a couple of years. This massive scale, and an advantaged cost structure, allows Netflix to outbid Canadian broadcasters for exclusive program rights, both online and on television.
In February 2009, Bell’s Mirko Bibic had the following exchange with CRTC Vice Chair Len Katz:
COMMISSIONER KATZ: But surely you recognize that just as you and Rogers and this morning we heard Quebecor Media say the same thing, you are concerned about it and that is why you are looking at this more holistic access to the various screens for one price because the concern is that if you don’t do that you may, in fact, start to lose part of your traditional business, if I can call it that, to this new form of business.
MR. BIBIC: Well, we may, but on the other hand it may never become a substitute, in which case the risk that you are putting forward as a hypothesis may never materialize. Now, I am not quarrelling or criticizing the Commission for looking ahead and getting ahead of the issue because it wouldn’t be my place to do that. I have criticized the Commission enough for not looking ahead. But based on the evidence that has been put forward in this proceeding, in the written proceeding and the oral part of the proceeding, I don’t see any evidence that there is that substitution effect yet and it may never transpire.
Not that Rogers was any better:
So the online world is more and more turning out to be complementary and ancillary to the old media world. I am not minimizing the fact that it could be a threat, and that business operators like us have to run our businesses carefully worried about that competition, but if we run our businesses properly and your regulations are sufficiently flexible, I think we can use the online world as a complimentary medium not as a competitive one. If it becomes a competitive threat, if the people are truly substituting — cancelling their cable television subscription because they only have Internet, if that world comes, then I think we might have to take another look at these gloomy propositions, but right now I don’t think it’s necessary.
CTV didn’t get it either (though CRTC Commissioner Konrad von Finckenstein clearly sees it coming):
CTVglobemedia really view the Internet and our web broadcasting activities as something that is very complementary to what we do, that being broadcasting both on conventional and specialty. It really serves, as we pointed out, to be a great promotional vehicle, we use it extensively for that. It serves as a great opportunity for catch-up and, so as opposed to having — and maybe if it does have an impact, I would say it has a positive impact in that it provides that opportunity for viewers to both catch up and also understand and have the ability to interact with what we’re airing on conventional and specialty television. But we believe and we continue to believe that our core business and our foundation is really broadcasting in the traditional forms of conventional and specialty.
THE CHAIRPERSON: And you don’t see the day coming where you deliver your product more over the Internet, over your ca website or through some aggregator rather than over the traditional cable or over-the-air?
MR. BRACE: I think, Mr. Chairman, none of us has a crystal ball in that respect, but I think that for the foreseeable future, you know, even despite the turmoil that we’re in and the issues that we face in this environment — and, you know, we’ll be talking about that at a later hearing most certainly — that conventional and specialty television as we have known it will continue to be relevant.
Of course, given their views that this Internet thing was no threat to smart business operators, Canadian broadcasters and broadcast distributors unanimously adopted the position that the CRTC should not establish new regulations for Internet-based broadcasting. Consider:
- Shaw: “There is more Canadian content on the internet than on television, more Canadian participation and more customer control. The beauty of the internet is the power of the customer. The customer should be trusted to make their own Canadian content choices. We are a successful company because every day we engage our 3.4 million customers and try to listen to them. We ask the Commission to do the same as it listens to all Canadians and to not try to re-regulate or to change the structure of the internet now.”
- Bell: “The internet and mobile networks provide new ways for Canadian content to reach Canadians. Traditional broadcasting distribution channels continue to be available and, in fact, have not even declined in the face of new media’s growth. Without a doubt, new media allows broadcasters and content producers to reach Canadians more quickly and directly. Under the circumstances, the appropriate course of action is to maintain the new media and mobile exemption orders and continue to monitor the situation to ensure that new media develops on a healthy course without regulatory intervention. The Broadcasting Act does not mandate that anything be done to change those exemption orders and, based on what we have heard, we believe nothing should be done.”
- Corus: “Imposing a regulatory system of conditions, tariffs and quotas on new media participants will not promote a greater Canadian presence in new media. In fact, it is likely to have just the opposite effect. For this reason, Corus is of the view that the existing new media and mobile television exemption orders remain appropriate now and for the foreseeable future. There is no need for new measures or amendments to these exemption orders.”
- Telus: “With all due respect, what is being proposed by some parties in this proceeding is nothing less than the regulation of the Internet, whether via quotas on online Canadian content, non-net neutral preferences for Canadian content online, or simply the application of a tax. It would be an understatement to say this would be a slippery slope. Broadcast-style regulation is not compatible with an open Internet, no matter how benign the initial intention to regulate.”
- Astral: “COMMISSIONER CUGINI: Therefore, the point being that they should be regulated or they should not be regulated? MR. BELL: I mean, our point is no, that they should not be regulated. This is an open platform. I mean it’s hard to imagine that you might regulate a consumer brand like Kraft or Mazda who is producing compelling audio-video content on the Web, which is a space that we also occupy.”
All of this came just over two years ago. The new coalition may want immediate action on Netflix, but the CRTC should take them at their word from 2009 and indicate that the next review of new media regulation will come – as promised in the last new media decision – in 2014.