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Why Creators and Consumers Should Welcome the “Netflix Threat”

Appeared in the Toronto Star on May 11, 2013 as Bell and Astral Merger: Netflix Isn’t the Enemy

The examination of the proposed Bell acquisition of Astral Communications took place last week in Montreal with the Canadian Radio-television and Telecommunications Commission hearing from a wide range of supporters and opponents of a deal that only last year was rejected as contrary to the public interest.  

As Bell and Astral sought to defend their plan, a familiar enemy emerged – Netflix. What does a U.S.-based Internet video service with roughly two million Canadian subscribers have to do with a mega-merger of Bell and Astral?  

For the past few years, it has become standard operating procedure at CRTC hearings to ominously point to the Netflix threat. When Internet providers tried to defend usage based billing practices that led to expensive bills and some of the world’s most restrictive data caps, they pointed to the bandwidth threat posed by Netflix. When cultural groups sought to overturn years of CRTC policy that takes a hands-off approach to Internet regulation, they argued that Netflix was a threat that needed to be addressed. So when Bell and Astral seek to merge, they naturally raise the need to respond to Netflix.

This is an age-old strategy that seems to resurface every decade. In the 1980s, it was the effort to keep large U.S. specialty channels such as ESPN and MTV out of the market that led to the creation of TSN and MuchMusic. In the 1990s, the U.S. satellite television providers were branded the “death stars” and kept out of the market to allow for Canadian entries. In the 2000s, it was U.S. satellite radio services that were denied entry until acquiescing to minimum Canadian content requirements.

In this decade, it is the Internet’s turn as over-the-top video services such as Netflix are viewed as threats to established Canadian broadcasters, broadcast distributors, and content creators.

To date, the CRTC has largely skirted the issue by pointing to studies that suggest that Netflix and other over-the-top video providers have only had a minimal impact on the consumer market. But that won’t last. Whether Netflix or the myriad of other online video services – from YouTube’s forthcoming subscription services to the National Film Board’s documentary film Netflix competitor (scheduled to launch in 2014) to sports leagues offering season packages for Internet distribution to film studios launching their own services – the online distribution model is only going to increase in popularity.

Rather than claiming limited impact, the CRTC should embrace the trend by concluding that the services are a boon to both consumers and content creators consistent with its policy mandate that does not require regulatory change or protection for established Canadian broadcasters.  

For consumers, the benefits are obvious with more choice, greater convenience, and lower prices.

Creators also benefit from the proliferation of these services by virtue of the heightened competition for their content. In years past, the competitive landscape in Canada was limited to a handful of broadcasting organizations. The entry of new competitors means there will be a larger ecosystem of distributors, intermediaries, and original producers all vying for enough content to make a compelling offering to consumers.

The established players unsurprisingly view the new entrants as a threat since they offer competitive content at a fraction of the price of a typical cable or satellite bill, increase acquisition costs, and free consumers from being locked into a small number of service providers.

Broadcasters and some content creator groups may be comfortable with a highly regulated system that provides a steady stream of revenue, but the new environment creates a more competitive landscape and the promise of increased demand for new creative works. Viewed in that light, the shift toward a robust online video market should be welcomed by the CRTC with open arms, not viewed warily as a threat in need of regulatory intervention.

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