Five years ago, the Canadian Radio-television and Telecommunications Commission held two major hearings on new media and the Internet. The 2009 hearings, which featured contributions from the major telecom and broadcast companies in Canada, paved the way for Canadian net neutrality rules and the renewal of a regulatory exemption for new media broadcasters such as online video services.
Despite weeks of hearings, Netflix was only mentioned twice: once when it was referenced in a quote from a U.S. publication on the emergence of Internet video and a second time when a Canadian company referred to its mail-based DVD rental service.
Netflix may not have been top-of-mind in 2009, but my weekly technology law column (Toronto Star version, homepage version) notes that today it is seemingly the only thing the industry wants to talk about. New consumer choice of television channels was billed as the centerpiece of the CRTC’s future of television hearing, but witness after witness has turned it into The Netflix Show. Starting with the Ontario government, broadcasters, broadcast distributors, producers, and other creators have lined up to warn ominously about the impact of Netflix on the future of the Canadian television system.
How did a company that scarcely garnered a mention only five years ago come to be the industry’s chief concern? Recent data released by the CRTC indicates that 30 per cent of English-speaking Canadians subscribed to the service in 2013, a remarkable success story for a company that started with no subscribers and an untested streaming video model in the fall of 2010.
Given Netflix’ rapid growth and disruptive effect on the market, the stakeholders seem anxious to paint a bleak picture of the future. The Ontario government called for new regulations on Netflix and other online video providers that would ultimately lead to mandatory payments to fund Canadian television productions (the CBC and other groups have proposed similar reforms).
Their view is that Netflix is gradually draining revenues from the conventional television system that were previously earmarked for creating new Canadian content. They argue that without identifying new sources of payments, Canadian productions will suffer from declining support.
Canadian broadcast distributors view Netflix as a threat since reliance on Internet video services represents a fundamental shift for many younger Canadians, who see diminishing value in cable or satellite subscriptions. In response, some want to scrap longstanding regulations in the name of a “level playing field” since Netflix operates under the new media exemption and they face the costs (and benefits) of the regulated system.
Despite the fears, the reality is that online video offers Canadian creators unprecedented access to a global market along with cheap distribution mechanisms. Yet creator groups are loath to focus on promotion and commercial success if it means fewer guaranteed dollars for production.
Meanwhile, there is little stopping broadcast distributors from competing with Netflix by offering their own alternatives. Rather than embracing the opportunity by offering inexpensive, on-demand programming that is not tied or bundled with other services, however, the Netflix approach is viewed with trepidation as some seem content to use the regulatory system to delay the gradual erosion of their businesses.
For example, companies such as Bell plan to offer “tethered” online video services that require a subscription to a conventional television package, effectively ceding the Netflix market to Netflix. Rogers and Shaw plan to launch a Netflix competitor later this year, but it too will start with their own subscriber bases.
While the desire to maintain the status quo is unsurprising – broadcast distributors have generated enormous profits in Canada and creators have benefited from billions in support – the CRTC should reject efforts to use the regulatory system to hamstring new competitors that have shaken up the market and found a ready audience of eager subscribers.
Canada’s communications regulator has already crafted much-needed rules to ensure that network providers do not grant themselves undue preferences against online video providers. The net neutrality rules have proven essential in ensuring that Netflix can offer a compelling, competitive alternative to the established players.
Policies that have led to simultaneous substitution, genre protection, and expensive bundles featuring channels that could not survive on their own have been the hallmark of a system that had little regard for consumer interests and marketplace competition. The CRTC’s next step is to use the future of television hearing to provide a regulatory reform roadmap that prioritizes competition and reflects the current marketplace realities.