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.
Three words: House of Cards. The Netflix model proves you can give the people what they want, at the price they want and STILL produce quality, original programming. At the end of the day, the networks – Canadian AND Amercian – need to recognize that their viewership has changed. If they are really committed to stamping out piracy, THIS is the way they do it.
Stamping out piracy by more Netflix models makes too much sense and will also put the death knell to the traditional age old style of broadcasting and distribution. They don’t want this as the old model is too lucrative for them. Its easier and cheaper to make taxpayer funded copyright cops and criminalize everything so they can keep selling $100/mo Cable TV subscriptions and $30 blu-rays. The studios themselves even saw Netflix as a Fad at first.
Telus optik TV was Down last night after 1.5 hrs still had not had call back from tech support. Call times were beyond 45 minutes. Wireless still worked so watched a show streaming. Best we don’t have all our eggs in one basket(cloud )… Or we might be on hold forever. Open up the market for whoever wants to broadcast put a tax on internet connections and fund Cancon from that. But make it a Kickstarter format and Let Canadians decide which programs get funding. Oh what a concept! Doh
I really don’t want to be the guy who only ever shows up in the comments to demonize Netflix (I agree wholeheartedly in the post that a BDU embracing an untethered domestic alternative would be *very* welcome) but per previous threads would just caution anyone holding Netflix up as a panacea.
They are facing a very real issue of trying to adapt an unsustainable model. They’ve established their userbase during a period where they could pay next to nothing for content, and now that major studios are understanding the value they ceded away (and minor producers can’t afford to actually having to pay more to make content available to Netflix than they receive in license fees) Netflix is undergoing a major “content drain” as licenses come up for renewal.
One of the big motivators behind their shift to a couple of major original properties per year (Arrested Development, Orange is the new black, House of Cards) is that a HBO model with a couple of “must see” shows, may be the only model they can support as they slowly get priced out of library titles.
All of which is to say there may be opportunities at some point for new entrants to disrupt the disruptor – but it’s hard to see anyone ever capturing the same, monolithic market share.
Methinks the Government smells a “CASH COW” in Netflix.
Methinks also that big media now just look like cry babies.
All the big players including government had their chance at the last hearing along with the CRTC. Now is not the time to keep changing the goalpost just to suit Government and Big Media. Now is the time of the CONSUMER.
Too bad if nobody had the foresight to see what would happen with Netflix.
Just shows how out of touch they are.
Trying to throw curve-balls and muddy the waters by Harper’s cronies shows once again its not about the people they serve but the pockets that get lined.
But that is the issue we have some consumers that want far more strict rules for Netflix etc then even Canadian bdus wants now thats scary then we have other that want more access to American program.
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If Canadian content creation can’t survive with out public welfare that just reads like a bad/broken business model.
Gimme an option to buy new/old movies in digital format that is not system restricted and I’ll buy 10 per week and be more than happy to keep them stores on 10 hard drives locally.
I don’t necessarily disagree with you, but that discussion needs to happen in the context that, outside of the US, there is almost no English (or French) language content creation anywhere in the world that does not involve some aspect of subsidization.
So I’m prepared to have a discussion about what a “purely free market” media universe would look – like but it’s advocates rarely recognize that means “the future of content” is US hegemony over global media and hobbyist YouTube / amateur OTT service shows.
I’ve said in other threads that (as far as I know) the only *purely* free market sustainable programming anywhere in the Canadian media landscape is sports network poker shows.
The issue is that TV/cable sucks. You pay $100 per month for an absolutely horrible user experience. Forget to record or a sports event goes past the allotted end time in the guide and you miss your content. TV on cable is like jumping into a time capsule and back in time 20 years. People don’t want the ‘channel’ paradigm any more. After 100 channels, is a slow, laggy guide really the best and most efficient use of finding content? People hate that you have 5000 channels and only subscribe to 200, yet the guide lists the 5000 channels and big cable companies hope to up sell you those. Also, the fact you are paying $100 for a crappy experience plus having commercials makes it worse. Maybe if the big guys focused less on protecting old business models and more about user experience of how people want to watch, they might be able to protect some of that churn to netflix.