A central part of Canadian Heritage Minister Steven Guilbeault’s argument for Bill C-10, his Internet regulation bill that reforms the Broadcasting Act, is that it levels the playing field between traditional and online broadcasters. Guilbeault has tweeted images showing a scale that are designed to suggest that conventional broadcasters such as Bell and Rogers face an unfair disadvantage by facing regulations and mandated payment requirements that do not apply to Internet streaming services. These claims are regularly repeated in the House of Commons with Guilbeault stating this week that “the purpose of the bill is to level the playing field” and “this bill will level the playing field between traditional Canadian broadcasters and online broadcasters.” Those claims continued during debate on Thursday, when MPs repeatedly referenced levelling the playing field as the goal of the bill.
The series on Broadcasting Act Blunders continues by noting that while the “level playing field” claim is seemingly taken as a given, it is at best misleading (prior posts in the Broadcasting Act Blunder series include Day 1: Why there is no Canadian Content Crisis). It is true that conventional broadcasters and broadcast distributors face mandated payments to support Canadian content as part of their licensing requirements. Leaving aside the fact that broadcasters are currently seeking reductions in payments at the CRTC, the notion that the only regulatory burden or benefit is mandated Cancon contributions is a complete misread of the law. The reality is that broadcasters receive benefits worth hundreds of millions of dollars in return for those payments as part of what amounts to a regulatory quid pro quo. None of those benefits are available to Internet streaming services, yet the “level the playing field” discussion focuses exclusively on equivalent payment requirements.
What are some of the regulatory and policy benefits enjoyed by traditional broadcasters and broadcast distributors not available to Internet streaming services? Ten to consider include:
1. Simultaneous Substitution policies, which allows Canadian broadcasters to replace foreign signals with their own. The industry says this policy alone generates hundreds of millions of dollars in revenues for Canadian broadcasters. In fact, Bell went to the Supreme Court to maintain the policy even though it results in less control over the Canadian broadcast schedule, relegates Canadian content to less desirable broadcast times, and ensures that licensing foreign content remains the top priority of Canadian broadcasters. There is no equivalent to the hundreds of millions generated by this policy for Internet streaming services.
2. Must-Carry Regulations, which require broadcast distributors to include many Canadian channels on basic cable and satellite packages. These rules provide guaranteed access to millions of subscribers, thereby increasing the value of the signals and the fees that can be charged for their distribution. Internet streamers compete for subscribers with no guaranteed access.
3. Copyright Retransmission Rules, which create an exemption in the Copyright Act to allow broadcast distributors to retransmit signals without infringing copyright. This retransmission occurred for many years without any compensation. There is no equivalent for Internet streamers.
4. Bundling Benefits, that allow broadcast distributors to bundle less popular Canadian channels with more popular U.S. signals, thereby guaranteeing more revenues to the Canadian broadcasters. There is no equivalent for Internet streamers.
5. Market protection, which has shielded Canadian broadcasters from foreign competition such as HBO or ESPN for decades. Internet streamers compete for subscribers with no market protections and the prospect of users unsubscribing at any time.
6. Foreign Investment Restrictions, which limits the percentage that foreign companies may own of Canadian broadcasters or broadcast distributors, which has the effect of creating a protected marketplace with reduced competition.
7. Eligibility for Canadian Funding Programs, which are available to Canadian entities to support content creation but may be unavailable to foreign entities such as the Internet streamers.
8. Unlimited Distribution Without Caps or Usage Charges, unlike Internet-based services, whose subscribers often face high data costs for accessing those services.
9. Intellectual Property Preferences, which requires that producers be Canadian in order to be certified as Cancon. This leads to rules that preclude foreign companies from producing Cancon and requiring domestic IP ownership. As a result, Internet streamers are excluded from accessing the same funding available to Canadian producers.
10. Trade Agreement Protections, which exempt the Canadian government from treating foreign providers in the culture sector in the same manner as domestic firms. While this provision is subject to potential tariff retaliation (as will be discussed later in the series), it means that standard practices regarding equal treatment do not apply to Internet streamers.
When Guilbeault and the cultural lobby groups talk about creating a level playing field, they typically neglect to address any of these issues. Instead, the focal point is exclusively on equivalent contributions. As will be discussed later in the series, even the proposed contributions are not truly equivalent, but a full assessment of the regulatory playing field should account for the fact that Internet companies compete in the marketplace against well-established competitors such as Bell, Rogers, and Videotron that already have the regulatory deck stacked in their favour.
For decades, regulations have meant that the only way for American networks to distribute their content in Canada was by selling it to Bell, Rogers, Corus and the CBC. This model lead to Canadian networks having little interest in producing content and consumers frustrated over costs and choice.
Then along came Netflix with its direct-to-consumers model. Consumers loved it because you could watch what you wanted, when you wanted, without commercials, at a reasonable cost. Bell, Rogers, Corus, and the CBC hated it because a direct-to-consumer model bypasses them so they don’t get a slice of the pie.
American networks have watched Netflix grow into a global giant and they are now in various stages of emulating it. Bell, Rogers and Corus are scared by this development because they know in the near future the American networks will all have streaming services in Canada and will stop selling content to Bell, Rogers, and Corus. And that means Bell, Rogers, and Corus will all have big holes in their broadcast schedules to fill.
The level playing field refers specifically to the 5% payment that BDUs – the carriers – pay into the system – usually the CMF – for Canadian content. It has always been recognized that the content is what makes the dumb pipes more valuable and also that Broadcasting has broader social objectives than just generating revenue.
The list above are a mix of obligations and rights for both carriers and broadcasters. Long term the rule for Canadian BDUs and the foreign platforms should simply be the same for carriage rules for both.
DB’s comments are correct although I don’t agree with the comment on Cancon.
Again, what Netflix created is a distribution problem and not a content problem. The launch of the new streaming services like Disney +, Peacock, Paramount + and HBO Max along with Amazon and Apple follow their direct to consumer model.
What this really means is that global distribution markets have shifted from vertical (national) to horizontal (global). The threat to Bell Media, Rogers and Corus is that they are vertically integrated and stuck in Canada only.
What they should be doing is bundling up their Canadian content and selling it globally through the online platforms that are quickly emerging. Corus, for example, sells their StackTV product on Amazon Prime and Apple+ in Canada. They need to go the next step and sell it in the US and in other territories to replace the distribution they are losing in Canada. Same for Bell and Rogers.
This is what the bigger UK broadcasters are doing under a label called Britbox. The BBC and ITV started this and it now has more than 1.5 million subscribers in the US and Canada. It launched this week in Australia. Another example is the Swedish based Viaplay which is expanding across Europe. In both cases they are relying on their own original content.
The question in Canada – and it is a big one – is whether these three companies will expand their brands globally as it is required. BTW – there are Canadian networks doing this – successfully – but they are the smaller independents.
Historically, there has been a kind of “regulatory bargain” between Canadian broadcasters and the Canadian government, whose instrument is the Broadcasting Act and whose agent is the CRTC. In exchange for licences to access the Canadian airwaves, which are public property, the CRTC imposed social and cultural obligations on Canadian broadcasters, including conditions of licence. With the gradual shift of broadcasting distribution to the Internet, the use of Canadian airwaves has changed somewhat. Radio and satellite distribution continue to use public airwaves, but coaxial cable does not. Internet service provision, including service via cellular telephone use of the airwaves, is regulated by the CRTC in accordance with the Telecommunications Act. Wifi use of the public airwaves is not regulated.
How is the Canadian regulatory bargain proceeding? Over the last five years for which data are available (2015-19), the total revenue of Canadian private sector conventional television declined from $1.8 billion to $1.6 billion. Every year, the P.B.I.T. (profit/revenue) margin was around –7%. These numbers are significant because conventional television services (including the CBC/Radio-Canada) are the primary suppliers of Canadian drama which accounts for about one half of all spending on Canadian programs.
Canadian discretionary and on-demand services have fared better. Up to now, Canadian discretionary and on-demand services have been able to weather the storm from foreign Internet services because they depend (75%) on subscriber fees, rather than advertising revenues. Even so, the total revenues of French-language discretionary and on-demand services declined from $756 million in 2015 to $706 million in 2019, while their P.B.I.T. (profit/revenue) margin fell from 11.8% to 9.6% — reflecting the fact that foreign Internet services, such as Netflix, programme little French-language material, and French-language viewers are switching to English-language services.
This is why the regulatory deck is stacked in favour of unregulated foreign Internet programming services, such as Netflix, which do not face any Canadian regulatory requirements. For economic libertarians and believers in Internet exceptionalism, such as Michael Geist, this means lowering or eliminating the regulatory requirements placed on Canadian broadcasters. For those who believe in Canadian national identity and cultural sovereignty, it means bringing the web giants into the Canadian regulatory environment on equitable terms.
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