Regulating Netflix? A look at the CRTC’s Let’s Talk TV Review

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Last October, the CRTC launched a review of the television broadcasting system called “Let’s Talk TV: A Conversation with Canadians.” The formal review of the television, called Phase 3, was designed to officially address the issue raised by Canadians in Phases 1 and 2. The deadline to submit comments just passed at the end of June, while an oral public hearing is anticipated for September 2014.

Thematically, the review is focused on 3 separate public interest outcomes:

  • Fostering choice and flexibility in programming services.
  • Encouraging the creation of compelling and diverse Canadian programming.
  • And finally, empowering Canadians to make informed choices and appropriate recourse mechanisms for dispute resolution, when applicable.

As you might have guessed, the television broadcasting industry in Canada is facing a similar set of challenges that the music (and broadcasting) sector is facing; particularly with regards to the impact of emerging digital technologies and how to respond to these new challenges. While CIMA did not submit an intervention to this proceeding, we’ve been watching these developments closely.

Specifically, several of the submissions referenced the difficulties facing the traditional broadcast TV environment, including declining revenue from advertising, in addition to growing consumer preference towards online video content. Several stakeholders spoke to the reality that services like Netflix, for example, were likely going to gain in popularity steadily over the next little while and eventually usurp the market power of traditional broadcasters.

The new media exemption order

In its submission to the Let’s Talk TV process, the CBC presented an argument for including over-the-top providers in the Canadian content licensing regime if they met certain income benchmarks (Huffington Post). Specifically, the CBC argued that the Commission could strengthen support for Canadian programming by requiring OTT services/providers with annual Canadian revenues of over $25 million to contribute into the Canada Media Fund (CBC Submission). Their rationale was that these OTT services benefit from the other aspects of the Canadian regulatory regime (specifically referencing the protections provided by net neutrality provisions), and that subsequently they should be subject to the obligations borne by regulated services if they wanted to continue to enjoy these benefits.

The CBC was not the only organization to put forward this view – the Canadian Media Production Association, Ontario’s Ministry of Tourism, Culture and Sport, the Canada Media Fund, and the Friends of Canadian Broadcasting, among others – questioned whether these services still require an exemption from licensing and regulatory requirements. While not all of these submissions went as far as to suggest that OTT services must now be required to contribute to the Canadian broadcasting system, they suggested that it was time (whether within the current review or in a separate one) that the exemptions afforded to this services through the New Media Exemption order be reviewed.

How did OTT providers respond?

Predictably, Netflix, probably the most prominent of the OTT providers in the TV realm, did not agree with the CBC’s suggestion and provided a counter-argument in its submission to the CRTC. Notably, Google also supported Netflix’s submission and they teamed up to finance a report that was submitted to the Commission with their interventions.

Netflix’s counter argument can be summarized as follows:

  • Traditional broadcasting regulatory requirements shouldn’t be imposed on new media unless the need for intervention is justified with evidence.
  • Accordingly, Netflix argued that Canadian content is thriving online without regulations, saying that they’re making “material, market-driven and commercially oriented commitments to Canadian content without any obligation to do so.” They cite a 2012 study that shows that 9% of Netflix’s Canadian service is comprised of Canadian programming, which is comparable to certain regulated movie-oriented specialty and pay channels.
  • Second, Netflix argued that since they wouldn’t have access to any of the dedicated CMF funding, they would effectively be cross-subsidizing productions for Bell, Rogers, Shaw/Corus and Videotron.
  • Lastly, Netflix suggested that these types of requirements would result in a price increase for Canadians without a commensurate increase in benefits/value provided.

Where do we go from here?

We can expect that Netflix (and it’s looking like Google as well as Amazon) will continue to present the message that Canadian content can (and is) be successful online without regulation once the hearings begin in early September.

CIMA and Canada’s licensed broadcasting industry share concerns over the growth of these online, unlicensed broadcast undertakings that do not pay into the regimes that fund the creation of new Canadian content and who are not subject to Cancon requirements. As a matter of fact, in our submission to the CRTC’S Commercial Radio Review earlier this year, we recommended that “the Commission undertake an analysis and consultation on the future of the Canadian Content Development (CCD) regime, how new media is likely to impact it, as well as any other requirements in the Broadcasting Act. The objective of this review should be to ensure that the regulatory policies surrounding the Broadcasting Act continue to be relevant as increasing numbers of unlicensed broadcast undertakings enter the market.” [CIMA Comments on a targeted policy review for the commercial radio sector]

The hearings are scheduled to begin on September 8, 2014 – and we’ll keep you posted on the developments!