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CRTC chairman Jean-Pierre Blais warned at a recent CRTC hearing that he would start regulating the popular U.S.-based video streaming service if Netflix refused to hand over extensive data on its Canadian operations. (Blair Gable for The Globe and Mail)

CRTC chairman Jean-Pierre Blais warned at a recent CRTC hearing that he would start regulating the popular U.S.-based video streaming service if Netflix refused to hand over extensive data on its Canadian operations.

(Blair Gable for The Globe and Mail)

CRTC is doomed to lose the fight it's picked with Netflix Add to ...

So Jean-Pierre Blais wants to take on Netflix.

He might want to reconsider. This is a fight the head of the Canadian Radio-television and Telecommunications Commission, Canada’s top broadcast regulator, will almost certainly lose.

Mr. Blais warned at a recent CRTC hearing that he would start regulating the popular U.S.-based video streaming service if Netflix refused to hand over extensive data on its Canadian operations.

Netflix, based in Los Gatos, Calif., balked, leaving Mr. Blais brandishing a threat he may be unable to enforce.

Even the government doesn’t have his back. Prime Minister Stephen Harper and Heritage Minister Shelly Glover have made it clear they aren’t interested in taxing or regulating Netflix.

Another hitch that may not have occurred to Mr. Blais is the Canada-U.S. free trade agreement, which preceded NAFTA. Any regulatory clampdown on Netflix could provoke swift and costly U.S. retaliation from Washington.

And that may well explain Netflix’s cocky defiance in the face of Mr. Blais’ demand for information about its business in Canada.

A little history: The last time Canada and the U.S. sparred over culture was in 1998. Then-Heritage Minister Sheila Copps pushed through Bill C-55, making it illegal for foreign magazines, such as People and Sports Illustrated, to sell their advertisements to Canadian companies. The law, backed by fines of $250,000, was designed to block foreign publishers from encroaching on the Canadian market.

The U.S. responded with retaliatory tariffs on hundreds of millions of dollars worth of Canadian exports, including steel – a symbolic shot at what was once the main industry in Ms. Copps’ hometown of Hamilton, Ont.

Ottawa quickly caved in, and watered down the law.

Canada has an exemption for culture in the Canada-U.S. FTA. But trade lawyer Todd Weiler, an investment-treaty arbitration specialist, said what was sold to Canadians as an exemption is in reality a “cultural retaliation” clause. He said the agreement allows the U.S. to retaliate whenever Canada invokes a protectionist cultural measure – as might be the case if the CRTC goes after Netflix or Google Inc’s YouTube service.

“Would the U.S. government step up for Netflix if something bad were to befall it before the CRTC? Well, they did before,” Mr. Weiler pointed out.

Netflix and Google are two of the main flag-bearers of the New Economy in the U.S., and Washington has shown a willingness to go to bat for them in foreign markets.

Regulating U.S.-based online services, such as Netflix or YouTube, is not as easy as it might sound. The CRTC would likely have to lift a long-standing CRTC exemption from the normal rules that apply to conventional broadcasters, including minimum Canadian content requirements.

Without that exemption, Netflix would likely need a broadcast licence to continue operating in Canada. As a U.S. company, it is ineligible to receive one because Ottawa prohibits foreigners from owning Canadian broadcasters.

Netflix would essentially be put out of business in Canada. And the U.S. would have a strong trade case for retaliating.

The CRTC might also order Netflix to pay into the country’s broadcasting system, as other broadcasters and cable companies have urged the regulator to do.

Canadians – with their estimated 3.5 to four-million million Netflix subscriptions – are already telling Ottawa that they want to keep the world of Internet TV unregulated. According to the CRTC, 29 per cent of English speakers used Netflix last year, up from 21 per cent in 2012. And the share is almost certainly still rising – a clear rejection of conventional broadcast offerings.

There is a lot at stake for Netflix in Canada. Convergence Consulting Group estimates that the company will take in more than $300-million this year. The company has also invested large sums acquiring the Canadian rights to thousands of movies and TV shows. Canadian Netflix has approximately 3,600 pieces of content on its site.

Content is expensive. Rogers Communications Inc. and Shaw Communications Inc. have reportedly spent as much as $100-million buying content for their rival video streaming joint venture, Shomi.

Mr. Blais’ tough talk may please some Canadians.

But it could come at a very steep price for Canadian exports – commercial jets, perhaps, made in Mr. Blais’ hometown of Montreal.

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