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Netflix’s popularity poses a challenge to CRTC

Netflix saw its streaming video service grow by 70 per cent in 2012 in Canada.

J EMILIO FLORES/NYT

Netflix Inc.'s explosive Canadian growth has seen the online service activated in about 17 per cent of Canadian homes, the country's broadcast regulator estimates in a report to be released later this week that underlines the rapid changes shaking the television industry.

An annual report from the Canadian Radio-television and Telecommunications Commission says the streaming video service grew by 70 per cent in 2012 in Canada, which translates into about 2.5 million households. The actual number is likely higher, given that the data is almost a year old and does not account for the surge in Netflix popularity with the launch of original shows such as Emmy-winning House of Cards.

"[Netflix] has to be the simplest value proposition anywhere," said Kaan Yigit, president of Solutions Research Group. "One price, no commitment, cancel any time and it works on practically any device."

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The rapid adoption of online streaming services poses a challenge for the CRTC, which is reviewing the relationship between television providers and the online services that are disrupting the industry as part of a broader review into the way it regulates television.

While consumers are drawn to services such as Netflix, the country's television providers warn that it is difficult to compete with them because they don't contribute financially to the Canadian broadcasting system.

"We're looking at a communications environment that is radically different from what it was only 10 years ago," CRTC vice-chairman Peter Menzies told the annual conference of the Canadian Cable Systems Alliance on Monday.

"Since then, the structures, the business models, the products and the technology of the industry have been dramatically transformed – to say nothing of the needs, the tastes, the expectations and the behaviour of consumers," he said.

The CRTC is asking Canadians how the broadcast system should be changed to serve their needs. That will be followed by broader discussions with industry representatives about how they deliver content into Canadian homes.

A major flashpoint in the review is likely to be the relationship between services such as Netflix and the broadcasters, who say their online rivals operate with more regulatory freedom in this country than incumbents, who must meet minimum targets for Canadian programming.

They argue that the playing field should be levelled – either by imposing Canadian content regulations on online services or lifting the quotas for everyone in the industry.

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"We can no longer define ourselves as gatekeepers in a world in which there may be no gates," Mr. Menzies said. "We can't tell Canadians what to watch, nor should we. They are free to enjoy a much wider range of information and entertainment than ever before. And they are."

The new subscriber numbers are likely to reignite the regulation debate. The country's cable, satellite and IPTV companies have about 12 million subscriber households, but are in a pitched battle to keep them from cutting their cords for alternative services. The traditional providers have started offering more content online and on mobile devices, with several planning their own competing products to take on those competitors.

The CRTC will need to determine whether the rules the broadcasters follow in the traditional broadcast world will apply to the new online services.

"What we see in our data is conventional television viewing still represents the largest portion of viewing opportunities, but there is a fast growing on-demand opportunities across all sorts of different devices," said Shaw Media president Paul Robertson. Shaw recently launched a mobile package that allows subscribers to watch programming from its Global Television division on any device.

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