A strange confluence of forces has just made the push to have Netflix and other over-the-top video distributors(OVDs) -- such as Amazon, Apple and Google -- regulated by the rules of the Broadcasting Act.
Astral, Bell and other incumbents are coming under increased scrutiny from investment bankers worried that OVDs could wreck their bottom line and this seems to have increased their resolve to thwart would be rivals. Moody's – the investment ratings agency – also recently raised such concerns, while casting doubt on the dominant integrated media companies' – Bell CTV, Shaw Global (Corus), Rogers City TV and Quebecor Media – decisions to acquire ever bigger stakes in the television business.
When investment bankers worry, CEOs tremble and Netflix as well as the open Internet generally could end up paying the price.
The Canadian Media Production Association's recent appeal to the CRTC to regulate Netflix under the Broadcasting Act added to the full court push, as did the Supreme Court's decision last month to hear a case from various groups representing media workers who want ISPs as well as Netflix, Apple, Google, and so on to be regulated like broadcasters.
Lastly, a Standing Committee on Canadian Heritage report published last month and the CRTC's upcoming reviews of its unpopular wholesale UBB decision and vertical integration have also brought the issues to a head.
These issues are not new. In fact, in its famous "new media" decision in 1999, the CRTC categorically asserted its authority to regulate broadcasting services delivered over the Internet, but decided to stand on the sidelines while such services were in their infancy.
The vertically integrated, dominant telecom, cable and internet service providers love the approach because it has given them a green light to develop new markets while letting them off the hook with respect to issues about vertical integration, anti-competitive behaviour, Cancon requirements and funding commitments in the emerging digital media universe.
The CRTC's decision to stand on the sidelines has no doubt played well to the 'hands-off-the-Internet' crowd, as well. The truth is, however, that this has only postponed the day of reckoning.
That day of reckoning has been moving ever closer since broadcasters finally made a concerted effort to launch substantial video portals in 2007/2008 (e.g., CBC.ca, CTV.ca, GlobalTV.com), while offering some programs through Apple iTunes and YouTube. Simultaneously, they have fought tooth and nail to defend their existing markets and expand into new ones, while using a well-stocked arsenal of measures to block rival OVDs such as Netflix. Six such tactics stand out:
First, bandwidth throttling was used by Bell in 2008 to cripple the CBC's attempt to use BitTorrent to distribute an episode of Canada's Next Great Prime Minister, while today Rogers' throttling of P2P applications causes no end of frustration for those who play World of Warcraft online.
Second, bandwidth caps and Usage-Based Billing are being used by all of the major ISPs to deter online video use. Netflix has deliberately degraded the quality of its service to help subscribers avoid these punitive and restrictive measures as a result.
Third, the incumbents do not apply the same measures to their own services. Bell's chief regulatory officer, Mirko Bibic, recently provided a great example of the tortured logic used to justify such treatment when he argued that, despite using the same network facilities, Bell's OVD service is not a 'true' Internet-based service, while Netflix is.
Fourth, the incumbent telecom and cable companies' refusal to interconnect their systems with others has blocked large OVDs and Internet companies such as Amazon, Apple, eBay, Facebook, Google, and Netflix from bringing their 'content distribution networks' as close to users as possible.
Fifth, Canada's integrated multimedia conglomerates have used a combination of program rights, geo-gating and digital rights management (DRM) technologies and a smattering of deals with Apple and Youtube to shore up their control over access to our "national media market." The Rogers, Bells, Shaws, Quebecors, and so on of this country do not like the prospect of having to compete for each and every new digital market with newcomers one bit; nor do cable providers in the United States.
As a recent New York Time's article observes, Time Warner and Cablevision are locked in battle with Viacom (MTV, VH1, etc.) and Scripps Howard (HGTV, Food Network, etc.), with the cable companies arguing that the rights they have acquired to deliver channels to audiences' TV sets also lets them beam those same channels over the Internet to iPads and iPhones. Viacom and Scripps Howard vehemently disagree.
In the incumbents' perfect world, they would simply fold the OVD market into the suite of rights they acquire for traditional television markets without having to compete with Netflix at all. If they had it their way, the Internet would just be bolted on to the side of their lucrative television business.
Netflix strengthens the hands of content creators and rights holders on both sides of the border relative to traditional broadcasters. In Canada, this battle over the essential resources of the media economy – networks, money and copyright – are concealed by a fog of sanctimonious rhetoric about cultural policy led by vested interests.
Seen from the broadcaster's point of view, Netflix's recent acquisition of new drama series and its deal with Paramount Studios for online video distribution are just further evidence that the company is steadily encroaching on their turf – one more reason why it should be quickly brought to heel. Even if we thought for a moment that regulating Netflix and OVDs was a good idea, what should we do as Hollywood experiments with using Facebook as a new 'window' for blockbusters such as The Dark Knight, Yogi Bear and Harry Potter and the Chamber of Secrets, among others?
Do we regulate Facebook as a broadcaster too? I'm all for attending to that company's privacy issues and other mattters, but Facebook and broadcasting? Obviously, there is no shortage of slippery slopes and pitfalls along the incumbents' garden path.
The sixth defensive weapon in the incumbent's bid to hobble new rivals is their co-ordinated push for government regulation. Perhaps the award for sharpest U-turn on these issues goes to Shaw after it acquired Global TV in the fall of 2010.
After a decade of opposition to the CRTC in general and to the regulation of the Internet specifically, Shaw President Peter Bissonnette laid out the new gospel in front of the Canadian Heritage Committee referred to earlier: "If there's one message we want to leave with you . . . it is that over-the-top competitors have a free ride. They're aggregators of broadcasting. They provide broadcasting services in Canada." They should be regulated like broadcasters.
For anybody still under the illusion that the Internet is unregulable, Shaw and others point to extensive regulatory tools that they'd like to see pressed into service: e.g. ISP levies; extending Section 19 Income Tax Act Exemptions so that adverting on Canadian Internet sites can be written off just as it is for Canadian-owned newspapers, magazines and broadcasters; Canadian Media Fund contributions; Cancon Quotas, etc.
Acceding to the full sweep of this agenda would not just wreck Netflix's 'business model', it would destroy the future of the Internet. To stem the tide, we need to understand just how wildly out of sync the "sky-is-falling" rhetoric is with the fact that the television industry is more lucrative then ever. We also might wonder if Netflix, Apple, Google, Amazon, et. al. might agree to adding some water to their wine in return for a quick stop being put to the discriminatory practices that now hobble their activities in Canada?
Dwayne Winseck is a communications professor at the School of Journalism and Communication, Carleton University in Ottawa. Prof. Winseck been researching and writing about media, telecoms and the Internet in one way or another for nearly 20 years. You can read more comment on his blog, Mediamorphis . His column will appear every second Tuesday.