Netflix meeting discussed new condition for new media exemption

Industry leaders who met last Friday to discuss the role of online streaming site Netflix Inc. in the Canadian broadcasting system are looking at the power of the CRTC to implement new conditions on its regulatory exemption for new media. Industry and regulatory sources say that at last Friday’s meeting—where industry leaders discussed the role that over-the-top services like Netflix should play in the Canadian broadcasting system—attendees discussed the power of the CRTC to attach new conditions to its new media exemption order. Those conditions could require a foreign-owned player like Netflix to pay contributions to support the Canadian broadcasting system. Under Canada's broadcasting regulatory regime, online content sites benefit from the CRTC’s new media exemption order, which exempts new media undertakings from the requirement to hold a broadcasting licence. The Broadcasting Act requires licensed broadcasters to be Canadian-owned, but the new media exemption order effectively allows unlicensed, foreign-owned players like Netflix to offer content online. Last Friday afternoon, about 25 film and television producers, actors, directors, writers, regulatory experts, broadcasting executives, and telecom representatives attended a closed-door meeting about the role that over-the-top broadcasting services like Netflix should play in Canadian broadcasting. Norm Bolen, president and CEO of the Canadian Media Production Association (CMPA), who attended the meeting, said in a phone interview Tuesday that there is concern about competition from foreign-owned, over-the-top services. “Netflix has no corporate presence. It has no staff. All it has is a dot-ca URL,” Bolen said, adding that industry leaders need to discuss Netflix, Apple Inc.’s iTunes, and the potential launch in Canada of other online platforms like Hulu and Amazon Prime. “They’re selling to subscribers the same way as a pay-TV service, except they’re not going through a cable provider. They’re using the same wire, just a different part of the wire. All they do is take dollars out of the country,” Bolen said. Licensed broadcasting distributors are required under the broadcasting framework to contribute a percentage of their revenues, normally about two-to-three per cent, to support the production of Canadian programming. Sources who attended the meeting Friday said that, although not everyone agrees, there is some consensus that over-the-top services should also make contributions. The CMPA, the Alliance of Canadian Cinema, Television and Radio Artists, and some distributors such as Shaw Communications Inc., have said Netflix and similar online platforms should make contributions. The CRTC issued its new media exemption order in 1999 to encourage innovation and growth in the sector. The commission has said it intends to review the exemption in 2014. Industry sources—some who attended the meeting—say the CRTC could change the conditions it attaches to the exemption to require online content platforms to make contributions. In broadcasting decision 2009-660, issued in October 2009, the CRTC added conditions to the exception, extending its “undue preference” rules to new media undertakings so that they cannot “give an undue preference to any person, including itself, or subject any person to an undue disadvantage.” The commission also added a condition requiring new media undertakings to report to the CRTC to help it monitor development in the sector. New media undertakings that abide by these conditions can continue to benefit from the exemption. Regulatory sources say the commission could further amend the exemption order so that online content distributors that meet a given threshold of revenues from Canadian broadcasting must contribute a designated percentage of their revenues to Canadian programming. Bolen said that attendees at the meeting received a presentation about options for the CRTC or the government. “The CRTC has the authority to put conditions on regulated entities in a variety of ways, so that they don’t have to be the same as other entities. There’s a lot of precedents for the CRTC to have flexibility in how it applies regulations,” he said. But one regulatory source said that adding such a condition to the exemption could put the CRTC in a Catch-22 position. Section 9(4) of the Broadcasting Act says that the CRTC can exempt broadcasting undertakings so long as they do not contribute in a “material manner” to the broadcasting policy objectives in the act. Requiring services like Netflix to make Canadian programming contributions could constitute a “material” contribution to Parliament's broadcasting policy—calling into question the rationale for exempting the service in the first place, the source said. Bolen said attendees are still trying to decide whether they have enough in common to address the issue as a group, and that no one has yet agreed to any possible “remedies.” But the group agreed to continue meeting about the issue and create a working group to advance the discussions. Another meeting will be held in March, he said. Bolen noted that the CRTC could lift the exemption—but the question is how. “There are several conditions under which the exemption order could be lifted. Some of it has to do with how you’re functioning in the Canadian marketplace. Do you smell like a broadcaster, look like a broadcaster, taste like a broadcaster? Then you probably are a broadcaster,” Bolen said. “The question is how do you apply it.” But lifting the exemption order altogether would be seen as controversial if it required services like Netflix to obtain broadcasting licences and restructure as Canadian-owned companies. Bolen said the discussion has not included Google Inc.’s YouTube because it primarily does not offer “professional content.” He added that online on-demand services like Rogers Communications Inc.’s Rogers On Demand Online service or Videotron Ltd.’s Illico sur demande are also not under discussion because they are “part of the system. They’re regulated, and they’re making a contribution.” Sources who attended the meeting said the CRTC did not have a representative present. Talk about the role of Netflix in the Canadian broadcasting system comes as the CRTC prepares for a series of invitation-only meetings with key stakeholders March 23-24 in Ottawa, where online content distribution is expected to be a top issue. The meetings will help inform the commission’s second Navigating Convergence report, to be published in the spring. Commission spokesman Denis Carmel confirmed by email that the new media exemption order “likely” applies to website operators. “A website operator that selects content, acquires rights to it and distributes it to Canadians over the Internet would be caught by the Broadcasting Act but likely fall under the New Media Exemption Order,” he wrote. He added that “the specifics of Netflix are not known to the Commission.” Steve Swasey, a spokesman for Netflix Canada, told The Wire Report last week that Netflix voluntarily provides significant amounts of independent, Canadian content on its site and continues to add it to its library. He said Netflix is “a great friend of the independent filmmaker and a champion of independent film.” Jacob Glick, Google’s senior policy counsel in Ottawa, has also said that there is no need to regulate online content platforms. sdoyle@thewirereport.ca

Netflix meeting discussed new condition for new media exemption

Broadcast | February 24, 2011

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