CRTC in tough spot after Netflix refuses to disclose: experts

Experts say that while CRTC must somehow respond to the refusal of Netflix Inc. to give the commission information it had been ordered to provide by CRTC Chairman Jean-Pierre Blais during a hearing last week, the government's stated refusal to tax and regulate online-video services cannot be ignored. On Friday, Blais repeatedly ordered the U.S. video-streaming company to provide information, such as its Canadian subscriber numbers and expenditures, which the company said Monday evening it would not provide. CRTC spokeswoman Patricia Valladao said Tuesday the regulator had no comment on the situation. Independent television consultant Kelly Lynne Ashton said the CRTC must respond in order to maintain its authority, though she added that the government’s anti-regulation stance on over-the-top (OTT) services has likely emboldened Netflix to defy the CRTC. “There is a feeling out there that if the government had not said anything, then Netflix might not have been willing to take such a strong stance, that they feel it’s OK, they have the backing of the government,” she said in a phone interview Tuesday. Prime Minister Stephen Harper said last week that the government would not allow new taxes or regulations on Internet video services, and Heritage Minister Shelly Glover, the minister responsible for the CRTC, issued such statements twice during the two weeks of television hearings. Mike Storeshaw, spokesman for Glover, said in an email Tuesday that the minister's office would not get involved in the dispute. “This specific issue is between Netflix and the CRTC in the context of the Let's Talk TV process, and it is up to those two parties to settle this dispute," Storeshaw said. "We are following the process closely. The CRTC operates independently and at arm's-length from the government." He added: “Our government has been clear that we support the CRTC's position not to regulate online video services, and we will oppose any new regulations or a Netflix tax like those proposed by Liberals at the CRTC's Let's Talk TV process.” Ashton said this dispute is the CRTC’s first attempt to exercise its authority over OTT services that have operated under the commission's digital-media exemption order. “If Netflix and Google can thumb their noses at it, then there will be legal challenges all over the place,” she said. A report on the website Cartt cited sources as saying Google Inc. had also failed to submit much of the information asked of it by the CRTC during Google’s appearance on Sept. 8. In response to a request for comment on the report, a Google spokesperson said in an email: "We trust that our written submission, the detailed independent third-party analysis co-commissioned by Google and prepared by Lemay-Yates Associates Inc. and the related appearances before the hearing panel all constitute a substantial contribution by Google to this important proceeding. We hope that our voluntary participation has assisted the commission in its review.” Ashton added that the implications of the situation the CRTC finds itself in could be felt beyond the media and telecom industries. “If thumb their noses on the basis that they’re not operating in Canada, then what about all the other Internet businesses head offices are offshore?” she asked. “That calls into question privacy laws. It calls into question any attempt by Canadian legislation to have jurisdiction over activity that’s online within our borders.” Richard Paradis, president of media and consulting firm Groupe CIC in Montreal, also said that the CRTC has to take some kind of action. “You can’t be regulating major vertically regulated companies and deal very firmly with them,” while treating a foreign company differently, he said. Paradis agreed that if the commission doesn’t fight back in this case, it could lose some of its authority. Blais “must have been boiling over a little bit” when he saw the response from Netflix, he added. “He’s probably very, very unhappy.” He said the CRTC must also consider statements from government officials that they will not tolerate OTT services being regulated or taxed. While the Conservative government has emphasized consumer-friendly policies and is gearing up for an election next year, the CRTC is an arm’s-length organization, Paradis said. “It has to do its job, and it’s supposed to be neutral and it’s supposed to examine situations and regulate. And it’s very unusual to have government representatives at such a level voicing opinions of what the CRTC should do when the CRTC is right in the middle of examining what it’s going to do in terms of its television policy.” Paradis noted that while Netflix will not disclose its Canadian subscriber numbers, estimates put the number at about four million. “Again, politically, the commission is in an extremely difficult position,” he said. One factor in the CRTC’s favour is that it isn’t the only one wrestling with these questions. France, where Netflix just entered the market, wants Netflix to start contributing a percentage of its revenues to the production of French content. “You can see that other are looking at it and saying, ‘This thing can’t come in here and agitate the whole marketplace and not contribute anything,' ” he said. David Elder, a communications lawyer at Stikeman Elliott LLP in Ottawa, said in a phone interview Tuesday that that the CRTC must take action in response to Netflix’ stance. “They can’t just, at this point, just sort of say, ‘Oh, it’s OK then,’ ” he said, since doing that could mean the CRTC would be taken less seriously the next time it demands information. “I think the whole industry is kind of waiting with bated breath to see what the CRTC’s next move will be.” There are two options open to the commission, Elder outlined, and one of them is to — as Blais had threatened during Netflix's appearance in front of the commission — revoke the digital-media exemption order under which Netflix operates. “Of course, what that does is, without the exemption, arguably then in the commission’s mind, they’re a broadcasting undertaking and would otherwise require a licence," Elder said. "To the extent that they continue to operate, they would be operating without a licence, which is an offence under the Broadcasting Act." Elder said broadcasting without a licence is summary-conviction offence and falls under the jurisdiction of the attorney general. If the situation were to lead to such a prosecution, Netflix could take the view that it's not a broadcasting service, and as such is not subject to the Broadcast Act or CRTC licensing. “If that prevails, then there are no more conditions for the operation of those kinds of services,” he said. The other option would be for the CRTC to formally issue orders under the Broadcasting Act asking for the information it wants from Netflix, and to register those orders with the Federal Court, where “they can be enforced as if they were orders of that court.” “The court has a range of tools at its disposal to enforce compliance,” he added. Netflix could challenge any mandatory order or potential prosecution for broadcasting without a licence, Elder noted. The situation is a new one for the CRTC; while some parties have been reluctant to provide information in the past, “for the most part, there’s been some reasonable accommodation and solutions have been found,” Elder said, adding that the two sides could still reach some sort of “accommodation.” “I can’t think of a case where it really came down to this kind of a standoff,” he said. “Certainly, there have been people who have appeared before the commission that have taken a fairly aggressive stance, and sparks have flown, but I’m not sure it’s ever come down to this clear a refusal to provide information.” — With reporting by Anja Karadeglija at akarad@thewirereport.caand editing by Derek Abma at dabma@thewirereport.ca

CRTC in tough spot after Netflix refuses to disclose: experts

Broadcast | September 23, 2014

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CRTC in tough spot after Netflix refuses to disclose: experts

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