The benefits of being ruled by the CRTC

In the past, an aspiring broadcast distributor had no choice but to go to the CRTC and get a licence before they launched their cable or satellite business. Now, in theory at least, they can bypass the entire process by launching an over-the-top (OTT) TV service. While they would have more flexibility and freedom from regulation, such as Canadian content contributions and quotas, they also wouldn’t benefit from the rules that benefit licensed service providers, such as guaranteed access to content. And a recent CRTC ruling on an OTT broadcast distributor called Leiacomm could make launching a similar service even more difficult in the future. “It depends what you want to be. Obviously, there are OTT players that are quite successful when they offer individual programs … on an a-la-carte, on-demand basis, like Netflix,” David Elder, a communications lawyer at Stikeman Elliott in Ottawa, said in a phone interview. “But if what you want to do is try and replicate the experience of what we normally think of as a BDU, I think that’s going to be extremely difficult because you’re not going to be able to get permission to carry all the signals that most customers have come to expect from a BDU.” That’s a key reason why independent Internet service provider TekSavvy Solutions Inc., which told the CRTC during its two-week hearing on the future of television that it was considering becoming a broadcast distributor, wants to do so as part of the regulated system. It made those statements amid the backdrop of U.S. streaming service Netflix Inc., an exempted OTT service, ignoring CRTC orders to provide it with information such as Canadian subscriber numbers, leaving the regulator with seemingly few practical options beyond striking out all evidence presented by Netflix in its review of the TV industry, which it did. Going the regulated route would give TekSavvy better access to content, Bram Abramson, chief legal and regulatory officer, said in a phone interview. “I don’t think we’d have access to the same level of content outside of the system,” he said, noting, for instance, that a licence gives a distributor the right to carry over-the-air (OTA) signals, including distant signals, without affiliation agreements. Content owners also have to make many of their channels available to licensed service providers, though negotiating carriage agreements can still take months. TekSavvy is making the move to become a TV distributor because it’s responding to customer demand, Abramson said, noting that “our customers are able to access over-the-top services — they don’t need us to do it. What our customers can’t do as easily is access a BDU service.” “We’ve had lots of customers come to us and say, ‘We’d love to see you guys do a BDU; we’d be the first to sign up.' We haven’t, I have to tell you, had a lot of people come up to us and say, ‘What you guys should really do is compete with Netflix.' " Abramson added that the rights available to OTT distribution are “certainly a sub-set of what’s available to a BDU.” “If all the TV rights that were available were available to over-the-top Internet players, then it wouldn’t be an issue,” he said. “That’s not the world we live in. The world we live in is one where rights are made available differently on different platforms, and the regulated platform is still the one that has the most money and therefore drives the bus.” That could change if OTT platforms could outbid traditional players, as Netflix’s international scale has allowed it to begin to do, he noted. But for now, it’s difficult to get those rights as an OTT player, as Leiacomm has experienced first-hand. After BCE Inc.’s media division refused to license its content to the service, Leiacomm filed a complaint with the CRTC. It was dismissed by the commission, though the decision wasn’t unanimous. The ruling stated that in refusing to license its content to Leiacomm’s OTT service, while making the same content available on its own Bell Mobile TV service, Bell was giving itself a preference, but not an undue one. In a dissenting opinion, CRTC commissioner Raj Shoan wrote that the effect of the CRTC’s decision will be that Internet-only distributors “must become entities comparable to licensed IPTV undertakings” in order to “gain access to the television services of Canadian broadcasters through undue preference rules.” The panel’s decision that OTT distributors “cannot be classified as a BDU (exempt or otherwise) has serious implications for Canadian entrepreneurs seeking to innovate in this sphere,” Shoan said. He added that that the decision “may dramatically inhibit the growth of an independent, Canadian-based online content distribution industry,” and that it “threatens principles fundamental to” the Broadcasting Act. Leiacomm founder Howard Rabb, who has been working on getting his OTT service off the ground for the past four years, said in a phone interview that the decision means he can’t launch the business. “For the commission to say, ‘Well, we’re not preventing this business from existing. you can get content from plenty of other places ’ … is abjectly false. If you’re denied content from the biggest provider, how can you launch a competitive service?” Rabb asked. “There is no choice. You go regulated or you don’t go,” he said. “There’s nothing to stop you in law. There’s nothing to stop you in policy from existing. You just can’t have any channels.” The Leiacomm decision was a “strong signal” from the CRTC that “it’s not inclined to wade in based on an undue preference for unlicensed broadcasters or for unauthorized BDUs that are operating under the exemption order,” said Elder. He said that, in its decision, the CRTC noted that Bell was not providing its content to any other online-only services. “With … the suggestion, perhaps, that if it did, that would change the analysis, that it couldn’t pick and choose between one new-media exemption order operator and another,” Elder said. “So that may actually act as a disincentive for them to make deals with anybody.” It’s possible that if the companies start providing content to one such player, and then must start doing the same for all players, that could lead to a change in the status quo, he agreed. If a company was giving its content to one online-only service but not others, “I think that may be the case where the commission would wade in and say, 'That is an undue preference.' ” The Leiacomm decision is “a significant development in the application by the commission of its undue preference rule,” he said, adding that he’s not aware of another case where the status of the applicant as either a licensed BDU or exempt online operator, was considered as a factor. “Obviously, it has implications for this space, but also down the road. What other sorts of undertakings might get carved out and not be seen by the commission as worthy of receiving protection under the undue preference rule?” he asked. “It’s very difficult to predict how it will unfold, but it certainly does seem like a bit of a watershed.” Alan Breznick, a media and telecom analyst at research group Heavy Reading, agreed in a phone interview that the CRTC’s decision in the Leiacomm applications will inhibit growth of OTT service. “It might mean that only BDUs can go into the OTT world, which is exactly what Rogers and Shaw are doing,” he said, referring to the Shomi service announced by Rogers Communications Inc. and Shaw Communications Inc. this summer. Breznick said there are reasons for the CRTC to have taken the route it has. “It’s not in their best interest to change it because they’re trying to protect the current BDUs, and if they change the rules so that OTTs have the same rights as BDUs, then what’s the point of being a BDU anymore?” he asked. “And the CRTC has more regulatory power over the BDUs.” As for Leiacomm, Rabb said his only recourse now is to wait for the Heritage Minister to intervene following a letter he sent to the ministry about Leiacomm’s case, take the CRTC to court or wait for the CRTC to review the digital media exemption order. “And I don’t know if we can wait that long. I don’t know if I might not just go and do something else. Because this has been four years,” he said. “I don’t know how much more I will invest into it, time and financially. It’s been a lot of effort for, at this point, no reward.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

The benefits of being ruled by the CRTC

Broadcast | October 3, 2014

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The benefits of being ruled by the CRTC

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