New VOD rules’ effect on Shomi, CraveTV unclear

OTTAWA — The CRTC introduced a new category for video-on-demand services Thursday that allows them to offer content exclusive to certain TV service providers and operate under the digital-media exemption order, as long as they also offer that content online to all Canadians, though the consequences for Shomi and CraveTV remained unclear. In response to an interview question from The Wire Report about how the decision would affect Shomi and CraveTV, CRTC Chairman Jean-Pierre Blais said in an interview: “I think it would be premature to suggest that we know how it would apply.” Blais said that prior to Thursday’s decision, VOD services in Canada could operate under a licence, which carries obligations including those around Canadian content expenditures, and restrictions around exclusive content. The other option was to operate under the digital-media exemption order (DMEO), which doesn’t involve Canadian content contributions or other obligations. These two options still apply, along with a proposed third that was introduced Thursday. “What we created is a hybrid in the middle, which has the advantage of allowing a Canadian who wants to do an SVOD — so this is a competitive advantage versus foreigners — they could, for their own subscribers, use their closed infrastructure,” Blais said. “And if they do that, well, they avoid obligations about contribution and exclusivity. But the condition for that is that it’s offered more widely to Canadians through the Internet.” The companies behind Rogers Communications Inc. and Shaw Communications Inc.’s Shomi, and BCE Inc.’s CraveTV have both stated that the streaming services operate under both frameworks; when they are accessed through the set-top box, VOD rules apply, while they operate under the DMEO when accessed online. The Public Interest Advocacy Centre (PIAC) and the Consumers' Association of Canada (CAC) filed undue-preference cases against Shomi and CraveTVon Feb. 6, taking issue with fact that their availability was linked with subscriptions to particular TV services in the case of CraveTV, and to TV or Internet subscriptions from Shaw or Rogers in the case of Shomi. Those complaints were later suspended, and the CRTC informed PIAC on Thursday that it was returning the applications. John Lawford, executive director of PIAC, initially interpreted the CRTC's decision as being in line with what PIAC had sought through its complaints against Shomi and CraveTV. "They did what we wanted," Lawford said in a phone interview. "Now, everybody can get Shomi or Crave ... from an Internet connection. We won." However, Lawford said in a followup interview that further analysis from legal experts at PIAC found that there are loopholes within the wording of the CRTC's decision on Thursday that would allow Shomi and CraveTV to carry on largely as is. He noted that under the new hybrid category the CRTC wants to create, a provider of VOD service would be required to open up all its content online if it wants to keeps certain content exclusive to a service provider. However, he said, services such as Shomi and CraveTV could conceivably operate under existing, separate rules that apply to licenced VOD services and those considered to fall under the digital-media exemption. Lawford said the proposed regulations appear to mean "Crave and Shomi are fine," though a possible change as a result of Thursday's announcement might be that identical programming will not be allowed on both the online version and set-top box version of a VOD service. "I know that Bell has got slightly different offerings for whether you get over the Internet or on their set-top box, so they'll probably say, 'Well, that's what we're doing, so we're fine.' Shomi is still in beta, so who knows what the hell they're going to do?" He said the main objective of the CRTC's decision for VOD services seems to be to encourage future providers of such services to opt for the new category rather than change the way Shomi and CraveTV are currently provided. Lawford said it's unclear at this point whether PIAC will re-launch its complaints against Shomi and CraveTV. He noted that the final regulation on the new category has not been established, with the CRTC seeking comments between now and April 27. In a statement released later Thursday, PIAC said it’s “skeptical that today's decision will have the effect of motivating Bell, and Rogers and Shaw, to make their content available online to every Canadian.” “The CRTC appears to be trying to provide an incentive to become a hybrid VOD —if you do that, you don't have to abide by the traditional licensing requirements (namely CanCon financial obligations). It's a way to lighten the financial burden on those services in exchange for a requirement to make it available online,” it added. Bell Media spokesman Scott Henderson said the decision does not prevent way the company current offers CraveTV, which is available to Bell's satellite and IPTV subscribers and certain other broadcast distributors, such as Telus Corp. and Eastlink. "CraveTV can continue to operate in part under the existing VOD rules when accessed on the STB , and in part under the digital-media exemption order when accessed in an app or online," Henderson said in an email. "Under the existing VOD rules, the programming associated with CraveTV cannot be exclusive to one BDU’s STB; it must be offered to all. We offer CraveTV for distribution by all BDUs on their STB." An emailed statement from Shaw, part-owner of Shomi, said: “The decision is a complex and comprehensive document that has impacts on our business that need to be assessed. We appreciate the difficult decisions and choices that the CRTC was faced with and will be taking the time necessary to carefully study the material before making any further comment.” Broadcasting consultant Peter Miller said that the CRTC's decision appears to provide another option for VOD service providers and not force existing services like Shomi and CraveTV to adopt it. "What I think the commissioner has done is given those services the opportunity to provide it as one seamless service, whether it be on a set-top box or online, but I don't think it's forcing them to do it," Miller said in phone interview. Broadcasting consultant Kelly Lynne Ashton, on the other hand, said the CRTC's announcement Thursday does change the way CraveTV and Shomi can operate. She said if they continue to offer exclusive programming in relation to TV subscriptions, as they do now, that would require them to be universally accessible online as well. She dismissed the notion put forward by Bell Media that CraveTV is not exclusive because it is available to any broadcast distributor that is willing to pay for it. "That's what Bell has been saying all along, and particularly to Rogers' subscribers; 'It's not our fault that Rogers won't take it," Ashton said in a phone interview. "The practical reality is Bell doesn't have Shomi either. There are competitors." When asked if Rogers and Bell could conceivably provide their streaming services to each other’s TV services, the same way individual channels are carried by their rivals' distribution businesses, Ashton said the streaming services "are competing against each other more directly." Bell has in recent weeks challenged two CRTC decisions, launching appeals in Federal Court regarding the commission’s rulings on its mobile-TV service and simultaneous substitution during the Super Bowl. Some experts have warned that those challenges could be a sign of more conflict and court actions to come. In response to a question about whether he was concerned about another challenge, Blais said he wasn’t “because I think our decisions, including the past decisions, are on very solid legal ground. They have a right to go to court. … Going to court doesn’t mean you’re right.” Some have also brought up whether Shomi and CraveTV could continue to operate if the companies were forced to offer them as stand-alone services. Canaccord Genuity analyst Dvai Ghose has said the services could be pulled in that case, while Bell Media president Kevin Crull said last week that CraveTV, which is priced at $4, “is not a stand-alone, make-money value proposition.” When asked for comment on statements that Shomi and CraveTV’s business models wouldn’t allow them to be profitable as stand-alone services, Blais said that “tou.tv and Illico have found a way,” referring to streaming services from CBC/Radio-Canada and from Quebecor Inc.’s Videotron. On Thursday, the CRTC also released decisions regarding Canadian content and genre protection. It said in a press release it was “reducing the quotas setting out the amount of Canadian programs that local television stations and specialty channels must broadcast,” while “ensuring that the majority of these stations and channels reinvest a portion of their revenues into the creation of content made by Canadians.” For over-the-air channels, the requirement that at least 50 per cent of programming be Canadian during the evening stays, while the CRTC is getting rid of the requirement that 55 per cent of all programming be domestic. For specialty channels, the CRTC's new rules would require an overall rate of 35 per cent Canadian content, and no specific requirements for prime time, compared to various content requirements currently in effect for different specialty channels. For channels owned by large companies, changes to the Canadian content requirements take effect for new broadcast licences issued on or after Aug. 31, 2017, and Sept. 1, 2018 for independent broadcasters, the commission said. As for genres, the CRTC said in its decision: "New or existing services that wish to offer programming from formerly protected genres may do so immediately," though some limitations remain in place for mainstream sports channels. Miller said changes regarding Canadian content and genre protection go further than most observers expected. "For example, most would have probably thought the commission would reduce exhibition requirements," he said. "The fact that the commission has decided to eliminate the daytime requirements and keep them in prime time is unexpected. And similarly on genre protection. That was an issue in the hearings. ... There wasn't a lot of debate on that issue, but the commission made a decision, and very dramatic decision because it effectively eliminates genre protection immediately." Miller said some of the consequences of eliminating genre protection will be less specialized formats, with many niche services moving more toward the mainstream. "For example, we've got channels like , we've got channels like Showcase, primarily drama channels," he said. "These channels won't exist in their current form. They'll morph into more mainstream channels." This will result in more competition in the most popular categories, and some smaller broadcasters will suffer as a result, Miller said. He added that it will likely lessen the amount of diversity in Canadian programming. On the other hand, high-budget production operations geared toward prime-time popularity might benefit from the coming changes, Miller added. Ashton said the end of genre protection is likely to result in more of the same content being broadcast across multiple channels owned by the same company. Whether it results in a significant number of channels shutting down depends largely on what the CRTC decides on the issue of unbundling, Ashton said. "This is the problem with having decisions that come out in chunks," she said. "We don't know if this is all playing into part of pick-and-pay. If there are more opportunities to pick channels, they yes, some of those channels are just going to die anyways, so it doesn't really matter that you are protecting them or protecting their nature of service. "I think we have to see the full picture before we have any idea about what is going to happen going down the road." A decision on whether broadcast distributors are forced to provide more basic packages and with more choice regarding subscribing to discretionary channels is expected to come as soon as next Thursday. Ashton said changes that alleviate Canadian content rules outside of the prime-time hours could affect the viability of producing certain types of programming. "If you do anything other than big-budget drama, then you might not be supported; so lifestyle and reality, children's programming," she said. — With reporting and editing by Anja Karadeglija at akarad@thewirereport.ca and Derek Abma at dabma@thewirereport.ca

New VOD rules’ effect on Shomi, CraveTV unclear

Broadcast | March 12, 2015

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