How could the Netflix proxy ban affect Canadian OTT?

The Netflix Inc. crackdown on virtual-private-network (VPN) use could provide an opportunity for Canadian providers to carve out more of the over-the-top (OTT) market, though a lack of firm figures makes predictions difficult. Independent broadcast analyst Kelly Lynne Ashton said in a phone interview she "would expect" Netflix’s move to enforce geographic content licensing by rolling out technology to stop viewers from using VPNs and IP address proxies to open a door for other providers. That includes options like BCE Inc.'s CraveTV and the joint Rogers Communications Inc. and Shaw Communications Inc. Shomi, which are now available as standalone OTT offerings for all Canadians. "If Netflix is now enforcing their territory and their rights, then that provides the market opportunity for not only Netflix Canada, but Shomi and Crave,” she said. Canadian Netflix subscribers who use workarounds to access the U.S. service do so because they can't find the content they want through the domestic offering, and it will be up to the Canadian companies to position themselves as the alternative to using VPNs, Ashton said. "Is it going to be easier for them to find it through other, inappropriate, ways or are there enough services out there that are going to make it easy for the consumer to find the content that they’re looking for?" she said. Without knowing the exact number of people using VPNs to get around geographic blocks, it's difficult to tell what the impact of Netflix's move will be, Macquarie Capital Markets analyst Greg MacDonald said in a phone interview. The high rate of penetration Netflix has managed domestically, "despite the fact the Netflix product in Canada has one of the least diversified content line ups," indicates a significant OTT demand in Canada, MacDonald said. A report released last week by CBC/Radio-Canada's Media Technology Monitor suggested that 47 per cent of English-speaking Canadians have a Netflix subscription, while five per cent subscribed to CraveTV and two per cent subscribed to Shomi. The survey the report was based on was conducted prior to CraveTV and Shomi becoming open to everyone. A 2014 MTM report indicated that more than one-third of anglophone Netflix subscribers used the U.S. version of the service. "The smart play of Rogers, Shaw and Bell with the CraveTV and Shomi products is to acknowledge that the world is moving in an over-the-top direction and these companies at least have the ability to transition the content they control to an over-the-top model depending on what tastes they think the demand would warrant," MacDonald said. Both CraveTV and Shomi are working hard to ensure their catalogues are large enough to compete with Netflix, Ashton said. "They both need to carve out a market," she said, adding that Netflix did so by focusing on steadily building its repertoire of exclusive content. "They started off with one, two, three , now they have a ton of original content," Ashton said. "And I’m assuming that, whether they’re doing exclusive licensing or commissioning, Shomi and Crave are going to try to distinguish themselves through exclusive products you can only get from them." Shomi will "continue to secure the exclusive rights to both new and iconic content through partnerships with major studios, offering Canadian users a unique library," Rita Ferarri, Shomi's senior director and head of marketing and communications, confirmed in an email. "Exclusively featuring titles from Amazon, Hulu, Starz, FX, and more, Shomi will continue to deliver a diverse and different service from any other streaming platform available globally." CraveTV declined a request for comment, but industry experts told The Wire Report last year that Bell's move to acquire exclusive rights to HBO programming gave CraveTV a leg up over its OTT competitors. Netflix executives don't seem worried about subscribers looking elsewhere, according to statements made during an earnings call last month. "We’ve always enforced proxy blocking with a black list. Now we’ve got an expanded and enhanced black list. So I don’t think we’re going to see any huge change," Netflix CEO Reed Hastings said during the Jan. 19 call, in response to an analyst's question about the potential loss of subscribers who could no longer access the American catalogue. However, privacy advocates argue that making people choose between their privacy and entertainment is "simply wrong.” On Jan. 21, Internet advocacy group OpenMedia launched its Netflix Without Borders campaign and accompanying online petition calling for Netflix to abandon its anti-VPN stance. Spokesman David Christopher said in a phone interview that, as of this week, the petition has garnered more than 8,400 signatures, with a little less than 4,000 coming from Canadians. Hastings said during the earnings call that Netflix is working with content providers to shift to global licensing, a move that Christopher called promising. The territorial system, Christopher added, "just seems so outdated." "But in the intervening period we’re in at the moment, where the territorial content rules do exist, Netflix needs to stand up for their customers here better and not use a blunt-force tool in shutting down everyone’s VPN to enforce this," he said. In the few weeks since Netflix made its announcement, there has been a reported increase in VPN and proxy users seeing error messages when they attempt to use Netflix, said Ernesto Van Der Sar, founder and editor of file-sharing news website TorrentFreak, who runs the outlet under a pseudonym. "It’s a complicated situation," Van Der Sar said in a phone interview. "But it’s not as bad as I thought it would be. So I think the effects are still very limited. There’s an increase, but it’s not that dramatic, to be honest." Services that are specifically marketing themselves as Netflix circumvention tools are more likely to be caught up in the crackdown, Van Der Sar said. "I think what they do is hire a company who maintains lists of IP addresses — which is basically the point you’re connecting from — that are known to be associated with these unblocking services," he said. "So what they’ve done is they’ve increased their range of service that they block. So it’s mainly VPN services, proxy tools and so-called smart DNS systems where people could potentially come from another country." But legitimate VPN customers are also being affected, Van Der Sar added. This can include people who use proxies based within their own countries for reasons that have nothing to do with getting around content blocks. Christopher said that some OpenMedia staff who use Canadian-based VPNs for privacy purposes have already experienced error messages from Netflix and that other means of enforcing geographic licensing, such as linking available content to the subscriber's billing address, would be more effective. " fighting a losing battle to try and keep drawing people in toward cable TV and staunch the flow of cord cutting," Christopher said. "But ultimately, that battle’s going to be lost and the sooner everyone gets on the same page with a global system for accessing content, I think the better for all of us." — With reporting by Charelle Evelyn at cevelyn@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

How could the Netflix proxy ban affect Canadian OTT?

Broadcast | February 11, 2016

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How could the Netflix proxy ban affect Canadian OTT?

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