Netflix to rewrite Canadian content distribution rules, experts say

Set to reach Canadian audiences in September, Netflix Inc. is drawing the attention of broadcasting industry players who say the service could threaten Canadian programming online and rewrite the content distribution rules. Netflix, the California-based company known for its online video streaming library and DVD-rental-by-mail service, said last week it will make its first foray outside of the U.S. by offering streaming service to Canadians. “Streaming is the future, and it’s the service more and more people are gravitating to,” Steven Swasey, Netflix vice-president of corporate communications, said in an interview. “More than 60 per cent of Netflix members are streaming now, up from 55 per cent in the previous quarter, and up from 37 per cent the previous year ... Doing an international expansion with the streaming only was logical.” Netflix plans to first launch its English-language service. A French service will be launched at a later date due to a lack of resources. “We just wanted to be able to get there as quickly as we could after being a U.S.-only service for 12 years,” he said. “Acquiring the content to stream in Canada and building a streaming-only service does require a good deal of effort.” Netflix has not released a launch date for the service in Canada, or details about the type of content to be available and at what prices. American customers pay $8.99 US for unlimited monthly service. “We’re not discussing any of the content that will be available,” Swasey said. “Netflix is doing everything with the appropriate adherence to, and sensitivity to protocols, regulations and licensing. We’re highly aware of that sensitivity.” Canadian broadcasters face strict Canadian content regulations dictating how much they have to spend on Canadian productions, and how much of their programming line-ups should be Canadian. But those regulations don't apply online. “The impending arrival of Netflix in the Canadian on-demand market will fundamentally rewrite the rules of content distribution north of the border,” Carmi Levy, an independent technology and media analyst, said in an interview. “It's already forcing retail standbys like Blockbuster and Rogers into a defensive mode, challenging them to respond with all-you-can-rent promotions, simply to stay in the game.” Last week, Rogers Communications Inc. downgraded its broadband services, reducing the monthly caps on data that customers can download without surcharges. Some experts said the move is a reaction to Netflix’ arrival in the fall. Blockbuster announced in July its “Favourites Pass” service, offering unlimited DVD rentals for $9.99 per month. “While Canadian consumers will doubtless enjoy the heightened level of competition, our cultural industries probably have more questions than answers at this point,” Levy said. Norm Bolen, Canadian Media Production Association (CMPA) president and CEO, pointed out that online services like Netflix don’t face Cancon rules. “The decided several years ago to reserve the right to regulate , but they chose not to regulate at the time, because they didn’t see a need,” Bolen said. “They always have in the background the ability to bring back the issue of regulating the Internet.” But that isn’t likely, Bolen added. “I think it’s generally understood that, in terms of online services, the cat’s out of the bag,” he said. “I would be very surprised if there was any attempt to try to regulate an online service like Netflix.” Levy said he leaves the door open. “There’s no assurance the CRTC won’t, at some point, begin to look more closely at the involvement of non-broadcast players within our borders,” he said. Bolen said Canadian broadcasters tend to scoop up the online rights to programs without exercising them. That means producers can’t sell the rights to online service providers like Netflix. “If we could free up those rights and limit the length of the term that broadcasters can hold those rights, we would sell them to services like iTunes, Netflix, Hulu, and others that are inevitably going to be putting their services into Canada,” Bolen said. “We’ve been arguing very strongly that there should be ... terms of trade,” he said. “The CRTC has endorsed this in principle and has required all broadcasters, when they come to their licence renewal hearings next year, to have a terms-of-trade agreement with independent producers. But we’re having fundamental disagreements over what those terms of trade should be.” CBC spokesman Chris Ball told The Wire Report in an email that the broadcaster doesn’t hold online rights from producers. “In addition, the CMF adopted a new rule for 2010-11, which requires online rights to revert to producers if broadcasters have paid a licence fee for those rights, but haven't used them within 12 months of first broadcast," Ball said. Bolen said Internet service providers (ISPs) could also play an important role. The CMPA has argued for a system that would place a levy on ISPs, which carry services like Netflix. The proceeds would go to Canadian producers. But on July 7, the Federal Court of Appeal ruled that ISPs do not fall under the definition of broadcasting undertakings in the Broadcasting Act, putting to rest, for now, that argument. “We’re considering whether to take that to the Supreme Court ... Other countries like France have done this,” Bolen said. In a report on the North American film industry published earlier this year, PricewaterhouseCoopers reported that online video rental subscriptions would grow by 15 per cent across the continent in 2010. The company predicted growth in Canada will be higher than in the U.S. because the sector is new and starting from a smaller customer base. Levy said online services like Netflix could boost Canadian producers’ fortunes. “On the surface, this may raise alarm bells for those concerned with preserving Canadian content on the broader cultural landscape,” he said. “Look a little deeper, however, and you realize the arrival of a regulatory oversight-free player like Netflix can potentially improve life for long-suffering Canadian musicians, actors, producers and the like. More efficient content distribution broadens the stage on which their work can be seen, appreciated, rented and sold.” news@thewirereport.ca --- CORRECTION: An earlier version of this story incorrectly spelled Chris Ball's name.

Netflix to rewrite Canadian content distribution rules, experts say

Broadcast | July 30, 2010

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