Thursday, April 28, 2011

Opening The Netflix Can Of Worms

netflix can of worms

Throughout the last months, Canadian broadcasters, cable and satellite companies, independent producers and Creative Guilds have all requested that the CRTC step in to regulate the first over-the-top video provider to make significant inroads into Canada -- Netflix.

For those unaware, Netflix is an internet streaming service which offers (for a subscription fee of $8/month) several thousand movie and TV titles that can be viewed on televisions, computers, various mobile devices and cellular phones.

In the strictest terms, Netflix is not a broadcaster and therefore not bound by CRTC regulations.

It doesn't send the same program to all its subscribers at the same time, doesn't schedule, doesn't run or sell advertising, doesn't do news, sports, weather or local programming. Basically, all they do is deliver as much video content as their customers wish to consume.

They also don't take up channel space, nor do they intrude on the frequencies and spectrum which the government has generously provided to traditional Canadian broadcasters.

Netflix also doesn't enjoy any of the protections and benefits our Government provides to Canadian broadcasters in the form of:


genre protection

expanded commercial time

development funding

production funding

funding for program acquisition

multiple windows for achieving Cancon requirements


looking the other way while broadcasters repeat the same programming over multiple platforms which are all separately billed to customers unable to unbundle all the unwanted or unwatched channels carrying them.

At the moment, 71% of the cost of all Cancon is paid by Canadian taxpayers and consumers, who then pay again to access that content via cable, satellite, additional channel bundles, the internet and wireless services.


Netflix doesn't have Canadian content requirements or make the financial contributions Canadian broadcasters and cable & satellite companies are required to make for its production.

So while arguing that they themselves should be allowed to decrease their own Cancon commitments, our broadcasters are demanding that Netflix be required to increase theirs to some CRTC proscribed level and pay into the Canadian administered production funds.

Probably so they don't have to fork over as much of their own money.

Independent Canadian producers are all for this because the funding provided to and distributed by the Canadian Media Fund through the current system is virtually the only production money any of them are able to raise.

And Canadian Creative Guilds are likewise onboard because increased Cancon or another revenue stream feeding the current funding system seems bound to ensure their artists keep working.

Even if past history doesn't support that argument.


Netflix contends that it isn't a broadcaster, merely an online video rental service from which consumers pick and choose what they'd like to watch when and where and on whatever platform they want to watch it.

They point out that they already carry a large number of Canadian titles for which they have purchased streaming rights from the Canadian producers (many of whom are among the very broadcasters and producers now aligning against them) and they intend to purchase (and fund the initial production of) many more.


Indeed, when you log into Netflix in Canada, you are immediately introduced to Canadian titles. No endlessly searching the TV dial during any hour of primetime as you do with channels belonging to Bell, Shaw, Rogers and occasionally the CBC.

And about the only negative thing they've had to say about their foray into the Canadian market (despite being immediately constricted by revised streaming speeds and download caps to discourage prospective customers) is that the fees Canadian ISPs have instituted to protect their broadcast divisions are greatly inflated. ie: The extra gigabyte Shaw or Rogers insist they must charge $2 to $5 for actually costs those ISPs less than a penny.

We could get into a long and complicated discussion about whether Netflix contributing to Cancon funding would increase the production of comedy, documentaries and drama in Canada. It might well do that since most of what the broadcasters currently spend goes to cheap reality and information programming.

But since any Netflix contribution would go into a funding pool that the broadcasters ultimately control, there's no guarantee it won't also be used for what best suits their own needs instead of what Netflix subscribers (or anyone else) might want.

Or perhaps more accurately -- it would go toward the continued funding of films and programming the vast majority of Canadians have already overwhelmingly rejected by their television viewing choices and at the box office.

As always, however, the final refuge of scoundrels remains patriotism and our broadcasters are predicting the demise of home grown programming if Netflix isn't brought to heel. In the end, all these arguments really boil down to who's making the money and little else.

Bell, Shaw and Rogers own virtually all of the broadcast networks negatively impacted by competition from Netflix. They own the Video on Demand systems which charge up to $5.99 for some of the same single titles accessible for $2 more on Netflix while the consumer continues to receive everything else he or she wants to watch for the rest of the month…

On their TV…

On a computer or iPad…

On a mobile phone.

And up to now, our media conglomerates thought they were in the catbird seat when it came to selling access to the American and foreign made movies and television series for which they held the Canadian rights via the Internet and wireless services they also own.

But now Netflix is repeatedly end-running our media giants. They've commissioned exclusive dramatic content for the Canadian market. And they've signed deals to stream all the product now being distributed by Paramount, Lionsgate, Sony, MGM and Warner Brothers. 

Moreover, they are aggressively buying up such popular titles as "Mad Men" paying that show's producers $75 Million for streaming rights alone.

The Netflix message is clear. Make programming people want to watch and we'll buy it. Continue to make the cheapest possible shows that serve the parochial biases so often encased in traditional Cancon and you will no longer own a competitive option for the consumer.

The hard truth for broadcasters and the current Cancon bureaucracy is that Netflix strengthens content creators in their dealings with broadcasters; and especially those broadcasters unwilling to alter outdated models of content delivery.

Add to that the 69% quarterly growth in Netflix subscribers and it is clear that Canadians are no longer buying the sanctimonious rhetoric about "culture" they've been fed for generations.

And should the CRTC attempt to regulate Netflix, it opens a very complicated can of worms with regard to other Internet services.

Amazon, Apple, Google,  Best Buy, Walmart, Dish Network and DirecTV have all either launched or announced their intention to provide similar services.

Will the CRTC try to regulate all of them, set Cancon levels and extract tithes for access to the Canadian market? In reality, nothing is stopping them.


But then, why were such conditions never applied to Blockbuster or any other brick and mortar video rental service that competed with and pilfered viewers from the broadcasters -- for decades?

What about Netflix's Canadian imitator in the snail-mail department, Why has there been no call for them to require subscribers to rent a certain percentage of Canadian films? Where's the call for them to write a cheque to fund the next Paul Gross movie?

Why haven't broadcasters screamed about iTunes or AppleTV -- or is that silence caused by a pricing structure that just doesn't threaten them as much?

Or maybe are Bell, Rogers and Shaw a little more careful not to attack Apple and Google and others who create the hardware and technology they require to allow their internet and mobile customers to access content?

If they did, would it surprise you if Apple simply added a surcharge to Canadians buying an iPhone to recover their Cancon contribution?  Kind of an iPod tax in reverse. Maybe even "in addition to" an iPod tax if that idea ever flies as a way to "support" Canadian content creators.

Could our broadcasters be doing any more to drive the country further into the digital backwaters?

And what do we do about Facebook and Youtube?

dark facebook

This week, Youtube made a Netflix style streaming deal with 20th Century Fox. Meanwhile, Facebook is already experimenting with online viewing of "The Dark Knight", "Yogi Bear" and "Harry Potter and the Chamber of Secrets".

Facebook members outside Canada can already access these films paying not in cash -- but with their earned Facebook "credits".

Canadian Media Producers Association President Norm Bolen has already indicated Facebook is following Netflix's lead -- and therefore might also need to be regulated.

 norm bolen

Bless Norm's Cancon branded heart, but I often get the feeling he spends his weekends trolling local Mom & Pop stores to suggest they should add a few Canadian titles to the ethnic foreign fare typically found shelved where the cigarettes used to be -- and maybe slip a few bucks to the Canadian Media Fund to boot.

But how does one even begin to determine which of Facebook's multiple services require how much more Cancon? And what's classed as certifiable content in that forum to begin with? 

Moreover, how do you extract fees from a service that awards "credits" for purchasing movie streams by trying out games or "liking" humanitarian causes?

And perhaps more to the point -- what good does it do anyone if all these Internet services are forced to carry a percentage of Canadian content, but the audiences are constantly encouraged to watch American programming -- y'know like all the Canadian broadcasters do?

Or is the CRTC only concerned about movies and television and not shared music, animation, print material, games, photographs, etc. etc. etc?

You might be able to catalogue what percentage of the videos on Youtube are Canadian (or created by Canadians working outside the country in places -- well, like Hollywood). But Youtube has expressed an intention to also get into streaming the news.

royal you 

Doesn't a stream of the Royal Wedding potentially threaten a traditional Canadian broadcaster's audience numbers and revenue as much as streaming a movie?

Shouldn't Youtube have to cough up some dough to help the CBC pay Peter Mansbridge's airfare and salary?

And what about UStream? Both they and Youtube will be live streaming the next shuttle launch.


And if we do require Youtube and others to soften the blow of taking Canadian news junkies away from CBC, CTV and SUN-TV, could an argument be made that somebody needs to come up with some cash at the Drudge Report, Huffington Post and every other news aggregator and newspaper provider available on the Internet to support Canadian newspapers and journalists?

Shouldn't Grooveshark and Pandora have to kick some cash into funding Canadian music and be required to make more of it available?

What about the thousands of internet radio stations now accessible to Canadians via both aggregators and individual radio sites. The CRTC regulates radio too. Don't those people deserve the same protections demanded by our constantly coddled television re-broadcasters of American content?

Does anybody even want to begin cataloguing the tens of thousands of Internet porn sites selling subscriptions to Canadians who could be buying the same titles from the VOD services of Shaw, Rogers and Bell.

What's the matter, respectable Media behemoths, didn't want to mention that "X-tube", "YouPorn" and "Little Anal Angels" was carving off as much or more of your revenue as Netflix?

I can see Konrad now -- ordering in the big bottle of hand sanitizer before his next in-camera with Mirko Bibic or Keith Pelley.

Anyway, offers a subscription rate competitive with what it costs Canadian viewers to access all of the Canadian TV sports services carrying Major League Baseball. and do the same in their respective sports.


If we're going to require Netflix to carry Cancon and offset the broadcasters' funding contributions to drama, docs and comedy, shouldn't these websites have to kick in a few bucks to make sure the guys on TSN never run out of hair gel?

Or do Canada's sports broadcasters not want to piss off any of the real sports leagues so they end up presenting poker 24 hours a day instead of just 20?

Cheap alternative services have already led thousands of Canadian customers to cut the Cable umbilical. It's certain that advertisers will soon be right behind them.

Clearly, what's needed is not a new level of protection for broadcasters, but a new way of financing Canadian content that isn't predicated on supporting an outmoded and clearly dying business model.

Perhaps funding needs to be allotted directly to producers, allowing all the networks (and even Netflix) to bid for what they feel best serves their audience.

Perhaps we need to issue funding on a "merit" system, where if your last production failed to recoup and repay the fund, you don't get to go back to the well a second time -- replacing a system where failures are funded year after year after year.

Maybe we need to re-institute the "Bad-old" tax deferral days of private investment in media that encouraged private citizens to support film and television production. Only this time, instead of the government overseers rubber stamping all the corrupt practices, they could just do the job they were supposed to do and criminally charge anybody found gaming the system.

Come to think of it, maybe a few of those folks at the CRTC should take a look at the myriad of ways our broadcasters "game" the current system to see if their regulations are being implemented in the spirit in which they were intended.

For example…


What would our broadcasters do if Netflix and its imitators outbid them for all those old Canadian shows that are endlessly repeated across multiple channels and formats?

If "The Littlest Hobo" still counts as a half hour of 100% certifiable Cancon, long years after almost every artist (and certainly all the dogs) involved in making it are dead -- wouldn't Netflix similarly qualify? And by spending an equal pittance to show their commitment to Canadian culture too!

What's more -- there's a ton of 100% Cancon in the horror and thriller genre which has never been broadcast on conventional television here. God knows that's both a potential goldmine for Netflix and all those who made it in the first place.

And wouldn't such an MO, which is how virtually every Canadian broadcaster actually achieves their required levels of content, mean that regulating Netflix could end up hurting Canadian broadcasters by forcing them to spend more money on more up-to-date content?

From where I sit, Netflix could be the weapon by which we finally bring down an oligopoly which has always found ways to avoid making Cancon, avoid having to pay for or promote it, while forcing Canadians to pay higher cable and mobile prices than the rest of the world.

These guys have had 40 Years to create unique Canadian content. They've had almost 10 years since this digital revolution was becoming clear to anybody paying attention. There's no more need to protect their lack of foresight and provide the "level playing field" they fought to deny Windmobile and Techsavvy to make sure they didn't have to compete for customers.

Perhaps it's time for the CRTC to stand aside and force everyone in the Canadian film and TV industries to start thinking progressively and find competitive and innovative models that produce legitimate Cancon that meets a real audience need instead of what suits our own selfish purposes.

Because if we don't begin to make our own content, content we'll stand behind and promote like crazy, content designed to entertain and inform an audience, then pretty soon some bright light will come along with the "grey-market satellite dish" version of connecting to Netflix that will give Canadians access to anything they want to stream online and render our unending protectionist measures moot.

Oh -- wait -- somebody already has.


Anonymous said...

This article makes four points that just don't sound right. First, it says that Canadian broadcasters want to reduce what they have to "fork over" to production funds. Second, it says that Netflix isn't a broadcaster any more than video stores or mail-order services. Third, it wonders why the CRTC is concerned about movies and television and not shared music, animation, print material, games, photographs, etc. etc. etc. Fourth, it says it'd be darn difficult to figure out what to do about Youtube and Facebook and all the other sources of online video.

The first point is wrong. Broadcasters don't pay into production funds. Carriers, and on-demand services, do.

The second point is also wrong. Netflix is a broadcasting undertaking subject to the Broadcast Act. Video stores and postal services aren't.

The third point should be obvious. The CRTC is concerned with video and audio, because that's what its mandate is under the law. Includes shared music and animated programming. Doesn't include print material, photographs, etc., etc.

The fourth point is confusing. The companies that run these services, including Apple and Google, don't have any problem determining how much money they pull in every year selling video (and audio) content to Canadians. In fact, they watch it pretty closely, and a lot more frequently than annually. Not sure why it would be complicated to report this.

But the basis thesis is right. Deregulate the market, and it's the content owners -- in particular, the ones with the higest-value franchises -- who hold the bag. He who owns the blockbuster gets to set the rules. That's not new, though: it's always been true, and it's why virtually every Western country except the U.S. has explicit rules that look a lot like Canada's. To be sure, we can go a different way in this country by following the U.S. and give it over to the blockbuster owners: all the rules, without any of the Hollywood. In which case, pack your bags, creators, 'cause bright lights beckon. It was nice knowing you.

Anonymous said...

Week after week you top yourself with your new posts.

The media climate is very similar over here, in the Nordic countries.

Keep posting and keep up the good work.


jimhenshaw said...

Anon 1, thanks.

Anon 2, thanks for shilling for the broadcast cabal.

1. Canadian Broadcasters pay license fees toward production which have declined to the lowest level in the English speaking world since the advent of tax credits and cable subsidies.

2. Netflix by the CRTC's own admission is not subject to the broadcast act. But knuckling to the demands of our broadcasters as they always do, now they're considering it.

3. My point re: facebook should be just as obvious. Since facebook is a multi-media delivery system how do you regulate only the video and audio portions for Cancon? Will access to those materials alone be stripped from Canadian users access? If one government agency steps in to regulate one aspect of facebook will others be pressured to protect our culture from the other influences present?

Will I be banned from receiving updates from anyone posting something non-Cancon if the site is hovering below its dictated level of Canadian content?

What kind of Big Brother style operation will be required to monitor all websites feeding into Canada and make sure they are in compliance?

It's a whole new world, Anonymous, one where some new ideas are required, not dogged loyalty to formats that can no longer be protected.

4. All markets, whether free or heavily regulated, still have issues to be sure. But the system you support has not managed to create a sustainable Canadian industry and has, in fact, driven those most capable of assisting it away.

Surely you can't want to continue a system that refuses to give Canadian audiences what they want and blocks the attempts of anyone who does.

Christa Schadt said...

Jim, you are a great writer and so to the point! I don't think any could have summed it up better. I will be sure to spread this post to everyone I know.

The Canadian Broadcasters and Cable Cabals along with their lackey the CRTC have been abusing their power for too many years. Being one of those independent producers who relies on the whims of Broadcasters I am all for a change. Places like should be encouraged. The public should have a say and the actual PRODUCERS if content should be rewarded not the Cabals.

In the past we have been involved with private funders like the Soros foundation (now incorporated with Sundance) and I have to say what a breath of fresh air. Instead of having to fill in reams of forms in triplicate to get our money it was transferred directly into our bank account! All we are doing is paying for government jobs up the yin-yang where accountants who go over our spending with a fine tooth comb get paid more than the people who actually produce something that might be worth watching.

If there is a producer's revolution I will join. If Netflix can bring the Cabals down I will cheer. And if I can see a gel-less TSN sports announcer I will laugh.

Howard Bernstein said...

Genius...Jim you are so right...keep on ranting, I love it.

jimhenshaw said...

Thanks, Howard. Praise coming from one such as you is humbling.