The following is an articleI wrote that appeared in the Comments section of the Financial Post on September 30, 2014.
CRTC vs. Netflix: The disruptive power of the Internet
The government authority and justification in regulating broadcasting may be at play
On Sept. 19, in the course of its Let’s Talk TV public hearings into the future of Canadian television, the CRTC ordered Netflix to provide confidential commercial information to the CRTC by 5 p.m. Sept. 25. Netflix refused to comply. That refusal challenges the CRTC’s authority to regulate Over the Top services (those in which consumers receive programming directly from an Internet content provider).
The CRTC’s position is simple. The Broadcasting Act says all transmission of “programming” by any means is “broadcasting” and so subject to the jurisdiction of the CRTC. Under this theory, the transmission of programs over the Internet is subject to the jurisdiction of the CRTC and, should the CRTC choose to do so, Internet content providers could be regulated as “broadcasters.” Under this reading of the Broadcasting Act, all rental and streaming services (e.g. iTunes, YouTube, Songza) and all peering or sharing services (e.g. BitTorrent) are subject to the jurisdiction of the CRTC.
The CRTC, in 1999, adopted an exemption order that, as modified in 2009, defined “new media broadcasting undertakings” as ones that provided “broadcasting services” accessed over the Internet. The CRTC considers Internet audio-visual content to be programming and thus broadcasting. The exemption order requires that new media broadcasting undertakings submit information respecting their activities as required by the CRTC.
There is no reason to believe that an Internet-based content provider is subject to federal regulation
While Netflix has not yet exposed its legal reasoning, there are several arguments Netflix can present to contest CRTC jurisdiction.
The most obvious argument is simply that Netflix is not subject to the CRTC’s jurisdiction. Netflix has no presence in Canada, has no assets in Canada, and its operations are therefore not subject to Canadian legislation. Beyond this, Netflix has at its disposal a number of arguments that go to the heart of the CRTC’s claim to jurisdiction over the Internet.
First, the Broadcasting Act makes no distinction between linear broadcasting (broadcasting over the air, by satellite, cable or wire line networks) and on-demand services. Broadcasting is a transmission for reception by the public. The CRTC has maintained that a transmission made to an individual on demand is a transmission to the public. It remains open for a court to find that the CRTC has misinterpreted the definition of broadcasting and given itself a jurisdiction it does not possess.
The second argument rests on the constitutional division of powers. Broadcasting is not assigned to either Parliament or provincial legislatures under the Constitution Act, 1867.
Federal jurisdiction has rested on two grounds: the authority to implement international treaties respecting the use of radio frequencies and more, the authority of Parliament over undertakings connecting a province to another or to a foreign state.
When broadcasting was uniquely delivered by means of radio waves, federal authority was seen to be required to ensure an orderly development of broadcasting in accordance with a system of international agreements. When cable systems began to be a primary means of delivering programming, the reception and retransmission of radio signals continued to be the basis for asserting federal jurisdiction over those entities. Radio-based technology that spills over provincial and international boundaries permitted the federal government to regulate all aspects of the cable companies, even those portions that were, in effect, closed-circuit intraprovincial delivery systems.
The Internet poses real challenges to federal regulation in this regard. The Internet has permitted the separation of signals from delivery technologies. This fundamental truth about the Internet has real consequences in terms of who has authority to regulate and for what purpose.
Internet service providers, such as Netflix, do not control the transmission facilities that carry their signals. Customers reach Netflix through the facilities of their Internet service providers. The content provider merely sends signals to intended recipients through communications channels it does not own. The content provider is not an interprovincial or international undertaking: It makes no use of the airwaves, it has no satellites, it has no wires or fibreoptic cables crossing frontiers.
On this basis, there is no reason to believe that an Internet-based content provider is subject to federal regulation. The use of telecommunications common carriers places an Internet content provider on the same footing as a law firm that uses telecommunications services to deliver legal advice or an educational institution that provides courses by video-conference facilities.
Finally, opponents of CRTC regulation of the Internet as broadcasting may argue that the Internet is a technology that enables free expression of and access to speech to a degree unprecedented in history. Billions of transmissions of expression are made daily in every conceivable manner. The Internet is the greatest marketplace of ideas that has ever existed, permitting unmediated communication between people in all parts of the world.
The Broadcasting Act is a state intrusion into free speech, peculiar to the technologies of the 20th century. The propagation characteristics of radio spectrum in a pre-computer age justified intrusive regulation. When a limited number of radio frequencies were available, controls were needed to prevent license holders from imposing their political and social views on broadcasting audiences.
Today, any Canadian through a licensed broadcaster can purchase access to hundreds of television and radio channels.
The Internet expands exponentially access to free expression. When the number of voices that can be heard go from the hundreds to the billions, the rationale for content regulation becomes absurd. Seen in this light, the application of the existing Broadcasting Act to the Internet constitutes a huge expansion of government regulation from those imposed on a few privileged license holders to the regulation of everyone, since everyone can be a content provider on the Internet.
In the Internet age, even a light touch attempt to apply the Broadcasting Act to the Internet may constitute a violation of the freedom of expression guaranteed by s. 2(b) of the Canadian Charter of Rights and Freedoms.
The regulation by the CRTC of Internet content services will have to be addressed by the courts or by Parliament. The disruptive power of the Internet challenges not only the current business model of broadcasting in Canada but, more fundamentally, the authority and justification for government regulation of broadcasting.