When will the CRTC Assert Jurisdiction over the Internet?


The CRTC has backed off from attempting to enforce its claims to jurisdiction over Netflix and Google. The broadcast regulator has lived to fight another day. The question that poses itself as a result is: if not now, when will the CRTC fight to assert jurisdiction over Internet content providers?

palmer lawyer ottawaIt seems obvious that a fight with Netflix and Google are a bit premature. Neither is offering prime time television nor first run movies. Netflix is not competing for advertising dollars against licensed incumbents. Google advertising dollars are as likely diverted from print medium as from television or even radio station licensees. They thus represent indirect threats to the tight loop that is the economy of broadcasting in Canada.

My guess is that the issue of CRTC’s claim to have the authority to regulate the delivery of programming content over the internet is likely to arise only when there is a move that threatens to break the rice bowl of licensed broadcasters.

There are many constraints that protect the markets of Canadian broadcasters. The central one is the purchase of the rights, geographically restricted to Canada: to broadcast programming through regular scheduled broadcasting (CTV, CBC, TVA and premium cable channels), through on demand programming (HBO Canada, TMN, etc.), or through the new Internet streaming services recently announced by Rogers and Shaw. It is the access to quality product that is the essential limiting factor to the ability of services such as Netflix to seriously challenge the economic model of the incumbent broadcasting licensees.

So, how can the rice bowls be broken? I see one of two scenarios in which the CRTC would be forced to attempt to intervene by asserting jurisdiction to regulate programming on the Internet.

In the first scenario, an Internet program streaming service is established by a Canadian and sets up in competition to licensed broadcasters by buying up the Canadian rights to first run movies or prime time quality programming. Obviously, anybody seeking to outbid the licensed incumbents would have to have very deep pockets indeed. However, should such a competitor emerge, then the potential drain of revenues from the licensed system would demand that the CRTC assert jurisdiction to attempt to enforce a “level playing field” between the incumbents and the newcomer. This would involve demands respecting Canadian content and paying into Canadian production funds: the full panoply of measures that makes the money go around in Canadian broadcasting.

A second scenario is, to my mind, more likely to arise. In the second scenario, companies like Netflix begin to purchase world rights or the North
American rights to first run films and quality prime time worthy programming. In this scenario, greater and greater numbers of the Canadian television audience migrate to the foreign streaming service. Advertisers reduce their advertising buys from licensed Canadian broadcasters, and gradually the capacity of the Canadian broadcasting system to sustain the revenues necessary to pay for Canadian productions and for high quality foreign (mainly US) programs is eroded. At some point, a licensed broadcaster will surrender its licence, take its program inventory, and move entirely online, where it will not be subject to costly content rules and contributions to Canadian production.

In either of these cases, the CRTC will have to act to assert jurisdiction or declare the game over. If the latter, then licensed broadcasting becomes rather like local radio with a mix of local news, local advertising, syndicated programs, and pre-packaged content. It may still be a profitable business in a small way, but it will not be an engine for producing significant dramas, comedies or news programming. So, my guess is that the CRTC will fight to regulate the Internet when the first rat deserts the sinking ship of licensed broadcasting. Ultimately it will be for Parliament to trim the Broadcasting Act to its proper limitations, or for the courts to rule on the assertions of the CRTC to regulate “Internet broadcasting”.

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