Get yer grimy paws off my Netflix: Ottawa’s big OTT scam

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Canada’s (“frightened,” “alarmed”) media gatekeepers go on a rampage, led by the regulator

So… the CRTC holds sub rosa meetings in March with a roomful of interested parties about the growing “threat” of over-the-top (OTT) Web content. The same week, the Commons Standing Committee on Canadian Heritage issues its report on “…The Move Towards New Viewing Platforms,” a compendium of witness statements all arguing new viewing platforms are a threat to Canadians. Shaw e.g. warns (p.5) that “by consuming valuable capacity, over-the-top providers threaten to undermine our significant network investments and impact the quality of service offered to our ISP customers. Finally, consumers will ultimately suffer, with fewer Canadian choices.”

Many of the patriots who showed up for the Standing Committee hearings then become members of the OTT Working Group, alleged to comprise some 35 “industry executives” – we don’t know for sure since their activities and membership are secret, even though they are operating with the sanction of the regulator. They subsequently change their name to the Online Broadcasting Working Group (OBWG) – and with a stroke of the pen ensure that no one will construe OTT content for anything but broadcasting (what they call begging the question, i.e. assuming what is to be proved).

On May 25, the CRTC “responds to Netflix critics” (Wire Report headline) by issuing a notice of consultation – structured not as a formal “proceeding” but a “fact-finding mission” – a nuance with important implications, especially for Ottawa’s tiny consumer advocacy community. Now that the Netflix critics have got their official “fact-finding” exercise, the OBWG does us all a favor on June 6 by revealing who the group’s members are.

It transpires that the 11 announced members, over half of whom are from Quebec, all have a powerful vested interest in eliminating innovative, Internet-delivered OTT video services that, like Netflix, are un-Canadian and operate outside our regulatory framework for “broadcasting.” The group makes no public pretence of any kind that its composition accounts for the interests of consumers, nor that it plans to look for “facts” outside the confines of the members’ business interests. They are: ­Alliance
 of 
Canadian 
Cinema, 
Television
 and 
Radio 
Artists (ACTRA); 
­
Association
 des
 producteurs
 de
 film 
et
 de 
télévision 
du
 Québec
; 
Association
 des
 Réalisateurs 
et 
Réalisatrices
 du 
Québec; 
­
Astral
 Media; 
­
Bell
 Media;
­
 Bureau du
 cinéma 
et
 de 
la 
télévision 
du 
Québec; 
­
Canadian
 Media
 Production
 Association
­
 (CMPA); Peter 
Grant; 
­Society 
of Composers,
 Authors 
and 
Music
 Publishers 
of
 Canada
­
 (SOCAN); Stingray 
Digital; and 
­
V 
Télé.

Despite their secretive nature and preordained mission, the OBWG gets preferential treatment from the regulator – certainly when compared to potential intervenors who might argue against erecting anti-competitive barriers to Netflix and its ilk. Because this is not a proceeding but merely a fact-finding exercise, the CRTC turns down requests for intervener costs from both CIPPIC (Canadian Internet Policy & Public Interest Clinic: CRTC letter of June 1), and PIAC (the Public Interest Advocacy Centre: CRTC letter of June 13). CIPPIC asks for an extension to the deadline for comments; nothing happens. The OBWG asks for an extension; on June 8 the Commission extends the deadline to July 5 (in NoC CRTC 2011-344-2).

Now for a little editorializing.

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Saving the buggywhip industry so Canadians don’t go running around in a zippy new invention – like a car

Exhibit A – PIAC: “Commission staff notes that NoC 2011-344 is purely a fact-finding exercise and no policy or regulatory outcomes will be determined on the basis of this exercise.” Commission letter to PIAC, refusing intervener costs, June 13, 2011.

I call bullshit. First, I learn from PIAC that this denial of costs makes it financially impossible for them to participate. Costs for a proceeding can run as little as $3,000, up to as much as $150,000. In this case, the Commission has telegraphed that it sees zero value in a public-interest perspective. Netflix can look after itself; but it’s astonishing the Commission can find no rationale to promote some representation of the interests of us 800,000 Netflix subscribers.

Second, it’s the height of cynicism for the Commission to expect us to believe that this exercise will have “no policy or regulatory outcomes.” It will duly report that, after supposedly hearing all sides, they’ve been handed 5-year forecasts showing the Canadian broadcasting, production and distribution sectors will get killed off by OTT unless action is taken. What the hell else is the OBWG going to tell them? Then, sooner or later, we’ll see more protectionism brought into play, all in the alleged interests of the poor Canadian end-user, bereft of enough Canadian choices to nurture her soul and still fighting the heroin drip of Yankee programming. Sniff.

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Exhibit B – SOCAN: “SOCAN hereby files an application for an interim tariff, pursuant to section 66.15 of the Copyright Act (the “Act”), for the years 2007 to 2012 for the royalties to be paid for the communication to the public by telecommunication of musical works in SOCAN’s repertoire, in connection with audiovisual webcasts (Tariff 22.D) and user generated content websites (Tariff 22.G).” SOCAN Proposed Tariffs 22.D and 22.G for the Years 2007 to 2012: Application for an Interim Tariff pursuant to Section 66.15 of the Copyright Act; filed before the Copyright Board Canada, June 13, 2011. OBWG member.

If the Netflix “critics” have their way, two bad things will ensue: consumer choice will be reduced; and the prices for paid online content will rise. SOCAN is doing its best to exacerbate the latter problem. SOCAN is the copyright collective that licenses music for public performances and communication by telecommunication – which includes the Internet. (I helped write the first ever Statement of Fact on the never-ending Tariff 22, the “Internet tariff” – in 1995!)

SOCAN has been roundly criticized this week for trying to grab royalties long in advance of a Copyright Board hearing to establish whether its tariffs will even be approved (yesterday the Wire Report ran an article headlined “Swift, critical reaction hits at SOCAN’s interim tariff application for webcasting”). Here’s the double-whammy:

“In the case of both proposed tariffs, the targeted use is the Internet transmission of movies, television programs and other audiovisual content containing SOCAN’s musical works.  As of this writing, SOCAN’s understanding is that the principal users engaged in proposed Tariff 22.D activities include Netflix, Apple TV and Sony.” From the SOCAN tariff filing.

Some of the “critics” want to make it harder for Netflix to grow its market (and compete) by having a regulatory levy or “broadcasting tax” imposed on them – which might be passed on to subscribers, thus raising the current $7.99 monthly fee. SOCAN wants to pile on too, though for a different reason. They want to collect money from anything that moves on the Web. In the online marketplace, however, SOCAN likes to go after the biggest players, because they’re convenient to get at, as well as jointly and severally liable for the music they transmit (unless acting purely as a telecomm conduit). Yesterday Geist wrote that “Netflix alone appears headed to generate at least $50 million in revenues in Canada this year, resulting in a SOCAN payment of nearly $1 million/year” (SOCAN denies this).

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Exhibit C – ACTRA: “Canadian broadcasters are nothing more than simulcasters.” Ferne Downey, ACTRA National President, June 2 (press release). OBWG member.

The ACTRA position was issued in the wake of the announcement of the fall schedules by Canada’s TV networks. But it could have been written long ago, since ACTRA and its sister cultural lobbies have never felt the need to adjust their demands to changes in the real world. While reduced choice and higher costs for consumers are two of the possible risks of the OTT campaign, ACTRA represents the deeply misguided thinking that got us into this mess in the first place: the Internet is just another delivery platform for professional Canadian content, like the TV system, and the benefits it bestows belong to the tiny community that makes TV shows, movies and the like. Here’s what Ms Downey said two years ago in connection with the proceeding to review the new media exemption order:

Broadcasting is broadcasting, and the CRTC has a duty to regulate it, whether it’s on a TV, a laptop or a Blackberry. Failing to do so will mean less Canadian content and reduced Canadian presence in an era when we are already being submerged in U.S. content on our TVs, and now online.

So, like, the Web is TV on downers?

Here we have a great example of the profound inability of this community to understand that the Internet does not belong to them… that a computer isn’t just another dumb piece of furniture like a TV set… and that this platform is intensely personal and interactive, not another medium for consuming Being Erica.

Another conundrum is woven into the first quote above – that our broadcasters are mere simulcasters. Meaning they buy a great deal of American content, then take great pains to ensure they schedule every US show to air at the same time as on the US nets. Why? To take advantage of the CRTC’s simultaneous substitution rule, one of the cornerstones of our protectionist apparatus and an important revenue enhancer for the TV guys (and the reason you’re not allowed to watch the Super Bowl ads). What’s remarkable about the ACTRA denunciation of simulcasting is, to oversimplify slightly, that’s where ACTRA’s money comes from! Our whole system is set up to ensure that broadcasters cross-subsidize their paltry – and money-losing – efforts in domestic programming from the big bucks they earn from the Seinfelds of this world.

Now, of course, this time-limited business model is about to die, and our intermediaries are about to get disintermediated. So Ms Downey will only have to worry about the simulcasting affront to her members for another 2 or 3 years. Then we won’t need CTV to bring us Dancing with the Stars.

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Exhibit D – KvF: “Over-the-top is a very fast-moving phenomenon. It’s got people very frightened.” CRTC Chair von Finckenstein, June 1 (The Wire Report).

Yowza! Yeah, real scary – for a few hundred Ottaweanies. And what are the rest of us, chopped liver? Ottawa needs to stop talking like 800,000 Netflix subs are a pain in the ass and too stupid to know when we’re being submerged, exploited or frightened. This language is not just inflammatory; it’s also highly irresponsible coming from Canada’s chief regulator, whose job is to protect the public interest.

All the video I want to watch for $7.99 a month is a value proposition that makes me happy, especially relative to what the CRTC’s friends have been offering. Check out what 90% of Canadians have to pay each month to watch TV if they subscribe to a BDU. In 2009 (latest year), the CRTC reported in the 2010 Communications Monitoring Report (CMR) that the average Canadian sub paid $56.14 a month to watch TV – 7 times the cost of a Netflix subscription. Apples and oranges? Nope, not for those of us who don’t care about missing out on 8-minute local weather forecasts and channel packages that are 51% Canadian because the Deciders think they’re good for us.

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Exhibit E – CRTC: “In this notice, the Commission begins a fact-finding mission to provide parties an opportunity to provide data and to comment with respect to the implications of growing over-the-top programming in the Canadian broadcasting system.” Broadcasting and Telecom Notice of Consultation CRTC 2011-344, May 25.

The NoC lists eight considerations on which the Commission would like feedback. I’m singling out one (7th in the list) because of the light it sheds on how the Commission thinks about consumers: “the impact of the growth of OTT services on consumers.” This stems from the kind of backwards thinking we saw above in connection with Shaw, i.e. all this traffic is building up on ISP networks like the devil made us do it. Those OTT packets clogging our incumbents’ networks got there because they were requested by end-users. Contrary to the Commission’s idea that OTT services should be assessed by the impact they have on consumers, as though we’re sitting back waiting to be, uh, submerged and frightened, consumers have the agency here. The sad legacy of decades of protectionism is that the professional protectionists in Ottawa have long since stopped thinking about end-users as active agents in charge of their own destiny, who might not give a shit about Canadian content.

Sure, OTT services had to wait for a critical mass of residential bandwidth, along with other technical developments like constantly improving compression algorithms. But Reed Hastings wouldn’t be a rich folk hero today if Americans and Canadians thought his value proposition was a load of crap. What the Commission should be asking in item 7 is: What can we learn about consumers and what they want, the better to understand how they will influence the development of new online content services?

Next up: Exhibit F – Astral… Exhibit G – CMPA… Exhibit H – Peter Grant. And the 6 reasons why this fact-finding exercise is not in the public interest.

D.E.

4 thoughts on “Get yer grimy paws off my Netflix: Ottawa’s big OTT scam

  1. Pingback: What to do about vertical integration? Absolutely nothing « WordsByNowak

  2. Absolutely right on all counts. The Big 4 are scared of the giant wave they see on the horizon and they’re doing whatever they can to delay the inevitable.

    But in the meantime this doesn’t just keep us from watching tv on our computers (or elsewhere via Apple TV or something else) it actually stifles innovation at all levels. Why should some kid genius create a startup, particularly one based around video, if they’ll run into regulatory nonsense and artificial technical barriers?

    Long-term this kind of thinking will keep Canada what it’s always been….the dumb resource state everyone else relies on and innovates around.

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