The Netflix Squeeze

By Dwayne Winseck for OpenMedia.ca

Over the past month, Netflix seems to have been hit on all sides as a combination of things already in the works and new developments have come to a head, but all of which push in one direction: for it and other over-the-top video distributors (OVDs) like Apple and Google to be regulated like broadcasters.

Astral, Bell, Rogers and Shaw have all endorsed a letter from Astral CEO and former head of the CRTC, Andre Bureau, calling on the regulator to revisit the question of whether companies that distribute tv and films over the Internet can be regulated as broadcasters. The move appears to be partially driven by a desire to allay increasing worries amongst investment bankers and the international credit ratings agency Moody that tv over the Internet could damage traditional business models.

The latter appear especially concerned that those who have bet the farm on the idea that control the medium and the content going over it could be hit the hardest: Bell CTV, Shaw Global (Corus), Rogers City TV and Quebecor Media TVA.

The problem with this doomsday scenario, however, is that the tv business is not a zero sum game and all the evidence indicates that new services are helping to expand the pie rather than cannibalize the revenues of existing players. Indeed, the television business in Canada is more lucrative than ever, having risen sharply from $4.3 billion dollars fifteen years ago to about $6.8 billion today (figures adjusted for inflation).

Yet the push is coming from more than just entrenched interests and bankers. The Canadian Media Production Association’s has also appealed to the CRTC to regulate Netflix, while the Supreme Court agreed to hear a case from groups representing media workers who also want Netflix, ISPs, Apple, Google, and so on treated like broadcasters.

A Parliamentary Committee report last month and the CRTC’s upcoming reviews of its unpopular wholesale UBB decision and vertical integration have also brought the issues to a head.

Broadcasters in Canada finally made a concerted effort to launch substantial video portals in 2007/2008 (e.g., CTV.ca, GlobalTV.com, TVA.ca, CBC.ca), while offering a small selection of programs through Apple iTunes and YouTube. Now they seem hell-bent on doing whatever it takes to protect those stakes, including the following half-dozen tactics:

(1) use technical measures to throttle certain applications (e.g. the CBC’s 2008 Canada’s Next Great Prime Minister case and, currently, the multi-user online game, World of Warcraft);

(2) bandwidth caps and UBB that deter the use of online video;

(3) exemption of their own IPTV and OVD offerings from UBB and bandwidth caps, despite the fact that all use the same networks;

(4) refusing to allow large OVDs and other Internet companies to bring their ‘content distribution networks’ as close to users as possible (e.g. Apple, eBay, Facebook, Google, and Netflix);

(5) attempts to simply fold the OVD market into the suite of rights acquired for existing tv markets rather than competing with Netflix for new markets;

(6) a coordinated push by almost all of the major incumbents to have Internet-based video services regulated like traditional broadcasters. For anybody under the illusion that the Internet is unregulable, the incumbents will gladly point you to the following ‘regulatory toolkit’: ISP levies; extending Section 19 Income Tax Act Exemptions so that adverting on Canadian Internet sites can be written off just as it is for Canadian-owned newspapers, magazines and broadcasters; Canadian Media Fund contributions; Cancon Quotas, etc.

The battle over the essential resources of the media economy — networks, money and copyrights — has now been kicked into high gear. The substantial implications at stake, however, are often concealed by mind-numbingly boring technical language as well as a fog of sanctimonious rhetoric about cultural policy led by vested interests.

The arguments in favour of pursuing this agenda are not completely without merit, but as currently pitched dubious in the extreme.

First, as indicated above, given the massive expansion of the total television economy over the past fifteen years, there is little to no evidence to suggest that Canada’s major media conglomerates are in trouble (see here).

This is not necessarily the case, however, for the media workers who create content – tv programs, films, animated video, journalism, etc..  Despite buoyant production volume in the tv and film sector, significant jobs have been lost. The same is true in journalism. And in all cases, work has become less steady and more precarious.

Some measures might be taken to address their plight. The current push however uses a sledgehammer that that would not only wreck Netflix’s business model, but further set back the possibility of salvaging some semblance of an open Internet in Canada. What is need instead is a scalpel and some smarts instead.

Lastly, the folly of the ‘sledgehammer’ approach is immediately evident as soon as we ask what should be done about the new round of experiments coming out of Hollywood, where blockbuster films such as The Dark Knight are released through Facebook?

Do we regulate Facebook as a broadcaster too?  While I’m all for attending to the privacy issues that it has stirred up, Facebook and broadcasting? Obviously, there is no shortage of slippery slopes and pitfalls along the incumbents’ garden path. It’s time to cut another route.

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For more, see Dwayne's article The struggle for the future of media in Canada at theglobeandmail.com.

Dwayne Winseck is a professor at the School of Journalism and Communication, with a cross-appointment in the Institute of Political Economy, Carleton University, Ottawa, Canada. Dwayne has been researching and writing about media, telecoms and the Internet in one way or another for nearly 20 years, and wears a couple of hats: the first is that of a political economist of the media, telecom and Internet industries. A second is that of a media historian. He has recently been named “Chief Policy Blogger” at Open Media and take up the role of regular contributor to the technology section of the online version of Canada’s leading national newspaper, The Globe and Mail, beginning April 19, 2011.