In February, a group of executives from Canada’s telecommunications, broadcasting, TV production companies, as well as union leaders, formed the “Over the Top Services Working Group” to discuss an industry-wide strategy to what they refer to as Over the Top viewing, or accessing video content outside the channels they control: Namely, the Internet. More specifically, “Uhhh, this Netflix thing is for real.” On April 1, the group sent a letter to the CRTC asking it to reconsider its hands off approach to the Internet in the wake of the Netflix Canadian launch.

Canadian broadcasters are subject to a variety of restrictions as conditions of their licenses. Among them are the relative percentages of their broadcast schedules which must be dedicated to Canadian Content, and the condition that they contribute a percentage of revenues to the Canadian Media Fund, which subsidizes Canadian TV production. The Working Group is forwarding the argument that since Netflix is essentially acting like a broadcaster, it needs to be subject to some of the same conditions.

It strikes me as somewhat ridiculous, and it seems unlikely to me that the telcos and broadcasters are really interested in having Netflix regulated. Peter Nowak‘s guess is somewhat logical here, in that they are likely more interested in themselves being unregulated than Netflix being regulated. On the face of it, it does seem unfair that Rogers, Bell and Shaw need to pay hundreds of millions into subsidizing Canadian television production, while Netflix pays nothing and can outbid them for Canadian digital distribution rights. But given that regulating Netflix would probably prove impossible, loosening their own restrictions to enable them to better compete might seem a good compromise for Canadian media companies.

Reed Hastings at Netflix Canadian launch

Netflix - A 21st Century Canadian broadcaster?

First off, it’s worth asking if Netflix is a broadcaster. To me, this definition is changing, but Netflix is certainly not restricting itself to just being an online video store with a monthly membership fee. For instance, Paramount and Netflix struck a deal recently to offer a pile of the studio’s movies on Netflix. The most interesting aspect of the deal is that recent theatrical releases will be available to Canadian Netflix customers exclusively, content which usually shows up on the on demand offerings from cable and satellite providers. Even more significant is the news that Netflix is getting into the production game, announcing “House of Cards” a new series from The Social Network director David Fincher starring Kevin Spacey.

So Netflix is acting more like a broadcaster than Canadian media companies probably ever thought they would. Michael Geist does a good job in showing how in previous hearings, the media companies weren’t really too concerned about Netflix and others. They either didn’t see this coming, or severely underestimated the time frame in which it would happen. Netflix, and hopefully others, represent a new kind of media entity in Canada: It’s part video store, part video on demand and part broadcaster.

As an online video store where you can find unlimited movies for a monthly fee, the Canadian content regulations applied to a broadcaster’s schedule are impossible to enforce. I mean, what are they going to do, insist that 20% of what’s on offer is Canadian? That’s just stupid and it cripples the service. The theoretical inventory of Netflix is all filmed entertainment ever produced. Demanding a traditional Canadian content requirement on infinite inventory is ludicrous. Video stores are not regulated in this way. Neither are movie screens.

However the notion that at some point, Netflix might pay in to a fund to subsidize Canadian television production doesn’t seem as ridiculous. They’re making money in Canada, and might be subject to the same conditions that Bell, Rogers and others are. That is, depending on how you feel about the whole notion of subsidizing television in the first place. I have mixed emotions about it. I think it’s a noble policy goal to create jobs in the production sector and encourage the telling of “Canadian stories”, whatever those are. But I think it leads to the production of some pretty middling product, and wonder if the dollars are better spent elsewhere.

Netflix is pretty clear on the issue. They consider themselves an internet service, and have no interest in getting into some cultural debate.

Whether it’s Netflix, Skype, YouTube or other Internet video providers, an unregulated approach to the Internet is effective for consumers – Netflix spokesman Steve Swasey

As I said, I doubt these companies really expect the CRTC to do much, and are more interested in having their own restrictions loosened than seeking some sort of regulatory relief from competing with Netflix. But really, my sense is, this is a waste of time and resources. These companies need to wake up and realize that Netflix isn’t going away and that they need to develop their own Over the Top options in order to compete. Right now, the selection on Netflix in Canada isn’t great, but it’s getting better and more and more first run shows are going to start appearing there.

It’s possible that at some point in the near future, Netflix may start outbidding the Canadian networks for for Canadian rights to first run American network shows. It sounds crazy, but nobody thought Netflix would be paying $100mm to produce their own shows either. If the cash cows of the Canadian prime time schedule start migrating to Netflix, the broadcasters and the cable companies may be in trouble. I’m not sure Canadian consumers will care all that much though, so long as they can watch them somewhere.