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How the CRTC lost the internet TV war

by Jeffrey Oberman

18-Family_watching_television_1958Since the dawn of telecommunications, Canada has been concerned with protecting its national identity. Long before television, Graham Spry, a founder of the Canadian Radio Broadcasting Corporation (CRBC, later the CBC), said, “The question is the State or the United States.” Many felt that Canada’s very survival required maintaining its unique national identity by protecting Canadian content in the arts.

With the advent of radio, a medium that easily crossed the Canada-U.S. border, the Canadian government came to the conclusion that protecting our national identity needed to take the form of radio programming that was funded, produced and broadcast on airwaves controlled by a public corporation. To that end, the Broadcasting Act of 1932 created the CRBC with a mandate to establish a national broadcasting service and to monitor the entire broadcasting system. The fear that American programming would stunt Canadian culture led to a government policy of Canadianizing the mass media.

Initially the Broadcasting Act referred only to radio, but that changed with the appearance of television in Canada in 1952. In 1968, the Act was modified again to create the Canadian Radio and Television Commission, which later became the Canadian Radio-television and Telecommunications Commission (CRTC). With the proliferation of cable TV in the seventies, the CRTC tried again to control Canadian content by limiting the amount of non-Canadian programing allowed. This was relatively easy to accomplish: cable was a wire-based distribution system that could be monitored and supervised by the CRTC.

Satellite television arrives [/private]

At the dawn of the 21st century, with the introduction of the satellite and its ability to deliver thousands of channels without wires, television entered a new era. The CRTC legislated that broadcasters and distributors must be at least two-thirds owned and controlled by Canadian citizens and, in its ongoing effort to ensure the availability of Canadian programming, that all conventional stations, and most established specialty services, be required to air a majority of Canadian content in their schedules as a whole and in prime time specifically. American satellite provider DIRECTV was excluded from the Canadian market on the grounds that it could never conform to the regulations governing the amount of Canadian content.

In the vacuum created by the absence of U.S.-based satellite providers, and in response to the desire of Canadians to receive satellite television and the plethora of specialty stations available, Canadian telecommunication giants Bell Telephone and Shaw Communications filled the demand. With Bell TV and Shaw Direct, Canadians can legally watch the specialty programming available while being spared an overabundance of I Love Lucy episodes and, at the same time, having the privilege of being able to access Inuit TV and Newfoundland fishing reports.

In 2006, the CRTC issued a report to the Governor-in-Council on the future of the Canadian broadcasting system. As recommended by the report, subsequent legislation exempted television programming delivered through cell phones and other mobile devices from regulation. The internet, while not specifically mentioned in the 2006 report, has always been considered a mobile delivery system and has, thus far, existed without any direct intervention from Canadian authorities. And this is unlikely to change: China and North Korea are among the few countries that restrict their citizens’ access to the internet. This unrestricted ability to access online content will eventually end almost 100 years of government control of Canadian media content.

A large number of media providers have seen the future of content delivery – and it is the internet. What started as a fringe group of online junkies who wanted the world at large to be able to watch their videos on the Web turned into YouTube. That was the first volley in the war of cultural identity between the CRTC and the vast, worldwide library of content that could be delivered without any means of control.

According to legend, YouTube was created when two PayPal employees found it difficult to upload a video of a dinner party to share with other guests. In 2012, seven years after it was founded, 60 hours of video was being uploaded to YouTube every minute, and 800 million or so unique visitors per month were viewing 4 billion videos every day.1

YouTube created a way for people all over the globe to produce, share and distribute video content freely, without borders or control. Since 2006, when YouTube was acquired by Google, most of the monitoring done on the site has concerned intellectual property issues and not the actual content of the videos. It is this open environment and the free delivery of almost unrestricted creativity that has propelled YouTube and the millions who produce its content into the forefront of borderless entertainment. In December 2006, Time magazine wrote, “YouTube is to video browsing what a Wal-Mart Supercenter is to shopping: everything is there, and all you have to do is walk in the door.” In 2008, YouTube received a Peabody Award and was cited for being “a ‘Speakers’ Corner’ that both embodies and promotes democracy.”

The internet is truly the dawn of entertainment without borders. YouTube was the innovation that opened the eyes of many, including large, profit-seeking content creators and providers, to the power of the internet. The ability to deliver on-demand content – without the need for a hardwired connection to each end user – opened a whole new range of possibilities.

The same possibilities also opened up a whole new range of problems for the CRTC. In the new age of internet delivery, how could Canada set limits on the content available from other countries (read: the United States)? But for a few years at least, the question would remain theoretical, as YouTube content was largely what we would term “home videos.” The CRTC, in its mandate to encourage the growth of the Canadian film and television industry, was not especially concerned with four-minute-long videos of cats dancing in a bathtub. Even YouTube’s recent partnerships with mainstream content creators – NBC in 2006 and MGM, Lions Gate Entertainment and CBS in 2008 – allowed access only to viewers in the United States.

The future changes again

At the outset, even as it became increasingly afraid of losing control over content delivery, the CRTC still had a major asset: few people actually used the internet system to watch traditional entertainment. Even after YouTube began streaming select television shows, it was still necessary to use cable or satellite for mainstream television and the traditional media to watch movies.

And then came Netflix.

Netflix was founded in the United States in 1997 by veteran technology entrepreneurs Reed Hastings and Marc Randolph to rent and sell DVDs through the mail. Hastings was reported to have come up with the idea after he was forced to pay a $40 fine on an overdue videotape of the film Apollo 13. Five years later, Netflix was barely profitable and still fending off challenges from competitors in the movie rental business. Netflix had the advantage of an early start, an established distribution system and patents for its proprietary software programs. But the company realized that content distribution through the mail, although its bread and butter, was doomed to obsolescence.

In 2007 Netflix saw the light: the future of home entertainment was on-demand content delivered via the internet. It started by offering – initially free of charge to attract new members – streaming videos for viewing on a computer or Web-enabled device. The financial goal was to reduce costs by eliminating physical DVDs, warehousing and postage. Soon, independent producers were making their content available for streaming on Netflix, which allowed them to reach a wider audience than had previously been available using traditional methods.

The results were extraordinary. Freed from having to leave their homes to get a movie, and with access to a selection of content that dwarfed any video store, millions of people signed up for Netflix’s online distribution. According to a 2012 internet traffic report (by Sandvine), Netflix’s streaming service accounted for almost one third of all Web traffic. Netflix launched in Canada in 2010. A March 2013 survey (by Media Technology Monitor) indicated that 25 per cent of English-speaking Canadians have signed up for Netflix, up from 13 per cent one year earlier.

… and again

As Netflix’s market grew, the major television and film production houses began to raise their fees for the right to deliver content. It was time for Netflix, a distribution company with no previous production experience, to create its own content. This experiment in self-funded and self-produced television further changed the television landscape. Netflix’s production and distribution of series such as House of Cards – which received nine nominations for the 2013 Primetime Emmy Awards – and Orange is the New Black showed the entertainment world at large that successful TV shows were no longer the exclusive domain of the television networks. Netflix proved that anyone with the imagination, technical and artistic skills and funding could develop and produce television that people would watch – television that could be delivered over the internet, free from the encumbrances and regulations of government control.

A recent U.S. survey (by Belkin and Harris Interactive) found that 30 per cent of U.S. internet users would consider ending their cable plan and watching television exclusively online. The future of media content delivery is online distribution and an increase in the number of independent production houses, free from the networks’ control or influence, is inevitable. The new paradigm in entertainment will see content produced by anyone with the means and the artistic skills, wherever they happen to be in this world, being delivered to interested viewers, wherever they are, without the ability of any government to control or interfere.

With premium online content drawing viewers away from traditional television delivery systems, television in Canada will increasingly become an unregulated market. With the CRTC unable to limit the shows that Canadians can watch, our national identity will have to survive on the strength of existing cultural institutions, our shared cultural heritage and our common past – as well as the level of subsidy. In an internet age, Canadian television will have to depend on the quality of production, not on an artificial market in which broadcast time is dictated by policy rather than demand.

The future is here. Canadian television and film producers must accept a world without protectionist legislation. Netflix has proven that television is no longer limited to the networks. Canadian content creators can participate – but they will have to become more daring, smarter and more excellent if they are to survive.

 

Note

1  Reuters, January 23, 2012; New Yorker, January 6, 2012.

 

Jeffrey Oberman spent 25 years working in the real estate industry in Montreal before moving in 2006 to the Dominican Republic, where he divides his time between overseeing his corporate investments and participating in numerous nonprofit organizations.[/private]

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About the Author

Jeffrey Oberman
Jeffrey Oberman spent 25 years working in the real estate industry in Montreal before moving in 2006 to the Dominican Republic, where he divides his time between overseeing his corporate investments and participating in numerous nonprofit organizations.




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