'In the line of fire of the CRTC'; TV rights-holders and distributors turn critical eye on U.S. online-content provider
Netflix Inc., in manoeuvring to become a sustainable player in the Canadian market, is drawing the ire of some within the domestic television industry and perhaps the attention of regulators.
This week, the high-flying California-based onlinecontent provider nabbed the exclusive rights to marquee movie titles from Paramount Pictures, while lowering the data loads it sends across the Web in a bid to prevent Canadian customers at risk of blowing past tight monthly bandwidth caps from dropping the streaming service.
The basic image is slightly inferior but can be upgraded if users choose. It is a risk Netflix deems worth taking in order to continue attracting subscribers and allowing the firm, which launched in Canada last fall, to finance more rights acquisitions for its domestic catalogue.
"As the subscriber base grows, we can afford to get more content," Reed Hastings, Netflix's CEO, said in an interview Tuesday.
The firm's offensive here, however, is having an increasingly disruptive impact on the traditional industry, for both content rights-holders such as Astral Media Inc. and their television distributor partners, such as Rogers Communications Inc.
As Netflix scales up from a complimentary service to television into potential usurper, some have begun questioning how the existing rules of the Canadian broadcast system should apply to it.
"Netflix is now securing exclusive distribution rights to content in Canada, and it's selling subscription-based access to this content to households. Therefore, they are acting as both a pay TV operator (such as Astral) and a cable company (such as Rogers). Fine and dandy, except that in Canada both pay-TV operators and cable companies need to be Canadian-owned and licensed by the CRTC," one Bay St. source said.
"Netflix does not meet these requirements and it does not pay the fees to support Canadian content that legal providers in Canada pay."
Firms such as Astral and Rogers, as well as Bell Canada, Corus Entertainment Inc. and other major stakeholders in the Canadian broadcast system combine to contribute about half a billion dollars a year to support media productions through vehicles like the Canada Media Fund.
Netflix and other emerging online-streamers are not bound to contribute one nickel at present because they deliver content entirely over the Web, a medium the Canadian Radio-television and Telecommunications Commission has by and large left untouched.
Meanwhile, if the company's goal of reaching one million Canadian subscribers by the summer is met, just under $100 million of Netflix's $2 billion in annual revenues will come from Canada, flowing directly to the firm's California headquarters.
Some industry sources suggest Netflix and others like it may be on a collision course with the CRTC.
"Selling old movies is one thing, but competing directly for first-run movies and TV shows will surely put Netflix in the line of fire of the CRTC," one industry watcher said. "At a minimum, they will incur extra costs to comply with Canadian regulations, and they will need to set up a Canadian subsidiary that is controlled by Canadians."
Hastings does not take a position either way on the company's obligations other than to say the firm is "generally not a fan of subsidies."
He also noted the company's participation in an invitation-only industry forum that Canadian regulators hosted last week in Ottawa.
Netflix Inc., in manoeuvring to become a sustainable player in the Canadian market, is drawing the ire of some within the domestic television industry and perhaps the attention of regulators.
This week, the high-flying California-based onlinecontent provider nabbed the exclusive rights to marquee movie titles from Paramount Pictures, while lowering the data loads it sends across the Web in a bid to prevent Canadian customers at risk of blowing past tight monthly bandwidth caps from dropping the streaming service.
The basic image is slightly inferior but can be upgraded if users choose. It is a risk Netflix deems worth taking in order to continue attracting subscribers and allowing the firm, which launched in Canada last fall, to finance more rights acquisitions for its domestic catalogue.
"As the subscriber base grows, we can afford to get more content," Reed Hastings, Netflix's CEO, said in an interview Tuesday.
The firm's offensive here, however, is having an increasingly disruptive impact on the traditional industry, for both content rights-holders such as Astral Media Inc. and their television distributor partners, such as Rogers Communications Inc.
As Netflix scales up from a complimentary service to television into potential usurper, some have begun questioning how the existing rules of the Canadian broadcast system should apply to it.
"Netflix is now securing exclusive distribution rights to content in Canada, and it's selling subscription-based access to this content to households. Therefore, they are acting as both a pay TV operator (such as Astral) and a cable company (such as Rogers). Fine and dandy, except that in Canada both pay-TV operators and cable companies need to be Canadian-owned and licensed by the CRTC," one Bay St. source said.
"Netflix does not meet these requirements and it does not pay the fees to support Canadian content that legal providers in Canada pay."
Firms such as Astral and Rogers, as well as Bell Canada, Corus Entertainment Inc. and other major stakeholders in the Canadian broadcast system combine to contribute about half a billion dollars a year to support media productions through vehicles like the Canada Media Fund.
Netflix and other emerging online-streamers are not bound to contribute one nickel at present because they deliver content entirely over the Web, a medium the Canadian Radio-television and Telecommunications Commission has by and large left untouched.
Meanwhile, if the company's goal of reaching one million Canadian subscribers by the summer is met, just under $100 million of Netflix's $2 billion in annual revenues will come from Canada, flowing directly to the firm's California headquarters.
Some industry sources suggest Netflix and others like it may be on a collision course with the CRTC.
"Selling old movies is one thing, but competing directly for first-run movies and TV shows will surely put Netflix in the line of fire of the CRTC," one industry watcher said. "At a minimum, they will incur extra costs to comply with Canadian regulations, and they will need to set up a Canadian subsidiary that is controlled by Canadians."
Hastings does not take a position either way on the company's obligations other than to say the firm is "generally not a fan of subsidies."
He also noted the company's participation in an invitation-only industry forum that Canadian regulators hosted last week in Ottawa.