Since the introduction of Netflix to the Canadian market in September 2010, online television distribution, known as “Over the Top” (OTT) services, have expanded rapidly at a rate of over 25% per year in Canada, becoming one of the main distribution systems for home entertainment. However a 2012 article by Michael Rimock in the Canadian Journal of Law and Technology points out that since OTTs fit under the CRTC’s new media exemption for internet-based content, they are not subject to regulation the way broadcasters are, despite their increasing presence.
A 2012 CRTC report acknowledged the growth of OTT services, but recommended that Canadian broadcasters respond by moving aggressively into the OTT space rather than creating a new regulatory category for internet media. Rogers and Shaw attempted this in the past few years with their OTT service Shomi, which has since failed, but Bell’s CraveTV continues to grow.
At the end of 2016, Netflix and Amazon Prime announced that they were expanding their service into virtually every country in the world, with Netflix in 190 countries and Amazon Prime in 200. With OTT services now becoming truly global in scope, how will Netflix and Amazon simultaneously deal with the media regulations of every government in the world and how can Canadian content producers and distributors continue to compete?
A recent article by Brian Barrett, a senior writer at Wired and former Editor in Chief at Gawker Media answers the first question with two words: original content. If OTT services invest in creating their own shows, a significant amount of work around licensing the rights to stream movies and shows by other producers eventually gets cut out as more and more content is added directly by the provider. A previous example is Comcast’s purchase of NBC in 2009 where a major broadcaster bought a major content producer to gain greater control of the media supply chain.
Over the past 5 years Netflix and Amazon have done just this, growing their library of original TV shows and movies. Bell has begun to produce its own shows through CraveTV, signalling an adoption of this model in Canada. The effect of a distributor owning its own content is that it makes licensing unnecessary, as a single entity now owns the rights to the content in perpetuity and therefore can distribute them without need for a license. This saves time and money and simplifies the supply chain of delivering content but it also signals a major shift that concerns media creators and distributors around the world.
If more and more content that people want to consume is produced by OTT distributors, then the ability of Canadian media companies to get licences for in-demand shows becomes far more difficult and will cut them out of the supply chain. Bell currently has licences for HBO and Showtime, two popular US content producers, but both have their own small OTT services, HBOgo and Showtime Anytime. The first is currently available in Canada with a licence through the Movie Network (a subsidiary of Bell), the second is currently only accessible in the US. If the big OTT’s gamble on content creation pays off, these content creators may try to grow their own OTT presence globally rather than keep selling licences.
While it is clear that Canadian distributors need to focus on content creation, it is also important that this content be marketable outside Canada. The federal government has affirmed a commitment to move from “focusing on growing the domestic market” to “capturing a greater share of global markets” in a recently commissioned Heritage Canada consultation report titled “Canadian Culture in a Digital World”. Heritage Minister Mélanie Joly told the Globe and Mail in 2016 that the biggest challenge for content producers is “finding better ways to export the material on digital platforms around the world”. The article noted such a review of CanCon rules is a major upheaval not seen in 25 years.
The move to global OTT services signals an increase in demand for high-quality content and a reduction in the barriers to distributing content to other markets. Canada is well positioned to profit from this change, if it allows it creators and distributors the freedom to create shows that are compelling to global audience, not just a Canadian one.
Roger Angus is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.
3 Responses
This is an interesting overview, but it erroneously attributes content creation to the distributors and ignores the fundamental problems facing content creation in Canada: unequal bargaining power between independent producers and a funding system that privileges the Canadian broadcasting industry.
Independent producers create Canadian content. The broadcaster/telco/distributor/ISP is merely a conduit for that content that provides license fees that trigger funds and tax credits. Canadian producers could use Netflix or any of these international services if the funding system allowed for licensing fees from Netflix and Amazon to trigger funding.
While we can talk about CRTC new media exemptions (and their extensions) and the new for content distributors to focus on content creation, we also need to focus on the terms of trade between the independent production sector and the Goliath vertically integrated broadcasters. Terms of trade enable producers to get compensated for the rights for programs that they produce, and also other negotiation benefits. Under Konrad Von Finkelstein, the CRTC did support in the last wave of large consolidated English broadcasters to adhere to the terms of trade. But Jean Pierre Blais quashed this requirement. Now that JP is on his way out, and the government must appoint a new head, we must ask will terms of trade become a discussion piece once more? Or will the producer’s voice matter?
Canada’s programming is already in global demand but the producers sign over the rights to broadcasters for regions that the broadcasters don’t even operate in. This reduces the ability for producers to profit from the global appeal of their programs. Why sign over international DVD rights to a broadcaster who doesn’t have an international DVD distribution wing? Because they include it on a contract. The unequal bargaining power is what keeps Canadian producers from making a splash on the world stage: they sign over the rights to parties that park them.
The conglomerates don’t want to produce Canadian content, because to them it doesn’t make sense economically. Cable companies/Telco/broadcaster conglomerates primarily want to rebroadcast American programming because producing Canadian content is more expensive. A license fee for the Big Bang Theory has a better ROI than Flashpoint. The American TV shows have free advertising from American broadcasters. The conglomerates begrudgingly create it because of regulatory requirements. It’s a cost of doing business. They spend as little as they need to on it.
Economically, it becomes harder and harder to do so as well. Over the last 20 years as digital media opened up new viewing windows: more eyes on more places equals less advertising revenues. “Broadcast dollars for digital cents. The distributors get less and less cable fees and broadcasters advertising revenue. This means that license fees for producers to create programs shrink. Further as more people cut the cord, the primary funding mechanisms for Canadian content (the cable funds) receive less money.
Every government wants Canadian content to do well, but they are unwilling to set up new levies. Just recently, Justin Trudeau admonished the idea that a 5% levy on ISPs would be a solution. A solution set out in that his government’s heritage committee working group report. Similar to his predecessor, he didn’t want to “tax” the middle class. When the Canada Media Fund (where the cable levies money goes to) has a diminishing amount of money to create programs because we don’t subscribe to cable and the politicians lack the political will to talk about new levies, the CMF will simply need more money from the government. One way or another, you’re going to get taxed. A levy is at least a way in which this is transparent and accountable.
Canadian content in its current form does appeal to global audiences. It is simply the contracts that favour the larger distributors as rights hoarders that prevent the Canadian programming from getting out there.
Canadian themes are not what is holding back the Canadian content industry, but rather:
unequal bargaining power and rights hoarding by broadcasters,
a government too afraid to impose a levy or fund the CBC,
a population that cuts the cord (and unfairly hates their own homegrown fair), and
a broadcasting industry conditioned to rebroadcasts.
Canadian messages are already popular globally. Reducing the number of Canadians working on a production (Canadian Audio Visual Certification Office) or the themes discussed (Canada Media Fund and CRTC rules) only serve to further impoverish our nation’s culture and economy. If Trudeau means that the world needs more Canada, then perhaps, we should remove the barriers created by favouring a system that allows for broadcasters to simply profit from redistributing American content.
Further reading:
http://www.cmpa.ca/business-affairs-production-tools/terms-trade
http://www.cmpa.ca/industry-information/profile
http://www.cbc.ca/news/technology/could-a-levy-on-isps-help-promote-canadian-content-in-the-new-digital-world-1.4171757
http://trends.cmf-fmc.ca/research-reports/category/trends_reports/
https://telefilm.ca/en/festivals-markets/services-and-initiatives
http://www.crtc.gc.ca/eng/publications/reports/rp110929.htm
Thanks for these thoughtful comments Cam, you make a good point that even if distributors move to produce their own content, they aren’t actually creating that content, they’re just paying production companies directly.
I wonder though if Canadians hate their “homegrown fair” though, as a lot of programming made in Canada is popular both here and abroad. What I see is a difference between shows like “Orphan Black” and “Travelers” that are not necessarily “about” Canada but are the product of creatives here in Canada, and shows like “Corner Gas” that are very much about Canada and therefore seem to check a lot more of the CRTC’s boxes.
Michael Geist had a recent argument with the Writers Guild of Canada over whether CRTC regulation is necessary to protect the Canadian cultural industry, like funding the CMF to produce CanCon. He points out that almost all the capital that finances Canadian production comes from elsewhere, and the reason the money comes to Canada is proven creative talent and the availability of tax credits, rather than regulatory requirements.
You can read the article here: http://www.michaelgeist.ca/2017/05/can-cancon-compete-response-wgc-future-canadian-tv-production/
You’d be surprised at which Canadian programs are popular abroad. “Trailer Park Boys” was Canada’s best selling television cultural export for a period of time. Admittedly, it’s not entirely about Nova Scotia. “Heartland” takes place in the prairies, but is based on a popular book. And who can forget Anne of Green Gables, the most Cancon piece of television (ironically written by an American.) Then we can always talk about Degrassi, one of Canada’s longest standing Canadian exports which is distinctly Torontonian.
While I agree that the CMF amount of 10% appears to be marginal, other genres appear to need it more than others: see documentary, and CMF statistics on the aboriginal programming. Regarding the 20% foreign investment, it’s probably an averaging issue. As someone who has worked with the aggregate data used in Profile for the Documentary Organization of CAnada’s Getting Real publication for 2 editions, I can say that some productions can skew the % of funding. For instance, a very expensive co-production can skew the foreign numbers higher than they actually are.
The CAVCO shown in Canada reform via Netflix is a great change to allow for more players to fund Canadian programming. I recall when at the Documentary Organization of Canada, we advocated for third party video distributors (such as online platforms) to trigger funding to make single episode documentaries. We thought that there were alternative financiers that could help programming get off the ground. Unfortunately, most did not have deep enough pockets. Furthermore, Netflix was just starting out and all other online major video services were owned by the same cable companies that were not funding documentaries on their channels. Forgive me, but I haven’t kept track of its performance since 2012.
In 2011-12, the CRTC regulations for Canadian programming were reformed because the broadcasters were not providing enough money to Canadian programs. The conventionals (Global, CTV, City) had exhibition requirements. The cable channels had % expenditure requirements. In 2012, they had become conglomerates and were sharing content across the platforms. One license fee to rule them all. The Programs of National Interest regime rubber stamped that practice. The Conglomerates had to spend a share of the revenues of the group on Canadian programming, specifically: Drama/comedies, documentaries and award shows. This was in response to a race to the bottom coming out of the impact of the 2008-2009 financial crisis
Tax credits are regulatory subsidies. This is money that comes from the government to help create content based on expenditures of the producers. Michael is incorrect in his calculations. It’s almost 40% (for Drama) coming from CMF, Tax Credits, and other government programs.
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