Cable / Telecom News

ANALYSIS: Five questions need answers before we set new policy for a digital Canada

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OUR FEDERAL GOVERNMENT promised a review of the Broadcasting and Telecommunication Acts in its 2017 budget and last week the CRTC took the first step down this path when it issued: Harnessing Change: The Future of Programming Distribution in Canada.

While it floated a number of interesting, innovative and controversial ideas, we’re all anxious to hear what Heritage Minister Mélanie Joly will have to say about it this weekend when she addresses the Banff International Media Fest. There, we hear she is likely to announce the appointment of a worthy and carefully chosen panel of experts to undertake a year-long project building on the CRTC’s report, and potentially drafting new legislation.

This sounds all very careful and methodical but given the timing, it’s near impossible to imagine anything substantive will be accomplished prior to the next federal election in October 2019. Frankly, the pace of change and the scope of economic development in the space requires a brisker pace. The apparent lack of urgency here is extremely unsettling.

However, since we’re potentially looking at another year of discussion and debate, I think the best course of action to solve such tricky and complex policy challenges is to ask (and answer) the right questions in the right order – and right now. With a couple of exceptions, it doesn’t seem we are doing that in a meaningful way. In fact, I would argue that much of the discussion around proposals such as combining the two Acts should come well down the road and after we address more fundamental issues. I would say there are five questions which must be answered if we are to move forward towards a new programming policy for Canadians.

1. Do we still have a system?

This seems to be a pretty arcane question, but is totally seminal.  The current Broadcasting Act (which it must be remembered is still the law of the land) declares that:

  • The Canadian broadcasting system is a single system
  • It operates in English and French with private, public and community elements
  • It provides a service essential to national identity and cultural sovereignty
  • Each element of the system must contribute to the creation and presentation of Canadian programming
  • The system has to deliver on the Broadcasting Policy for Canada which sets out lots of policy “shoulds” that require support
  • The best way to achieve all this is through the supervision of an independent regulator

Now, this is a fairly deep pile of stuff to think about.  It’s all quite structural: there’s a purpose (national identity and sovereignty); there’s a policy (Broadcasting Policy for Canada); there’s a corral (the elements); a contribution requirement (each element contributes); and an independent body to get it organized.  At a certain level, a thing of true beauty.

“If we are to have a Canadian system, what is it supposed to generally look like if not this?”

The current Act was passed in 1991, which I tell my MBA grad students is roughly when most of them were born and well before EVERYTHING in the digital age.  Given that, it’s surprising how well the Act holds up from a technology perspective.  For example, while we generally think of broadcasting in the context of the legacy providers in Canada, the Act defines it to include “any transmission of programs” delivered anyhow, anyway, to any device.  Excellent foresight.  Lest there be any doubt, this plainly includes all the streaming services.  I’ll have more on that later.

So we must ask ourselves, as we move relentlessly into a totally transformed digital future, which bits of the Act are disposable?  If we are to have a Canadian system, what is it supposed to generally look like if not this?  What objectives should it achieve if not the dozen or two “shoulds” in the current Act?  What tool is supposed to make it happen, if not an independent regulator?

Going the other way, if we do not wish to have a Canadian system (and many admittedly do not or do not care), or if we do not wish to have a system at all, how do we describe what we want?  If we strip away the link between the delivery of audio visual programming and any sort of national policy or purpose what would be left? The only thing that I can think of is that it would be an open market.

For half a century we have developed policies to address the fact that Canada is not nearly populous enough to ensure that an open market will deliver high quality programming that reflects its’ communities.  This dynamic remains just as true today as 50 years ago.  So if there is nothing to be done to tackle this challenge anymore – if there is no need for a system with the elements making their contributions – should we at least be honest with ourselves and think of Broadcasting Act repeal instead of reform.

Of course, I put this question because I personally think there should be a public policy driver in the delivery of programming to Canadians.  So, in answer to “Should we have a System” I say YES!  And I think it’s fair to say that the CRTC Report would agree on this point.

2. What are the “Elements” of The System? 

Let’s start by considering what today’s system has as elements.  Keep in mind the Broadcasting Act requires each element to contribute to the creation and presentation of Canadian programming, so I’m going to look at this question broadly and what I say may surprise you.

It is quite obvious all of the licensed public and private, English and French conventional broadcasters, pay and specialty services and the cable and satellite distribution services are elements, and it is fairly clear what their respective contributions are, along with the regulatory history that generated these contributions.

Moving to the independent production community, the Act requires that it make a “significant” contribution and it has done so by producing the vast majority of the long form programming that the system is designed to deliver.  Clearly therefore, an element.

The Canada Media Fund is supported by contributions made by cable and satellite distributors, required by CRTC regulation.  It’s also supported by a contribution from the Department of Canadian Heritage.  To my mind the Fund is a definite element.

The various Certified Independent Production Funds (such as the Shaw Rocket Fund and the Bell Fund) were not only established as a result of the regulatory “benefits test” on transactions, but they are structured and operate under a regulatory policy designed to ensure that they make a robust contribution to the production of Canadian programming.  All are contributing elements.

The unions and guilds contribute the creative talent to make all this production possible.  Elements all.

What about the American border stations?  This is trickier.  I’d argue they are an element and that their contribution is the hit they take under the simultaneous substitution regime, and the Canadian tax rules on advertising on these services where any Canadian companies who choose to advertise there can not claim is as tax deductible.  What about foreign specialty services?  Their contribution lies in the requirement applied to Canadian BDUs to use the two minutes of local avail ad time per hour to instead promote first run original Canadian programming, in barriers to competitive genre entry, and the continuing “preponderance” rules about packaging them with Canadian services.

We could go even more broadly and add all the Provincial development agencies such as the OMDC, Creative BC, SODEC, the Federal Department of Finance and the Provincial Ministries of Finance supporting programming tax credits.  Each of these has a claim as an element of the broadcasting system envisaged by the Act.

Who does that leave out?  Well, the elephants in the room of course are the foreign owned streaming powerhouses, principally Netflix, and the Canadian ISPs which deliver that online content.  What to do about all that is the topic du jour.

3. What do we do with the Digital Media Exemption Order?

The what?  Under the Broadcasting Act, the CRTC has the authority to exempt broadcasting undertakings from any licensing requirements if it is “satisfied that compliance will not contribute in a material manner to the implementation of the Broadcasting Policy for Canada” set out in the Act.  That Policy is the long list of “shoulds” in s. 3 of the Act that I mentioned earlier, but basically includes stuff like making “predominant use of Canadian creative and other resources”.  We’ll come back to those later.

In the meantime what’s clear is that the decision of which type of broadcasting operations require licences belongs to the CRTC, and not the government.  What’s also seems clear is that absent a specific exemption order, the current Broadcasting Act would require Netflix et al to obtain licenses in order to operate in Canada.  If this were not the case there would have been no need for the Order in the first place.  The very existence of the Order therefore is an acknowledgement that the Act would have required the CRTC to deal with licensing these services.

The original Exemption Order was made in 1999, and then updated in 2012.  In it, and as required by the Act, the Commission states that it is “satisfied” that licensing these folks will not contribute “in a material manner” to implementing the Broadcast Policy.  Now, this determination was originally made some eight years before Netflix began its streaming operations.  And at the time there was good reason to conclude that the impact of internet programming services was not material. For one thing almost none of the programming delivered by these services was original.  It was basically all a just a repackaging of stuff produced in and for the legacy universe.

Even in 2012, when the Exemption Order was revisited, Netflix was nothing near the global producing, rights holding powerhouse that it has become.

“The simplest out is for the CRTC to sit on its hands – and it seems to be doing a very good job of that.”

Given all this my question is: If the CRTC were to formally look into this today, afresh, is there any doubt about how difficult and challenging it would be to reach the same conclusion?  On the plain meaning of the words, I think it would be nigh impossible.  And if the Exemption Order is so clearly out of whack with what is going on today, and if the Broadcasting Act is still in effect, why does the CRTC not do the job it has been assigned in law and revisit the issue?

Last week’s Report does suggest it is time both the ISPs and the streaming services become contributing parts of the system, but there is no indication the Commission has any plans for immediate action until and unless there is legislative change.

Now to be fair, this isn’t an easy problem.  Given the political side of the equation, the simplest out is for the CRTC to sit on its hands – and it seems to be doing a very good job of that. Plus, there’s the not-so-little detail that all licensees have to be Canadian owned and controlled while Netflix’s formal position is that it doesn’t even operate in Canada.

In addition, it’s clear that the Governor in Council has the authority to issue an order to the CRTC “respecting the classes of applicants to whom licenses may not be issued”, which I suspect was meant to apply only to groups such as “non-Canadians” but perhaps could be relied upon in these circumstances.

The point here though is that no such direction has been issued, leaving us with this odd circumstance: a regulated market operating in the national interest being overrun by a gigantic foreign entity substantially buttressed in Canada by a patently unreasonable exemption order.

4. What’s the role of the Regulator going to be?

As I mentioned at the outset, the Broadcasting Act declares the best way to achieve the objectives of Broadcasting Policy, and to ensure that the all of the elements contribute appropriately etc., is to have the system regulated and supervised by a “single independent public authority”, namely the CRTC.  This move, establishing an independent regulatory tribunal, effectively takes all of the relevant decision making out of the hands of the politicians and the government departments and delegates it to an arm’s length agency in the hopes that political winds can’t affect fair policy

There is a whole area of administrative law that deals with the establishment, operation, decision-making practices and authority of these tribunals.  There are dozens of them active within the federal government, and they are a tried, true and effective machinery of government mechanism.

Let’s have a look at why this is the case.  First, in any governmental licensing or rights-granting process it is very convenient for politicians to point to an independent body in order to avoid being drawn in to the merits of individual cases.  Imagine the political pressure, and possible corruption opportunities if this were not the case.  The CRTC makes many hundreds of critical decisions each year and, believe me, no politician wants to get involved in any of that work.

There is also the matter of expertise.  The CRTC has hundreds of highly knowledgeable professionals on its staff.  The questions it tackles are tremendously complex and the answers affect many dozens of highly motivated, well-funded and intensely interested stakeholders.  Finding a path through the mist is a tricky balancing act.

It is because of this that courts so rarely overturn a CRTC decision.  It is said the CRTC’s success rate in court is well over 80%.  The general attitude is that they are the experts and we, the courts, should tread lightly in any second-guessing we might contemplate.  It’s the same with cabinet appeals.  While they are sometimes permitted, the cabinet usually wants to offer no encouragement and generally turns them away.

So to my mind, an independent regulator must be a vital component of any system going forward if, of course, there is going to be a system.  Its job is and will be the implementation of the edicts of the Broadcasting Act or its successor, and it is patently ridiculous to posit that the CRTC has outlived its usefulness and should be dismantled.  As long as there is a Broadcasting Policy there will be, and must be, a CRTC.

I can’t conclude this commentary, however, without discussing the potentially serious storm clouds moving in.  Once again, it has to do with Netflix.  In her Creative Canada announcement, Minister Joly indicated she was pushing for commitments from “foreign platforms” who benefit our digital industries, and proudly announced an “agreement” between the Government of Canada and Netflix.  Under the agreement, Netflix will create Netflix Canada, a permanent film and television production presence in Canada, along with a commitment to invest $500 million in original productions in Canada over five years.

“What is at the heart of this deal?  I’d say it’s some kind of permission to operate in Canada (or agreement not to interfere with the operation) in return for a contribution to Canadian production.”

Now this Netflix deal has been extremely controversial for a number of widely documented reasons, especially in Quebec.  I’d like to add a new criticism to the pile.

What is at the heart of this deal?  I’d say it’s some kind of permission to operate in Canada (or agreement not to interfere with the operation) in return for a contribution to Canadian production.  Pretty simple.

What’s at the heart of a CRTC licence?  Well, it’s a permission to operate in Canada on certain terms and conditions (generally specifically tailored for each licensee) and always as part of that package, various commitments to Canadian production. All of it transparently public.

Think about that.  The Minister, a politician, seems to have formally, on behalf of the Government of Canada, assumed the role that belongs under the Broadcasting Act to the CRTC, the independent regulator.  If we look at this from the perspective of a Bell Canada, would it rather have its many licenses from the CRTC with all of the attendant costs and administrative headaches, or an “agreement” directly (and confidentially) with the Minister?

Why, if you’re a foreign programming powerhouse, do you get to make your regulatory deal in private directly with the Minister, but if you are a regulated Canadian programmer you must go through the cumbersome and very public processes with the CRTC?

To my mind, this is a bit of a legal affront to the regulated businesses, to the Regulator, and to all the stakeholders and elements of the system which rely on the transparency and fairness of the regulatory process, no matter what their perspective may be on individual issues.

So, there needs to be recognition that this type of two-track regulation, whatever its political value, is legally tainted and needs to step back in favour of the Act.  If the Minister wants to have the authority she is exercising, then Parliament needs to amend the legislation to give it to her and take it from the CRTC.

5. What should a reformed system deliver to Canadians?

We finally come to the list of “shoulds” in the current Act. If we still want a system, and we think each element of the system should continue to make a contribution – and we think the digital media exemption should be revisited with the result being Netflix et al join the system and make their own appropriate contributions, and if we think that the appropriate entity to manage all that is still an independent and public Regulator rather than private deals with the Minister, what should the resulting Act and following new policies do for Canadians?

To me this is the critical question.  For example, do we care that the system serves to “safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada”, or does the global nature of the digital environment make this unachievable or, frankly, irrelevant?

Do we still believe that the system should be a “balance of information, enlightenment and entertainment” or is it okay to just offer entertainment – or whatever?

Is it important that Canadians have the opportunity to be exposed to differing views on matters of public concern?

Do we care whether the programming comes from local, regional, national and international sources?

“Despite all the controversies that may punctuate each regulatory debate, the system has generally delivered what the Act has required.”

What about the reflection of equal rights, the linguistic duality and multicultural and multiracial nature of Canadian society, and the special place of Aboriginal peoples within that society?

Then there is the use of Canadian creative and other resources and the contribution CBC is asked to deliver to the shared national consciousness and identity.

These questions are neither abstract nor aspirational.  The system we have built over the past four decades has by and large achieved well against these objectives.  Canadians have had a high degree of access to a vast storehouse of excellent, diverse, Canadian programming.  Despite all the controversies that may punctuate each regulatory debate, the system has generally delivered what the Act has required.

There have been many challenges.  The arrival of satellite technology was one.  “Death Stars” were going to squash the Canadian system, it was once said.  In that case, however, and in every other such challenge, legislators, regulators and stakeholders worked together to come up with innovative, imaginative and uniquely Canadian solutions which made the programming delivery ecosystem work – and they did so in a timely way!

One of the problems with the Broadcasting Act is it is a product of Parliament and the legislative drafting process.  Instead, what would be the case if we looked at it not as a rulebook for program providers but as a sort of Charter of Viewer Rights?  What then should Canadians have the right to expect from their system?

We keep hearing viewers are only focussed on the three Ws: what they want, where they want it and when they want it.  The thing is, however, that in order to create an engine which comprehensively delivers on the expectations for all Canadians, there needs to be some kind of system in place that recognizes needs as well as wants, and makes programming available to fulfill those needs.  There needs to be the same kind of diversity the system has so successfully delivered all along.

In order to accomplish that, the Broadcasting Act (or a renamed replacement) has a future; the regulator has a future; Canadian broadcasters, producers and performers have a future, and the digital services must play their part.  Whatever policies the digital age gives rise to must reflect that peculiarly Canadian reality.

Doug Barrett is a veteran of over 30 years in the Canadian media and entertainment industries and since 2008 a professor in Media Management Schulich School of Business of York University. He is also the Principal of Barcode SDG, a strategic advisory firm. He was also president and CEO of PS Production Services from 2006 to 2013 and prior to that spent 20 years as one of Canada’s most successful entertainment lawyers, serving as senior partner at McMillan LLP. From 2004 to 2008, he served as chair of the board of directors of the Canadian Television Fund. He has also served on several additional industry boards, including the Banff Television Festival, the Feature Film Project of the Canadian Film Centre and the Canadian Film and Television Production Association.  He was also a key founder of the Alliance Atlantis Banff Television Executive Program.

(Ed note: Doug knows what he’s talking about and has spent a long time thinking about this industry.)

Original artwork by Paul Lachine, Chatham, Ont.