Cable / Telecom News

ANALYSIS: The five questions needing answers before we set new policy for a digital Canada (Question #3, the DMEO)

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SO, WE’VE NOW HEARD a bit of what Heritage Minster Mélanie Joly thinks about the review of the Broadcasting, Telecom and Radiocommunication Acts, thanks to her Sunday Banff keynote, ably reported on by’s Bill Roberts.

With another year of discussion and debate on the horizon, however, the best course of action to solve the tricky and complex policy challenges ahead is to ask (and answer) the right questions in the right order – and right now. I’ve thought of five extremely important questions which should be answered first, ahead of anything else.

I would argue much of the discussion around proposals such as combining the two Acts should come well down the road and after we address these more fundamental issues. I outlined the first two questions earlier (1. Do we still have a system?; 2. What are the “Elements” of The System?), and here’s the third important one.

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.

Question 4 on Thursday: What is the role of the Regulator going to be?

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.)