Last week’s very public fight between the CRTC and Netflix escalated on Monday as Netflix refused to comply with Commission’s order to supply certain confidential information including subscriber numbers and expenditures on Canadian children’s content. While the disclosure concerns revolve around the confidentiality of the data, the far bigger issue is now whether the CRTC has the legal authority to order it to do anything at all. The response from Netflix states:
The Responses are filed voluntarily by Netflix to assist the Commission in this proceeding. The Responses are based solely on a review of the video archive of Netflix’s appearance on the CPAC web site, in view of the fact that the transcript from the hearing was not available. The filing of the Responses is not an acknowledgment of or attornment to either the jurisdiction of the Commission by Netflix, or the substantive application of Canadian law (including the provisions of the Broadcasting Act) to Netflix. The Responses are filed strictly without prejudice to any future positions that Netflix may take.
A second letter emphasizes the same points of voluntary action and the limits of CRTC jurisdiction:
We voluntarily agreed to appear before the Commission in connection with the Commission’s Let’s Talk TV hearing to provide Netflix’s views on the evolving nature of television. During our appearance at the public hearing on September 19, we undertook to provide further information to assist the Commission in its endeavors. This information is being provided to the Commission today in separate correspondence. As we stated during our appearance at the hearing, specific information requested by the Commission, which was ultimately the subject of various orders made by the Commission, remains confidential and competitively sensitive, the disclosure of which to third parties would be highly prejudicial to Netflix. Accordingly, Netflix is not in a position to produce this information. Moreover, the orders are not applicable to Netflix under Canadian broadcasting law.
While the media coverage has unsurprisingly focused on Netflix, unconfirmed sources indicate that Google has adopted a similar position by declining to provide all the information requested by the CRTC (Cartt.ca reports the same thing). The search giant did not face any direct orders, but there was also tension during its appearance, raising the possibility of more questioning of the Commission’s legal authority to regulate online video services.
The standoff is not entirely unexpected. As I blogged on Friday immediately after the Netflix appearance:
Netflix appeared voluntarily before the Commission, but it could have refused. It could argue that it is not a broadcaster and not subject to the Broadcasting Act. In fact, it could challenge the CRTC’s orders for information, arguing it does not fall within the Canadian legislation and does not maintain a physical presence in the country.
That appears to be precisely what is happening as the confidentiality issue places the spotlight on the bigger question of the CRTC’s jurisdiction over Internet-based content providers.
How did it come to this?
To start, Netflix did not ask to appear at the hearing as it was initially content to submit only written comments. This suggests that the CRTC asked that it appear to answer questions. Once there, the Commission asked for specific confidential information, leading to the exchanges over whether there would be a guarantee of confidentiality. Mark Goldberg provides a good review of why Netflix had reason for concern since there have been disclosures of confidential information in the past and rules on public interest disclosures that make sense in a tightly regulated broadcast system would also be applied to foreign Internet-based services.
The issue clearly escalated with the following comment to Netflix from CRTC Chair Jean-Pierre Blais:
You operate under an exemption order that requires you to provide information. Failure to provide information puts at risk your exemption order. So the Commission is ordering you to provide the number of subscribers that you have currently in Canada by 5:00 p.m., Ottawa time, Monday.
The decision to implicitly threaten Netflix’ ability to operate in Canada without a licence set off a reaction that could create significant uncertainty about the Canadian legal environment for online services and lead to protracted litigation. Within hours, the federal government issued a statement rejecting any new regulation of services such as Netflix. Yet Blais’ warning about providing information in compliance with the new media exemption order dramatically altered the playing field for companies such as Netflix and Google.
The comments made it clear that they are already regulated (the new media exemption order with its reporting requirements constituting a form of regulation) and that failure to cooperate with the Commission raises the prospect of additional regulation or licensing. That could theoretically include requirements related to content, promotion, or financial contributions. Revocation of the new media exemption order would presumably require Netflix to obtain a licence (which it could not do given its foreign ownership status) or stop its Canadian operations.
While that represents a serious concern for the Internet companies, the regulatory threat also represented a major risk for the CRTC. There have long been doubts about whether the Broadcasting Act empowers the CRTC to regulate Internet-based services with questions about whether the services constitute broadcasting along with jurisdictional questions involving services with no physical presence in Canada. The 2012 Supreme Court of Canada decision on fee-for-carriage did not help the CRTC’s case, with the court articulating clear limits on the Commission’s powers.
The original 1999 new media exemption order provided a full exemption without conditions. In 2009, the CRTC changed the exemption by adding a reporting requirement. By making the new media exemption subject to conditions, the CRTC quietly began regulating Internet-based services and opened the door to a regulatory showdown that was likely inevitable. So long as the CRTC did not enforce the requirement (relying instead on voluntary participation), the Internet companies were presumably content to maintain the status quo. That changed on Friday, when Blais invoked the regulation and forced the Internet companies to either accept regulation or challenge the CRTC’s authority on the matter.
With the government opposing new regulation and the CRTC’s existing regulatory framework under challenge, the Commission finds itself in a bind with its entire television regulation initiative potentially side-swiped by the issue. Ironically, it seems likely that the Commission was simply trying to gather the necessary evidence to justify plans to reject any new Internet regulations. By escalating the issue with regulatory threats, however, the CRTC – Netflix battle seems set to turn the TalkTV initiative into a legal battle over the CRTC’s authority to regulate online video.
Personally, I put a good 95% of the blame here on the conservatives gov (Ministers) for tweeting what they will allow and not allow to hype the people and play to the popular vote.
CRTC should be pissed off, but pissed off at the conservative gov who undermined them and hyped a situation to make themselves look good and to make the kids foam at the mouth.
Seems to me the conservatives are intent on showing the people who pulls the puppet strings at the CRTC and who is really in charge. And it isn’t Chairman Blais. Though now I hope he has some way of pulling a good one to stick it back at the conservatives for their meddling.
I like that Blais guy, but the conservatives threw him under the bus and tied him there well before the buss was coming.
It reminds me of Prof Winsecks post here:
https://dwmw.wordpress.com/2014/01/09/arms-length-or-strong-arming-the-crtc-minister-moores-mandate-letter-to-crtc-head-jean-pierre-blais/
Another thing that I hope they fix is the way their authority works. It’s all in the extreme or nothing.
For example, if Bell refused to give replies the CRTC’s authority appears to be to revoke their license (both telecom and broadcasting). Would that really happen and the CRTC force Bell off-lline and their millions of customers? heh
If we look at Bell’s replies in some other regulatory filings (particularly the Relevant Ads Program one), Bell doesn’t even respond to the CRTC’s questions and routinely ignores them.
The CRTC does absolutely nothing and ignores it. Where is the enforcement?
What are their choices? Revoke Bell’s license?
One need not look at this Netflix situation to see that the CRTC is constantly ignored, and their requests for information constantly ignored from Bell.
I hope the CRTC is going to flex some muscle here in terms of regulation and non-compliance with an order because I will use this example to toss at the CRTC in regards to Bell since Bell does the same.
The situation here with Netflix is not unique. Not the first time it happens. There is only more awareness due to the hype surrounding it all.
On the other hand, the regulations, and the CRTC, need better enforcement power than just “revoke a license”. Some other penalty method is required. It’s too extreme.
I think one mistake the Crtc made was letting anyone speak the hearings should have been limited only to certain people but what they had is all types of people wanting the Crtc to make huge changes to protect Canadian content.
Jayme,
… “limited to certain people” …
Do you mean like those of the right political or economic ideology?
Or do you simply mean those who represent the dominate incumbents – i.e. the oligopoly, the CRTC is meant to regulate?
I mean those who are acting like a avg citizen but in reality are people with a agenda.
I disagree with Marc’s comments. I think the CRTC needs to have its power drastically curtailed. It should be in charge of setting telecommunication tarriffs. And it should be in charge of making sure no-one produces unwanted radio interference, allocating bandwidth, etc.
It should absolutely not be in the business of deciding what online video Canadians can and cannot watch. That leads to madness. Are we going to block or regulate Youtube? Or any of the millions of small online video producers?
Technical regulation (RFI, spectrum allocation, etc.) is handled within Industry Canada, as mandated as the federal department in charge of handling ITU (International Telecommunication Union, a UN agency) regulations within Canada. The IC branch is called “Spectrum Management and Telecommunications” http://www.ic.gc.ca/spectrum
In the 1980-90s one of Bell executive or lawyers admitted during one of the CRTC hearings that “no, essentially no-one can explain or justify the long distance <> tariffs” in its whole, as it was essentially too complex to comprehend by a single person, if not impossible to even document entirely. It’s my opinion that the commission being afraid of unintentionally burdening themselves with too much “real work” avoided digging further such as demand to reduce the mess and routine price gouging.
Like the senate, the CRTC are a body made up primarily of older people from the very organizations they are suppose to be managing, so by habit, they have routinely promoted the _status quo_ almost without fail, unless there is enough public uproar to make politicians threaten to step in. The commissioners, like senators, don’t like _too much_ public scrutiny into their affairs, as it can be awkward and embarrassing, so they quickly caved to the public uproar and resolution is often surprising swift with little-or-no pain.
Concur with Mr. Kroll. I think both Mr. Geist and Marc are missing the point, by a large margin. This is a deck chairs on the Titanic situation: unless Canada is willing to go full-retard and block Netflix server’s a la Iran, China or North Korea, it simply doesn’t matter what the CRTC or some Court might say on any bit of legal fluff here or there.
Radical Statement of the Day (RSOTD): If Stephen Harper manages to rid Canada of the CRTC it might make the years of enduring his insufferable, anti-democratic arrogance almost worthwhile…
Blais took a 15-minute break before returning with the threat to yank Netflix’s ‘exemption.’ His decision was not in any way rash. He knew exactly what he was doing and its potential consequences. I wonder what he hopes to achieve from this. Does he want the CRTC to regulate Internet video in Canada, or does he want a court to narrow the Commission’s focus?
I am curious on where you think this leaves the Rogers/Shaw online entry Shomi? Will they be covered by Canadian content rules and taxed differently then Netflix or will they be able to operate under the same rules?
I need to understand some math.
How is it possible that we’re able to transmit and receive hundreds of channels of pap via cable on a monthly basis without anyone crying foul about bandwidth or use of content?
And yet now, with the emergence of competitor content, we have a bandwidth issue. This is illogical to me.
And don’t tell me ‘it’s different’. We’re using the same wires, same transfer method and same bits and bytes as we were before. We’re just not watching ads on Rogers or Bell networks, so we have to be punished for it.
This whole thing only became an issue when Netflix started to offer essentially the same content as Rogers & Bell and couldn’t be blocked like Hulu. YouTube is amateur content (in most cases) and never offered cause for concern.
The CRTC is about to embark into very dangerous territory here. If they declare a Netflix tax, you will have an exodus for US IP addresses and third-party services. If there are more requirements for CanCon, you’ll have the same. If they allow Bell & Rogers to charge more for bandwidth, they’re going to alert voters to the fact that this is a massive inflationary situation that the Cons will be wearing. If they do nothing, Bell and Rogers will fail.
The most logical recommendation in this situation is to acknowledge that Internet services have reached one of those basic rights that all Canadians should have and that the mandate of the government should be the installation of universal, decent, affordable and accessible Internet services across Canada.
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I disagree with Marc entirely. It’s not all about you Marc, or the Conservatives.
The CRTC has been irrelevant for a long time, they just just don’t want to admit it. Canadians want choice.
@Jonathan,
So what i it exactly that you are saying?
The CRTC and regulation need to be done away with and replaced solely by market forces?
Market forces will give you all the choice you need?
Is that what you are saying? Sure sounds like it. Care to elaborate?
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Sooner or later people will realize that screaming, “There ought to be a law…” or “Someone needs to regulate this…” is a short route to long, pointless and ultimately counterproductive rules and regulations that have little to do with making things better and more with enhancing particular politicians pocketbooks.
Besides, the idea that Canada has a right to regulate a company that is not even housed in Canada is stupid. This idea that governments have a right to regulate everything is insane and yes, we are fighting the same battle here in the United States where somehow everyone has gotten the idea that they not only should have access to everyone else’s pocketbooks, but they should have a say in how you spend what the government leaves you.
What the world needs is for the productive folks to take a 12 month siesta and let those with strong opinions and little work ethic see how that works out for them.