Canadian regulatory hearings are usually relatively predictable affairs with scripted presentations and well-rehearsed speaking lines to most questions. During the recent two-week Canadian Radio-television and Telecommunications Commission hearing on the future of television regulation (dubbed “TalkTV” by the CRTC), Chair Jean-Pierre Blais expressed frustration on several occasions with the unwillingness of witnesses to veer much beyond their prepared notes.

My weekly technology law column (Toronto Star version, homepage version) notes that changed on the final day of the hearing, though it was Blais that seemingly departed from the script. Netflix, the online video giant that popped up in virtually every discussion, was one of the last witnesses on the schedule. The company had submitted comments to the CRTC consultation over the summer, but had not asked for an opportunity to appear before the Commission.

After the CRTC requested that it come to Gatineau to answer questions, the company came prepared to discuss the development of its business, but chafed at the prospect of disclosing confidential information such as subscriber numbers and spending on Canadian content. Blais took great umbrage at its reluctance to disclose the information, ultimately ordering the company to comply with the information request and implying that failure to do so could result in new regulation.

The Blais – Netflix exchange made for compelling television, but it was not the first time that the CRTC found itself facing an Internet company reluctant to disclose confidential information. On the very first day of the hearing, Google, which owns YouTube, appeared and expressed similar reservations. Blais did not threaten the company with regulation, but did note that it could draw conclusions from Google’s “lack of co-operation.”

If the CRTC expected the regulatory threats to result in quick compliance, its plan backfired. Last week, Netflix responded to the CRTC’s demands by refusing to disclose certain information and – more importantly – challenging the Commission’s authority to regulate online video services.

Netflix emphasized that it appeared voluntarily before the CRTC and that the “orders are not applicable to Netflix under Canadian broadcasting law.” Google adopted a similar approach, stating that its disclosures were voluntary and that the company was not part of the Canadian broadcasting system.

The very public fight pitting the CRTC against Netflix and Google represents a stunning shift. For the past year, the Commission has been steadily moving toward dramatic reforms of Canadian broadcast regulation. Emboldened by the government’s vocal support for a consumer-oriented approach, the CRTC has paved the way for changes to the way consumers purchase television channels (mandating pick-and-pay options) and reforming many longstanding regulatory policies that created a protected marketplace which frequently prioritized creating Canadian content over commercial success.

Those changes are still likely to happen, but now it is more than just Canadian broadcasters, broadcast distributors, and creators that are facing the prospect of change.  By challenging the Commission’s authority over online video services, Netflix and Google have raised doubts about the future of the CRTC as a broadcast regulator over the fastest growing part of the market – the Internet.

The Canadian debate over the regulation of online video services is not new. The CRTC first addressed the issue in 1999 with its new media decision. It held that some online video could be considered broadcasting but that the policy goals of the Broadcasting Act would not be advanced through regulation. In other words, the CRTC said that it was legally entitled to regulate, but it chose not to do so, creating an exemption that excluded online video services from conventional broadcast regulation.

As services such as YouTube and Netflix became increasingly successful, the CRTC revisited the new media decision on several occasions. Despite pressure from some groups to establish a “contributions program” (now derisively labelled a “Netflix tax”), the CRTC maintained that new fees were not needed. Instead, it adjusted the regulatory exemption for online video providers by requiring them to disclose information to the Commission if asked.

The regulatory changes attracted little attention, but with hindsight made the current showdown over regulatory power all but inevitable. Mandatory information disclosure may seem like a minor regulatory requirement, but the bigger concern is that the CRTC put itself in the business of regulating online video. For companies such as Netflix and Google, the fear is that basic disclosures could eventually expand to promotional mandates, Canadian content requirements, and mandatory financial contributions.

With the prospect of a future court battle, the key legal question will turn on whether “broadcasting” as defined by the Broadcasting Act can be interpreted broadly to include online video services. The answer to that question is far from certain.

In 2012, the Supreme Court of Canada rejected the possibility of a CRTC-mandated fee-for-carriage for over-the-air television channels, concluding that the Commission needed to point to more than just policy objectives found in the law to support its claim to have jurisdiction to impose the new fee. Moreover, a second case ruled that Internet service providers were not “broadcast undertakings” under the Act. A similar reference on the scope of broadcasting and online video services could also lead to clear limits on the CRTC’s powers and scope of the law.

In an ideal world, the government would step in to address the issue by acknowledging that the law is now badly outdated and initiating a much-needed modernization effort. With two communications laws – the Broadcasting Act and the Telecommunications Act – Canadian law creates an artificial legal separation between broadcast and telecommunications that has been blurred by new technologies and marketplace developments.

Services such as Netflix and YouTube bear some resemblance to both broadcasting and telecommunications, yet do not fit neatly within either law. A single Communications Act could better reflect modern realities and policy priorities in a technology-neutral manner. Telecommunications and broadcast reform may garner limited political benefit, but the future success of the industries depends on it.

While some CRTC chairs have discussed the need for legislative reform, Blais has made it clear that he believes the role of the regulator is to uphold the law it is given, not lobby for the law it wants. He may be right, yet the current governing law is ill-suited to address Internet-based video services. By raising the spectre of increased regulation, the CRTC has started a fight it is unlikely to win.