CRTC at a crossroads

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Appeared in National Newswatch, June 2, 2016

The regulation of Canada’s broadcasting sector by the CRTC is at a crossroads. Technological change, especially the proliferation of streaming video over the Internet, or so-called over-the-top (OTT) broadcasting, is seriously challenging the viability of the regulatory model that’s been in place for decades. The government has recognized the challenges posed by ongoing technological developments in the recent call by Canada’s heritage minister for a full review of the federal government’s cultural policies with the goal of adapting to the digital age. Consultations are expected to begin this summer.

The regulatory model maintained for decades by the CRTC can be characterized as “protecting and subsidizing.” Canadian content rules for broadcasters, and regulations requiring broadcast distributors to supply a majority of Canadian-owned channels, ensure that programming classified as Canadian content receive a major share of the shelf space on Canadian television. At the same time, Canadian programming services and broadcast distributors are required to contribute a portion of their revenues for the production of Canadian programming. Protection from non-regulated forms of competition, including U.S.-originated signals, is essential to create the profits needed to subsidize the production of expensive Canadian programs.

OTT broadcasting threatens to undermine the CRTC’s traditional regulatory model by essentially allowing viewers to bypass the regulated broadcasting sector. At present, streaming video delivered over the Internet is not a regulated broadcasting service. Hence, services such as Netflix are not covered by Canadian content rules, are not obliged to help fund the production of Canadian programs, and are therefore unburdened by the regulatory costs borne by conventional programming and broadcasters such as CTV, TSN, etc.

While there is disagreement about how quickly Canadians will adopt OTT programming and drop their subscriptions to cable and direct-to-home satellite services in favour of Internet viewing, there’s little doubt that OTT program viewing is a growing phenomenon. For example, the average number of hours per week Canadians watched Internet television increased from 1.5 in 2008 to 7 in 2014. Furthermore, major companies such as Amazon and Apple, as well as many smaller companies, are entering the business.

The CRTC is on record—it does not want to regulate the Internet, although it will face increasing pressure by vested interests that stand to lose financially if the protect-and-subsidize model is abandoned. The regulator took some tentative steps towards easing Canadian content rules and regulations in the wake of the Let’s Talk TV hearings; however, the CRTC largely left in place the main features of its traditional regulatory model. Consequently the CRTC is rapidly approaching a crossroad where it will either need to expand the scope of its regulations to encompass OTT broadcasting or desist from regulating the broadcasting sector and allow market forces to prevail.

The traditional rationale for government regulation is the likely failure of the market to produce and distribute output efficiently, usually because the market is uncompetitive. In the case of broadcasting, increasing competition in both the production and distribution of video content is rendering this rationale for regulation irrelevant. Indeed, the rapid changes in technology in the broadcasting sector are putting an increasing premium on entrepreneurship as an instrument of success, and regulation is anathema to entrepreneurship. Furthermore, dramatic declines in the cost of making and distributing video content means Canadian producers are at no significant competitive disadvantage to larger foreign producers, at least for many genres of video programming. Given the likely proliferation of new sources of domestically produced programming content, as well as the presumed continued existence of the CBC, it’s difficult to credit an argument that deregulating the broadcasting sector will result in shortages of Canadian content.

To be sure, not all existing programing services and producers of programming content will survive in a deregulated environment. The traditional defense of subsidies for Canadian programming is that such programming makes an essential contribution to the Canadian identity. This assertion is intrinsically difficult to assess, and there are solid grounds for skepticism. However, if the government deems it important that certain types of domestically made programming continue to receive subsidies, it would be more transparent and democratic to make such subsidies available directly through taxes and transfers rather than cross-subsidies that characterize the protect-and-subsidize regulatory model.

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