Internet-based broadcast content providers can breathe a bit easier following an announcement by the CRTC that it has no immediate plans to impose regulatory obligations on “over-the-top” (OTT) providers such as Netflix, nor to reduce any of the obligations that currently apply to regulated broadcasters and distributors in response to the growing competition from OTT services.

On October 5, the CRTC released the results of a “fact-finding” exercise in which it had asked interested stakeholders to submit comments on the implications of OTT services, which the CRTC defines as “Internet access to programming, independent of a facility or network dedicated to its delivery.”  In its call for comments, the CRTC emphasized that participants should submit applicable data to support their positions.   The fact-finding process was apparently the result of calls from a range of stakeholders (including the Standing Committee on Canadian Heritage) to reconsider the potential impact of OTT services on licensed broadcasters.

In its report, the CRTC acknowledged that, “significant change is underway in the communications sphere, with potential for further change,” and noted that while this new environment brings greater choice to consumers and new opportunities for Canadian creators, it is also creating uncertainty for established broadcasting business models, for the support they provide to the creation and presentation of Canadian programming and for investment and innovation in advanced communications infrastructure. 

However, notwithstanding the Commission’s recognition of these disruptive effects, it  ultimately found that the evidence presented does not demonstrate that either the presence of OTT program providers or the greater consumption of OTT content by consumers is having a negative impact on the ability  of the Canadian broadcasting system to achieve the policy objectives of the Broadcasting Act, or that there are structural impediments to a competitive response by licensed undertakings to the activities of OTT providers.

The other “findings” of the Commission’s review are neither surprising nor controversial.  They include the following:      

  • Tools to measure OTT content are not yet adequate to provide a full understanding of content consumption trends.
  • A number of methodologies show a growth in OTT content consumption. 
  • Some Canadians may be reducing or eliminating their BDU subscriptions (a.k.a. “cord cutting”), but the extent of this and the reasons for it are not fully understood.
  • Some OTT providers have established viable business models and revenue streams, and are competing in the Canadian marketplace for Canadian rights.  Netflix is cited as an example. 
  • Some Canadian creators are using new media opportunities to reach Canadian and global audiences. 
  • Telecommunications networks may be challenged to support increasing consumption of audio-visual content provided by OTT services.

The CRTC has been reluctant to regulate Internet-based, or “new media” content since the early days of the World Wide Web, consistently using its exemption power under the Broadcasting Act to exempt new media undertakings from licensing and other regulatory requirements.  Most recently, in 2009, the CRTC again declined to regulate the delivery of broadcasting services over the Internet, finding that there was insufficient evidence to warrant regulatory intervention into new media.

Despite its decision to maintain the status quo, the Commission appears to be keeping an open mind on the issue.  While it will not take any immediate steps to regulate OTT services, it will continue to monitor developments in the consumption of OTT services and their impact on regulated broadcasters, and will conduct yet another fact-finding exercise in May 2012, by which point the CRTC expects that stakeholders will be able to provide “rigorously collected data” to support their assertions.  The CRTC will also conduct financial data collection and maintain a watching brief on OTT programming, which will include focusing its annual consultation with the broadcasting industry primarily on the subject of OTT programming.  

The OTT announcement underscores the dilemma faced by regulators tasked with making regulatory systems effective and relevant in an era of rapidly evolving technology.  On the one hand, a decision by the CRTC to move too quickly and impose potentially cumbersome regulation could have an unnecessary and detrimental stifling effect on innovation and competition, which could hamper the Canadian marketplace and deprive consumers of choices they might have in a less-regulated market.  On the other hand, if the CRTC waits until there is cogent long-term evidence that the industry is truly suffering at the hands of OTT providers, it may be too late to effectively undo the damage that has been done.  Today’s decision suggests the CRTC has attempted to adopt a middle ground approach, preferring frequent and active monitoring to enable early detection of any demonstrable negative impacts on the Canadian broadcasting systems – before those impacts become too significant.  The success of this approach, of course, remains to be seen.