Mark Goldberg


www.mhgoldberg.com





Fox Group Dispatch

Nobody wins in challenge of CRTC authority

Apparently, Netflix has decided to challenge the CRTC’s authority to regulate new media by refusing to comply with a Commission order on Friday to file commercially sensitive financial information.

As a result, we find ourselves in a battle that can have no winners: not Netflix, not the CRTC, not the government and certainly not Canadian consumers or creators.

Let’s review how we got here.

Netflix appeared voluntarily in front of the CRTC’s Talk TV consultation, having been invited by the Commission to present its perspectives. Google appeared at the beginning of the hearing on the same basis, a little over two weeks ago. Its lawyer was subjected to a somewhat hostile welcome, making many of us question whether Netflix would even show up last Friday.

Still, Netflix knew that the CRTC would be seeking details of their operation in Canada and apparently started a conversation with Commission counsel in advance of its testimony.

21002 MS WRIGHT: So we don’t publicly disclose subscriber data outside of the U.S. However, we have reached out to counsel at the CRTC to discuss how we can best make that available to you on a confidential basis.

The issue is that companies are able to file information confidentially with the CRTC, but there is a public interest test in Canada that allows third parties to ask the Commission to place information on the public record that has been filed confidentially. Netflix counsel was aware of that problem and sought guarantees that its commercially sensitive information would not be disclosed.

The start of Canada’s crisis in authority began with this breakdown:

21009 THE CHAIRPERSON: The CRTC protects confidential information every day.
21010 MS WRIGHT: I understand.
21011 THE CHAIRPERSON: We have lots of confidential information, like many government departments. You coming here and suggesting that we don’t treat information confidentially is actually a bit offensive.

One only needs to look at the filing of information this past summer in the wireless wholesale proceeding to see an example of where the CRTC has not accepted company claims for confidentiality.

The Commission is therefore not persuaded that disclosure of the requested information would likely result in significant specific direct harm to any party. The Commission also considers that there is a strong public interest in disclosure of this information.

So, Netflix was rightfully concerned about groups seeking public disclosure of their information. At one point (line 21104 of the transcripts), the CRTC chair said “Confidentiality will be granted to the information” but, as Netflix counsel knew, that was not sufficient, leading her to say:

21125 MS WRIGHT: Subject to the terms that we discussed before, Mr. Chairman; if you can guarantee the confidentiality, we will be happy to —
21126 THE CHAIRPERSON: I have never used the word “guarantee”. I have said that we are ordering you to provide it, and I am doing so again with the question that the Vice-Chair just asked, and it will be granted confidentiality.

One can imagine a long list of intervenors, such as the creative community unions and others who sought to tax streaming video, who would have argued for the public interest in these details. The Chair could not guarantee preserving the confidential status, despite his attempted assurances earlier that “The CRTC protects confidential information every day.” But other parties in the proceeding would be given their opportunity to argue for its disclosure.

The public interest in this data is significant. After all, the CRTC vice-chair exclaimed during the exchange:

21271 COMMISSIONER PENTEFOUNTAS: That’s a heck of an answer for someone that takes perhaps hundreds of millions of dollars out of the Canadian economy, Ms Wright. So if you can help us, we’d appreciate it.

That is hundreds of millions of reasons for the public to want to know what Netflix is doing in Canada.

But now we have an outright challenge of the CRTC’s authority. The CRTC threatened Netflix in a manner that seems unlikely to be carried through:

21038 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.

So, Netflix has decided to test the Chair of the CRTC, saying “the orders are not applicable to Netflix under Canadian broadcasting law.”

What happens if the CRTC decides that Netflix is in violation of the Exemption Order? If Netflix is no longer exempt, it is ineligible for a broadcast license since it is not owned and controlled by Canadians. Does anyone expect the CRTC to order the blocking of a service that is being received by quarter of Canadian households?

Do we think the government will support any disruption to Netflix operating in Canada, when a quarter of all households are estimated to be subscribing?

Still, should we not expect respect for orders issued by a legitimate tribunal? This wasn’t about taxing over-the-top media. This didn’t need to be about testing whether the CRTC has the authority to regulate Netflix or YouTube.

Will the Government support the CRTC or support a foreign company “that takes perhaps hundreds of millions of dollars out of the Canadian economy” flouting a number of legal orders? How should the CRTC and government respond to this challenge to Canadian governmental authority?

Consumers lose either way, whether the CRTC’s authority is weakened or Netflix decides that operating in Canada is no longer worthwhile. If Netflix chooses not to invest in Canadian production because of our hostile environment, Canada’s creative community loses.

There were certainly options that could have provided the CRTC with the information it needed while safeguarding sensitive financial information.

It is unfortunate that cooler heads did not prevail last Friday morning.

5 comments to Nobody wins in challenge of CRTC authority

  • In Broadcasting, after public disclosure is granted, the parties still have the option to maintain confidentiality by removing the information from the record (section 34(2) of the CRTC Rules of Practice and Procedure). I wonder whether this would apply to information submitted as part of an undertaking.

  • As the transcript shows, Netflix would not accept an undertaking. The CRTC repeatedly ordered production of the information by Netflix.

  • Jason Koblovsky

    Netflix is the least of thier worries Mark. Big Tech set to get into over-the-top content distribution within the next 5 years. Regulating such content at this time will be a protesionist messure that will only serve to prop up failing distribution chains. I have a blog post forthcoming. It’s not just Netflix talking here. I don’t think, the Netflix execs know how to respond to this in full. Have a feeling if CRTC moves forward with this, they are going to run into big tech in a big way.

  • Dr.RTFM

    How does Netflix lose? They have no physical presence in Canada and can happily continue to service Canadian customers with or without the CTRC’s blessing. The only thing that particularly ties them to Canada is netflix.ca which is merely a redirect to netflix.com. Is the CRTC seriously going to propose blocking access to netflix.com? Does the CRTC know so little about technology to understand how trivial that is to evade?

    Sorry, but it’s game over, already, in terms of content regulation. That regulation was always based on government ownership/control of spectrum; technology has changed to the point that spectrum control is no longer relevant, destroying the whole basis for content control. All we are currently deciding is who the content winners will be and as long as the regulators persist with the naive view that they can limit foreign content, local content creators will think they can continue to produce crap. Canadians aren’t accepting the crap any more. Game over.

  • Peter Miller

    Good comments in the Hill Times article, Mark. Needed to be said.