Canadian Netflix About to Get Pricier?

Canadians love Internet success stories such as Netflix and Google as recent data indicates that millions now subscribe to the online video service and Google is the undisputed leader in search and online advertising. The changing marketplace may be a boon to consumers, but it also breeds calls for increased Internet regulation. That is particularly true in the content industry, with the film and music sectors recently calling for rules that would target online video services, Internet providers, and search engines.

The Canadian Media Production Association, which represents independent producers of English films and television shows, recently told a Senate committee that new rules are needed to address the threat posed by popular Internet video services such as Netflix. The CMPA argued that a "level playing field" is needed to ensure that there is "choice, diversity and growth in a more open market place."

Consumers could be forgiven for thinking that the entry of Netflix into Canada has increased choice, diversity, and growth, yet the CMPA wants new rules that would raise costs and impose regulatory requirements on online video providers.

Using Netflix to benefit Cancon

Its recipe for reform includes three specific changes that target Netflix. First, it wants new rules requiring foreign-based content companies to contribute to the creation of new Canadian content. The CMPA has not suggested a formula for contributions nor explained how it would distinguish between online services mandated to contribute and those exempted from such requirements.

Second, it wants to require Netflix to block the use of proxy services that can be used to disguise the geographic location of a user. Those services -- which are popular with privacy advocates since they allow users to safeguard their personal information -- can also be used to access the U.S. services that are otherwise unavailable in Canada such as Hulu or the U.S. version of Netflix.

Third, it wants Netflix to levy taxes on all subscriptions, raising broader questions about taxation issues for the myriad of online services that challenge conventional notions of jurisdiction.

Google intervention

The CMPA is not alone in advocating for new Internet-related rules. Music Canada, formerly known as the Canadian Recording Industry Association, has also begun to push for changes that could target Internet providers and search engines.

Late last year, the organization noted the need for website blocking to combat sites that facilitate infringement. Graham Henderson, the Music Canada president, wrote that government support (which now runs into the tens of millions of dollars in Ontario alone) should be accompanied by "judicious and reasonable regulation of the Internet. The actions taken by courts in other jurisdictions have very reasonably required ISPs to block websites that are almost entirely dedicated to the theft of intellectual property." Website blocking has proven highly controversial in many countries, with some courts striking down blocking laws on free speech grounds.

The blocking requirements would target Internet service providers, but Music Canada has also identified search results as a problem. In a presentation to the Ontario Standing Committee on Finance and Economic Affairs, Henderson claimed "consumers cannot find legal services on Google," adding that "with government support, maybe we can urge intermediaries to actually do something to help consumers find legitimate sources, because I think they’d like to." Whether that means requiring companies like Google to adjust their search results by eliminating some results or by prioritizing industry-friendly websites is unclear, yet the comments suggest the industry would favour some form of intervention or government pressure.

The Canadian government has to date been reluctant to wade into the Internet regulation debate. Moreover, regulators such as the CRTC have long exempted online services such as Netflix from broadcast-style regulation. Yet as online services continue to reshape the marketplace, the pressure for new rules seems likely to intensify.