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The acquisition of new program rights has never been more complicated in Canada due fragmentation in the marketplace and competition from new over-the-top players such as Netflix, say two new reports on the changing world of foreign television program rights acquisition.
"Simply put, rights acquisitions have never been more complex and challenging, and "business as usual" is not an option," writes Paul Gratton, the former VP of original programming for the CHUM organization, in a report he wrote for Bell Canada which was made part of the evidence presented at the CRTC's vertical integration hearing on current North American developments in rights acquisition.
In a similar report commissioned by the CRTC, Peter Miller, a senior communications lawyer and engineer, concluded that the Canadian programming rights market is still healthy but that there are a number of factors that could "act against the maintenance of a separate Canadian program rights market, particularly in English Canada."
According to Miller, many of those factors come down to competition from foreign-owned over-the-top content providers - primarily Netflix - that do not have to contend with regulatory contributions to Canadian content, focus primarily on cheaper, non-exclusive content, and benefit from low distribution costs.
Netflix, which entered the Canadian market last fall with a $7.99/month subscription-based video on-demand service, has often been characterized as "rerun TV."
"By and large in the United States, Netflix's strategy up until now has been to buy the rights for rebroadcast to past seasons of shows," Duncan Stewart, Deloitte Canada's director of research for telecom and media, told Cartt.ca.
Miller notes in his paper that Netflix has taken some recent steps to acquire, and produce, more exclusive content for Canada and the U.S.
On March 28th this year, Netflix outbid Corus Entertainment and Astral Media by a large margin to acquire exclusive Canadian Pay TV rights for 350 titles from Paramount Pictures" library. Ten days earlier, Netflix reportedly spent about $100 million to purchase the exclusive rights to stream 26 episodes of a new premium drama series called House of Cards that will star Kevin Spacey and be directed by David Fincher. The company outbid American cable brands AMC and HBO for the rights to the show.
Miller ponders if those moves to acquire exclusive video content could be the first of many for the rapidly-growing American company. "As TV viewing moves more on-demand and more online, the business opportunity for foreign OTT [over-the-top] providers can only grow with it, and the threats to Canadian broadcasters only increase," Miller wrote.
Stewart has contended that even in the United States, where over-the-top content providers have a stronger foothold than in Canada, those services remain complimentary to traditional broadcast television and are not a replacement. Just 0.13% of all the TV that Americans watch is from over-the-top services, he said.
Howard Bernstein, a former television producer who has worked for most of the major English networks in Canada, said the threat Netflix could pose to Canadian broadcasters has been overblown. "If Global or CTV want a show they're going to get it. They have the money behind them to get the show," he said.
"For the immediate future, vertically integrated Canadian operators will continue to have enough buying leverage to ensure that as many rights as possible remain under their control," Gratton wrote in his report, echoing Bernstein"s thoughts.
But Gratton concludes that the Canadian rights acquisition marketplace is closer than ever before to a tipping point where it could be undermined by the advantages that foreign-owned over-the-top players enjoy.
On May 25, 2011, the CRTC started a fact-finding exercise to investigate the impact over-the-top services have on the Canadian broadcasting system.
Alain Gourd, the chair of the Online Broadcasting Working Group, which has lobbied the regulator to initiate the consultation on new competing content delivery services, said in an interview that he is confident the CRTC will take the appropriate approach to integrate over-the-top services into the Canadian broadcasting industry.
But even members of the working group, which is made up of Canadian television industry insiders, disagree on what course of action the CRTC should take and the group has now requested an extension.
Gourd said that Pierre Karl Péladeau, president and CEO of Quebecor Inc., believes that all Canadian television services should be deregulated. But the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) has said that Netflix should be regulated something like a traditional broadcaster to provide contributions to the Canadian broadcasting system.
In his report, Miller notes that the French-language market, which Péladeau represents through the TVA network, has a very low reliance on foreign product and is not under threat for program rights acquisition. The English-language market, which ACTRA represents, is far more dependent on American programming dollars and in more direct competition with foreign over-the-top content providers.
Bernstein said over-the-top content providers like Netflix should not be regulated by the CRTC because they do not hold a broadcasting licence. "It's a ludicrous idea but I don't blame them (the Canadian broadcasters) for trying," he said.
Stewart said it would be very difficult to impose Canadian content requirements on Netflix, anyway. "When you're dealing with the Internet it's impossible to monitor or to compel viewers to watch a certain number of hours of Canadian content," he said.
The CRTC could require Netflix to carry a certain percentage of Canadian content in its library, but because all the video is on-demand, there is no way it could guarantee that Canadians would watch the home-grown content.
As for Canadian content contributions, Stewart said the CRTC could require Netflix and other over-the-top service providers to set aside a certain percentage of their revenues to television and film production funds.
Gourd said the short-term effect Netflix and others will have on Canadian broadcasters looks to be minimal but he added that the regulator and the industry needs to think about the long-term outcomes that will stem from the rapid changes in the industry. "When a new technology or distribution platform is introduced it's probably never as major as we expect in the short term but it gets greater in the longer term," he added.
Source: Cartt | June 7, 2011
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