Netflix, Technological Neutrality, Fair Dealing, Procedural Fairness and the Copyright Board of Canada

Back on September 24, 2014, I posted about how Netflix was seeking judicial review (i.e. an “appeal” in laypersons’ terminology) of a Copyright Board Tariff decision. Part of what I said then was this:

The whole technological landscape changed when Netflix launched streaming internet based video into Canada in September, 2010. Netflix was technically only an intervenor in the Board case. It is upset that the Board imposed a tariff on the one-month “free” trial membership that Netflix offers. 

Here is how Netflix is affected by the Board’s tariff:

“For a service that offers subscriptions to end-users: 1.7 per cent for the years 2007-2010 and 1.9 per cent for the years 2011-2013 of the amounts paid by subscribers. In the case of free trials, a minimum monthly fee of 6.8¢ for the years 2007- 2010 and 7.5¢ for the years 2011-2013 per free trial subscriber shall apply;”

Fair dealing for Netflix is clearly an issue. $0.068 per customer per month for free trials adds up over the years with as many millions of customers as Netflix has. Also unresolved and up in the air are issues around “downloads” and “making available right” – on the one hand, the Board says that SOCAN not entitled  but then the tariff refers to liability for downloads.

The Federal Court of Appeal (“FCA”) per Nadon, J.A. has now ruled. There is a complex history to this case going back almost a decade to 2006, which is recited in the judgment and should be read by all Copyright Board watchers. It is also noteworthy that this judicial review application was argued on October 5, 2015. The Supreme Court of Canada’s ruling in CBC v. SODRAC was rendered on November 26, 2015. This Netflix decision was rendered December 17, 2015.

Here, in the interests of immediate information with minimal comment, is the succinct bottom line of the FCA:

[52]           Before concluding, I would simply say that, in the end, rules of procedure are there to serve the interests of justice. In my view, justice in this case required that Netflix be given the opportunity of putting its case forward with regard to the issues of fair dealing and technological neutrality.

VI.             Conclusion

[53]           I would therefore allow the application for judicial review with costs, I would set aside the Board’s decision insofar as it pertains to royalties on free trials and I would return the matter to a differently constituted panel of the Board for redetermination in accordance with these reasons.

            (highlight added)

Some interesting questions naturally arise immediately: 

•  What effect might the CBC v. SODRAC decision have had on this case, if the ruling had been available at the time of argument?
•  What effect will it have if this case goes back to the Board for redetermination?
•  What effect will it have, if SOCAN should seek leave to appeal from this decision to the Supreme Court of Canada?
•  Given that two of the three members of the Copyright Board who decided the original decision in 2013 are still on the Board, and only one new member (the Chair, Justice Robert Blair) has since been appointed and there are no other currently appointed members, how will the unusual but clearly intentional reference to “a differently constituted panel” play out? Will Section 22 of the Interpretation Act concerning "quorum" need to be considered?

Other comments will doubtless follow from me and others.

HPK

Cable, Cord Cutting, Retransmssion, Costs and CDN Copyright Board: “It Was Twenty Years Ago Today” - More or Less

On Tuesday, November 24, 2015 at 10:00 a.m. in the Copyright Board's hearing room at 56 Sparks St. in Ottawa with the Board’s new Chair, the Copyright Board will hear the first contested retransmission tariff hearing in 20 years. To somewhat oversimplify, the collectives want $2.00 a month per subscriber increasing to $2.38 by 2018. The Broadcast Distribution Undertakings (i.e. “BDUs” or cable and satellite companies) want to continue at the current agreed upon amount of $0.98 per month decreasing to $0.90 by 2018.

The retransmission tariff results from Copyright Act amendments made in 1988 so that Canada could enter into the then new FTA with the USA. Along with the abolition of compulsory licenses for generic drugs, this was a very major concession to the USA in the FTA process.

Canada, unlike the USA, did not spell out a formula in the legislation for what was to be a distant signal and left the mechanics of it all to the then new Copyright Board. Distant signals were eventually defined by regulation in an ultra-complex manner potentially much more generous to copyright owners than the US mechanism. The Board’s first tariff in 1990, following an extremely long “inaugural” tariff hearing, was worth about $53 million p.a., an amount about 9 times more than anyone ever expected at the time – even including the proponents of the tariff. A rather tepid subsequent “criteria” regulation resulted in a very modest cutback of about $3 million a year in 1993. For twenty years, Canadian cable subscribers paid $0.70 per month that was included in their cable or satellite bill for access to “distant” signals. This amount was increased to $0.98 per month in 2013 and so certified by the Board pursuant to a negotiated agreement.  

Recently published estimates of the value of the tariff confirm that it is now worth more than $100 million p.a. While $0.98 or $2.00 per month would seem like a small amount compared to monthly cable charges that can range from about $40 to about $119 per month, for example, in the case of Rogers, it quickly adds up to a lot of money for the major parties concerned. To what extent this cost is passed on to consumers and to what extent it may contribute to “churn” or cord cutting are probably very interesting questions that may be addressed in this hearing.

An interesting aspect of the change in environment that does not seem to arise on a quick scan of the parties’ cases is that of the issue of vertical integration in the BDU industries. Certain BDUs are now major content owners. How does this affect the positions that they take at the Copyright Board and at the CRTC?

The economics of cable costs and the willingness of consumers to pay the cable pipers may be about to change, with the increasing rates of  “cord cutting” and reliance on over the air digital signals, Netflix, and other means of access to programming. These issues may arise to some extent during this hearing -   though it should be noted that this hearing is about 2014 – 2018 and we are almost half way through the period covered by the proposed tariff.

In the long run, however, if the “cord cutting” and other trends continue, this could be another example of a tariff that will become obsolete sooner or later, along with the private copying levy, reprography, media monitoring. Meanwhile, it seems to be worth everyone’s effort to invest in a large and no doubt expensive cast of lawyers and experts, including some of the “usual” suspects in terms of expert witnesses.

It will be especially interesting to see to what extent the Board deals with such issues as cord cutting, the recent “pick and pay” ruling by the CRTC.

In this regard, it will be interesting to see whether the Board assumes a more than usual “inquisitorial” role by asking its own questions and relying on its own research to some extent rather than relying solely on the parties.

This may be one of the most complicated, arcane and least exciting or readily understandable tariff issues that have faced the Board in recent years – but for the time being could be the most economically significant hearing to date. This seems to be the single most lucrative tariff under the Copyright Board’s jurisdiction. Although it looked for a time as if private copying or “reprography” might eventually rival the retransmission tariff, both of these tariffs are headed towards potential oblivion in the absence of some dramatic reversal of fate. This, too, could happen someday to retransmission – but not likely this time around unless the Board decides to say “a pox on both your houses”.

It is also the occasion that is expected to mark the debut of the Board’s new Chair, Justice Mr. Justice Robert A. Blair of the Ontario Court of Appeal.

In any event, here are the key documents in this file:

Collectives’ Statement of Case dated May 8 2015

Objectors’ Statement of Case dated October 22 2015

Applicants Reply Case November 15 2015

Enjoy.

HPK

Another Netflix Canadian Close Encounter of the Regulatory Kind

 

Netflix, as is well known, is having an interesting time with Canadian federal regulation these days. At the CRTC, it is disputing that tribunal’s jurisdiction to regulate Netflix in any way, including the demanding of information. Netflix is also currently engaged in another less visible proceeding at another federal tribunal, namely the Copyright Board that, although less dramatic, is still very interesting and potentially important. On July 18, 2014, The Board released its decision in STATEMENT OF ROYALTIES TO BE COLLECTED FOR THE PERFORMANCE IN PUBLIC OR THE COMMUNICATION TO THE PUBLIC BY TELECOMMUNICATION, IN CANADA, OF MUSICAL WORKS. 

This Board tariff file goes back to 2006 when Netflix was heavily engaged in DVD rental and smartphones were something new and exciting.  In the meantime we have had several potentially relevant SCC cases on technological neutrality and fair dealing and new legislation from 2012 that arguably should have had a major impact on this case.

The whole technological landscape changed when Netflix launched streaming internet based video into Canada in September, 2010. Netflix was technically only an intervenor in the Board case. It is upset that the Board imposed a tariff on the one-month “free” trial membership that Netflix offers.  

Here is how Netflix is affected by the Board’s tariff:

“For a service that offers subscriptions to end-users: 1.7 per cent for the years 2007-2010 and 1.9 per cent for the years 2011-2013 of the amounts paid by subscribers. In the case of free trials, a minimum monthly fee of 6.8¢ for the years 2007- 2010 and 7.5¢ for the years 2011-2013 per free trial subscriber shall apply;”

Fair dealing for Netflix is clearly an issue. $0.068 per customer per month for free trials adds up over the years with as many millions of customers as Netflix has. Also unresolved and up in the air are issues around “downloads” and “making available right” – on the one hand, the Board says that SOCAN not entitled  but then the tariff refers to liability for downloads.

Netflix started a judicial review (in layperson’s terms, an “appeal”) proceeding on August 14, 2014. This will take about a year or more to resolve in the normal course of events. Here is the Notice of Application.  For reasons that are not immediately apparent, Netflix has named the Attorney General of Canada and the Copyright Board itself as respondents.

Quite apart from the legal issues, which are interesting enough to say the least, the whole process raises questions about timing and the role of the Copyright Board where our copyright oversight regulatory system moves inexplicably slowly but affects – inevitably retroactively – enormous and innovative industries that move at the speed of the internet. We have a tariff application here that started in 2006 at the dawning of the smartphone age and well before the age of tablets that was decided by the Board eight years later and long after internet on-demand movies had become widely available. With the almost inevitable judicial review we now see from Copyright Board decisions, this battle is still far from over.

This is another instance in which regulations concerning the procedures and timelines for Copyright Board hearings might have been helpful.

HPK

Netflix and the "Doomsday Scenario"

A report by Peter Miller (who is not the same Peter pictured above from the doomsday finale of Dr. Strangelove), formerly of the CAB, CHUM , etc., has just been released by the CRTC, which commissioned it.

It is entitled Developments in the Canadian Program Rights Market 2011. It is essentially a description of the threat to the relatively comfortable status quo of Canadian broadcasting posed by "Over- the-Top TV" in the form of Netflix, which is available by the internet. 

The paper makes an interesting read and is very evocative about the ongoing phenomenon of old business models resisting innovation. The term '"doomsday" scenario' is actually used.

Yes - we all say we want Canadian content. But does the production and distribution of quality Canadian content really require a labyrinth of laws, regulations, policies and practices that effectively stifle competition, innovation and technology?

The paper candidly admits that two of the "competitive and structural advantages" supporting "a distinct and separate marketplace for Canadian program rights" include:

• Usage-based billing and low bandwidth caps that discourage use of OTT as a replacement for BDU service
• Vertical integration, and the common incentive BDU/broadcasters have to purchase exclusive multiplatform rights, to preserve the BDU franchise 

This seems to suggest that that it's a good thing that Canada has:

• UBB that makes Canadian internet services among the most expensive in the world - and coincidentally forces Netflix to degrade its quality to Canadians to fit within these artificial caps and favours the delivery of higher definition movies purchased from from the ISPs rather than Netflix
• An astonishing regulatory tolerance of vertical integration with respect to all major aspects of the content, communication, and media sectors  (including cross ownership in potentially competitive sectors within those categories, such as ISPs v. BDUs, print news media v. online, etc.)

Once again, incumbent business models prepare to resist new technology and competition.

The world survived the player piano, radio, TV, the VCR, and computers.

How many more "doomsday" scenarios must we endure before legacy industries stop being Luddites?

HK

PS

Lest we forget perhaps the most unforgettable "over-the-top" and seriously wrong doomsday copyright prediction ever:

"I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone."

Jack Valenti, President of the Motion Picture Association of America in 1982. See WIPO Magazine article.