Coalition calls on CRTC to examine Internet services like Netflix

A broad coalition of Canadian companies wants the country’s telecom regulator to examine the operations of Internet-based services like movie provider Netflix Canada.

The 40-member group from the telecommunications, broadcasting, cable and satellite and production sectors, along with unions, has asked the CRTC to initiate public consultations on the industry.

It wants the Canadian Radio-television and Telecommunications Commission to extend the watchdog’s examination of Canada’s online industry to include foreign services.

Companies such as Corus Entertainment, Rogers Communications, Astral Media and others all backed the initiative.

Norm Bolen, CEO of the Canadian Movie Production Association, said the goal is not to block any services or keep them out of Canada.

“It’s about finding a way to make sure that we find a balance that allows the Canadian system to continue to operate successfully,” he said in an interview.

Netflix began operating in Canada last fall, offering movies and television episodes instantly over the Internet for a monthly fee.

Companies such as Netflix that offer “over the top services” are exempt from rules that require distributors and broadcasters to fund Canadian content and programming.

The industry critics fear that overall funding will be reduced as viewers bypass distributors which pay a percentage of their revenues for the creation of Canadian content. These companies may also have a harder time obtaining content as Netflix and others obtain exclusive rights to shows.

No single solution, such as fees, is being advocated at this time, Bolen added.

“There’s not just one path. The general principle is they should make a contribution of some kind, but what that would be is open to discussion.”

Radio and specialty TV operator Astral Media Inc. said Thursday that it has joined the effort in an effort to maintain a “level playing field” in the Canadian system.

The system is a “very positive and strong element in terms of our Canadian culture, identity and the Canadian economy,” Astral chairman Andre Bureau said in a conference call Thursday.

“So we have that in mind, and we are trying to make sure that we see the regulator looking at it from the same point of view,” said Bureau, who was CRTC chairman from 1983 to 1989.

Netflix couldn’t be reached for comment but has argued it should be exempt because it is a distributor, not a producer of content.

The CRTC declined to regulate new media platforms in 2008 despite acknowledging that video delivered over the Web qualifies as broadcasting.

CRTC spokesman Denis Carmel said the regulator hasn’t yet decided what to do with the request but will take it into account.

In a tweet on his Twitter account, Industry Minister Tony Clement said “that CRTC regulating Netflix would be offside our govt directive to encourage more choice and competition.”

The request to the CRTC comes as Corus Entertainment’s chief executive said he sees opportunities for his company amid the increasingly competitive marketplace for video content.

John Cassaday said earlier Thursday he doesn’t think Netflix’s streaming content will encourage Canadians to cancel subscriptions to specialty TV and pay channels like Movie Central and HBO Canada.

Both media companies said higher advertising revenues helped to boost their profits in the second quarter.

Astral’s net earnings increased by three per cent, slightly below analyst expectations.

The operator of pay and specialty television, radio, out-of-home advertising and digital media properties, said net income for the three months ended Feb. 28 increased to $34.8 million from $33.6 million in the year-earlier period.

The results were equivalent to 61 cents per share, three cents higher than last year but below analyst expectations of 63 cents per share, according to a survey by Thomson Reuters.

Revenue increased seven per cent to $232.7 million, above expectations of $230.6 million, and above year-ago results of $218.3 million.

“I’m obviously pleased with Astral’s performance in the second quarter and by the fact that once again all our business units contributed to our results,” chief executive Ian Greenberg told analysts and reporters.

He said the results marked the 58th consecutive quarter of profitable growth.

Greenberg expects Astral will end the fiscal year surpassing $1 billion in revenues for the first time in its 49-year history.

Astral said television revenues grew by seven per cent, radio revenues were up just 3.4 per cent and outdoor revenues increased 17 per cent.

The television revenues included a 17 per cent growth in advertising and a five per cent increase in subscription revenues as the number of pay TV subscribers increased 4.6 per cent to 1.9 million.

Drew McReynolds of RBC Capital Markets said the overall results were generally in line with his expectations.

However, he said the radio segment was weaker than expected and below the five per cent revenue growth reported by Corus Entertainment.

“We believe (this) mainly reflects tougher comparisons coming given the geographic mix and Astral’s relative resilience through the recession,” he wrote in a report.

Astral is in the midst of wrapping up a cost-reduction plan in its radio division that should boost profits in the second half of the year.

Jacques Parisien, executive vice-president and chief operating officer, wouldn’t exclude that the effort might result staff cuts, but added that it wasn’t the point of the exercise. “The program is aimed at looking at all our ways of operating but it’s too early to talk about job losses,” he said.

With its 21 television services, Astral is Canada’s largest pay and specialty TV broadcaster. It is also the largest radio company with 83 radio stations in 50 Canadian markets, and the third-largest outdoor advertising company.

On the Toronto Stock Exchange, its shares closed down 28 cents to $36.92 in afternoon trading Thursday.