I wanted to do the Hybrid VOD part of today’s decision separately because I think it warrants a little more context. As you will recall from my earlier post You Can’t Always Get What You Want, Shomi and CraveTV were oddly set up from a regulatory perspective. I struggled to understand how they were licensed and then finally it became clear to me (with some help from friends in the know) that both services were actually two services rather than one. The VOD service on your set-top box was regulated as a VOD service and the OTT service on your tablet/computer/phone was exempt under the Digital Media Exemption Order. That created the very odd situation that the VOD service had CanCon obligations but the OTT version did not but the consumer thought it was all the same service.

Very confusing, right? Even executives at Shomi and CraveTV were confused as they publicly stated that they had no CanCon obligations at both Banff Connect and Prime Time (though Bell’s Kevin Goldstein had no doubts about the twin-spirited nature of CraveTV).

The other problem though was that as an authenticated service (you have to identify yourself as a subscriber of a cable or satellite company that has a business agreement with Shomi or CraveTV as the case may be), if you were a subscriber of say Rogers then you could not subscribe to CraveTV. Or vice versa.

Today’s decision focused on the issue of exclusivity, which is a third issue that addresses the problem that, for example, Bell subscribers have no way of seeing “Transparent”, which is exclusive to Shomi. The CRTC’s argument is that it is ok if Netflix has exclusive content (e.g. “The 100”) because any Canadian can access it through their choice of internet provider. The same cannot be said of the exclusive content licensed by Shomi and CraveTV.

So the CRTC created a new licensing category for these ‘Hybrid VOD’ services, which makes total sense to me. The CRTC reiterated that to operate in Canada a service has to be authorized by the CRTC under a licence or an exemption order and then it must abide by the rules of that authorization (*cough* Netflix *cough*).   If a service is going to operate under the Digital Media Exemption Order then it has to be available to all Canadians over the internet. So a Hybrid VOD service can only take advantage of the Digital Media Exemption Order (and therefore no CanCon obligations) if it is ‘offered on the Internet to all Canadians without authentication to a BDU subscription’. Those exact words are key because Bell Media has always said that they offer CraveTV to Rogers and Shaw and it’s not their fault that Rogers and Shaw aren’t interested. The CRTC has sidestepped the whole issue of competition by saying that no BDU subscription can be required.

The exact wording of the new exemption has to still to be agreed upon and that could be contentious as Bell, Rogers and Shaw all fight to stay both exempt and not exempt. And we know that Bell is not afraid to appeal. So don’t expect any changes overnight but they could be coming.

“While content remains king, the incontestable truth is that the viewer is Emperor.” – Jean-Pierre Blais

Today Jean-Pierre Blais, Chair of the CRTC, announced a Talk TV decision focused on content.  Honestly, I’m not sure if the decisions will make the viewer feel that they have all the power but they are definitely going to change the landscape.  They range from minor decisions to major ones and also more than a few suggestions for other agencies. I counted 16 separate topics in the decision, with many of those topics referring to future proceedings or licence renewal hearings. So the world isn’t changing today. Well, it is a little.

The big picture message is that while we are not yet in an on demand world, in order for Canadian programming and broadcasters to compete in that evolving on demand world, not only does regulation have to change but so does the production sector. The emphasis is on big budget drama production that will be able to compete with American programming and internationally and will be easier to promote. This causes some concern for anything other than big budget drama programming. But let’s get into the highlights of the decision first.

First, many of the exhibition quotas for Canadian programming will be eliminated at the next licence renewal. The 50% Canadian in prime time quota has been retained for conventional broadcasters as the evidence shows that for those broadcasters, that is when most Canadians are watching television. It has been removed for the overall day and specialty services will have a flat 35% quota. It had been suggested during the hearing that Canadian quotas could be removed for the daytime and few, if anyone, had objected. It should also be noted that part of the rationale was that in order to meet the current quotas, many broadcasters were airing the same shows across their services with excessive repeats so the quotas were not achieving the desired goal of increase choice of quality Canadian programming. That’s hard to argue with.

Next, all services (except for those with fewer than 200,000 subscribers which will now be exempt from licensing and therefore all regulation) will now have a Canadian Programming Expenditure requirement. They will be maintained at current levels until the usual review at licence renewal, at which time services without a CPE will be assessed one based on historical spending. This gives services time to adjust, though there should be little adjustment. It widens the base and ensures that everyone is participating in the system. It is also the next step in the plan to ensure there is more money spent on quality programming.

Then we have the pilot projects. If you were following the Talk TV hearings you might remember John Morayniss of EOne Entertainment talking about his idea to have a category of program funding for bigger budget but less Canadian (and therefore more commercial) programs. It seemed out of place because it had little to do with the topics of the hearing or CRTC jurisdiction but Blais loved the conversation.   Now we see just how much he liked the conversation as evidenced by the two pilot projects.

For both there will be two types of programs that will be certified as Canadian though they do not fall within the guidelines. One is for adaptations of successful Canadian novels and the other is for programs with budgets over $2 million. They must have Canadian screenwriters, one lead performer and 75% of the costs paid to Canadians (not spent in Canada but TO Canadians who might live anywhere) but they do not have to be owned by Canadians. Note that while they are certified Canadian and qualify for broadcast purposes, those productions will not qualify for other domestic funding programs such as CMF or the domestic tax credit (though they will for the production service tax credit) so I assume that the thought is that a U.S. studio or broadcaster will happily finance most of the cost.

I’m very curious to see how often these exceptions are used. Keep in mind that broadcasters have steered away from literary adaptations lately because it is more cost-effective to promote ongoing series than a one off television movie. Also, it is a fundamental concept of government funding that it support the development of a Canadian industry. It is questionable to what extent a big budget drama owned by non-Canadians and created by and starring Canadians living in Hollywood helps the Canadian industry.

In addition to wanting to shift support to ex-pat Canadians, the decision also suggests that there are too many producers in Canada. Too many are thinly capitalized and are not sustainable as they live project to project. I will not argue that point but I will question how the sustainability of the independent production sector is the CRTC’s responsibility? It does have to ensure that the broadcasting system includes a significant contribution from that sector but that’s it. At the same time, the decision talks about wanting broadcasters to own more of the content so that they have an incentive to promote it, which is contradictory to an independent production sector with a focus on international sales. Broadcasters (Blue Ant and Corus say this repeatedly) want to own 100% of a program, relegating the producer to nothing more than the service producer that the decision complains about.

The CRTC urged provincial and federal governments to review their funding guidelines to incentivize co-production, promotion, foreign distribution and original online production, find new mechanisms to support sustainability and for the CMF to remove broadcast triggers for its funding. All those decisions are outside their jurisdiction. The CRTC will review the policies for certifying independent production funds such as the Independent Production Fund and Shaw Rocket Fund to ensure that they allow for ‘greater flexibility’. It is hoped that any major change would only be as the result of a hearing and not just imposed on those funds.

The genre exclusivity policy and nature of service definitions are gone immediately. There will be nothing to stop History Channel from airing more shows about Outlaw Bikers or to stop OLN from airing Whisker Wars. Except the market. It is up to you now to ensure diversity of programming (and no dreck). Make your voice heard. One of the problems with enforcing genre diversity was the constant attempts by group broadcasters to air programs across their group, regardless of the service’s genre. It is expected by the CRTC that with lower Canadian quotas there will be less pressure to do that (but they’ll still be motivated to lower costs by amortizing programming across services).

So once producers have produced bigger budget dramas and broadcasters have them in prime time then what? Promotion and discoverability.   Starting today, independent broadcasters (i.e. Vision, Oasis, APTN) will be able to spend up to 10% of their Canadian Programming Expenditure requirement on promotion costs. The big vertically integrated companies have sufficient resources and do not need that break. The CRTC believes that more needs to be done to ensure discoverability in an on demand world but isn’t sure exactly what (very little was said at the hearing) so will be convening an invite-only Discoverability Summit in Fall 2015 to try to determine what can be done.

You will notice of course that the emphasis here has been on big budget drama. If I was interested in producing any other kind of drama or say maybe a documentary, I might start packing my bags. The kids producers might want to hold off on packing just yet as the CRTC did admit that there was conflicting data at the hearing (basically kids programming organizations said the sector was at risk while broadcasters said it was not) so they want to get hard evidence. There will be a hearing to create kids program categories so that the data can be tracked. That puts a decision a few years down the road but it is a necessary first step.

That’s enough for this post. The Hybrid VOD part of the decision deserves its own post.