Sean Speer: The case against the Online Streaming Act (and in favour of an open cultural policy)

Recent speculation about Prime Minister Justin Trudeau’s political future has put heightened attention on the political legacies of prime ministers. It invariably leads to interesting discussions about the durability of one’s policy accomplishments. Can a prime minister’s policy agenda ultimately withstand an eventual change in government?

For a long time, former Prime Minister Jean Chretien’s enlightened decision in late 1999 not to regulate internet content endured across successive governments. It represented a huge political legacy that one can argue may have been among his most significant policy decisions.

Not only did it enable an explosion of creativity, innovation, and opportunity for Canadian consumers and content creators, but it also fortuitously created a controlled experiment between open and closed cultural policy models to observe the different outcomes.

A “hands-off approach”

The government’s decision was by no means a foregone conclusion at the time. There was an open question about whether the Canadian Radio-Television and Communications Commission (CRTC) ought to extend its regulatory reach to the internet, including the CanCon regime of mandates and quotas.

After extensive consultations, the CRTC determined that it wouldn’t regulate. It issued an exemption order two weeks before the start of the new century that laid out its highly-prescient directive—what became known as the New Media Directive—to adopt an “hands-off approach” to internet regulation. The commission rightly anticipated the extent to which the internet would solve for the airwave scarcity that had necessitated Canada’s heavy-handed broadcasting rules in the first place.

As the CRTC set out in an accompanying document:

The Commission is confident, based on the record of this proceeding, that the industry is moving in a direction that will result in a strong Canadian new media industry and a strong Canadian presence on the Internet. Most noteworthy was the expression of excitement and energy that was communicated by those who discussed their work in new media. The Commission does not intend to impede this creative energy through unnecessary regulatory measures but rather to encourage the continued leadership and innovation of the Canadian new media sector.

It thus concluded:

The Commission expects that the exemption of these services will enable continued growth and development of the new media industries in Canada, thereby contributing to the achievement of the broadcasting policy objectives, including access to these services by Canadians.

The CRTC revisited the issue once again in 2008 in light of new and evolving technology, including the rise of smartphones. Based on a new round of consultations with content creators and industry players, the commissioned observed:

Many parties submitted that the Commission’s hands-off approach has been instrumental in allowing new media to flourish to this point and that regulatory intervention remains unnecessary for continued development and innovation in the new media environment.

The CRTC reached the same conclusion:

The Commission retains its view set out in the New Media Exemption Order that the exemption of new media broadcasting undertakings will enable continued growth and development of the new media industries in Canada, thereby contributing to the achievement of the broadcasting policy objectives, including access to those services by Canadians.

Voting with our eyeballs

The past quarter century should therefore be understood as opportunity to test out the CRTC’s positive-sum hypothesis. We’ve witnessed significant growth in Canadian cultural exports through streaming platforms such as Netflix and YouTube. Canadian films and shows like Brooklyn and Paw Patrol have reached massive worldwide audiences. Canadian YouTubers like Super Simple Songs—Kids Songs and Nick Pro are similarly among the biggest in the world.

The experiment has proven that the basic assumptions of the CanCon regime—namely, the need for a defensive cultural policy—are wrong. Canadian content creators don’t require government subsidies and protections. They’re thriving in the highly competitive, globalized market that the internet has enabled.

The same can be said of Canadian consumers. They now have far greater choice in broadcasting channels and different forms and genres of content. They’re able to select programming based on their own preferences rather than the CRTC’s diktats. And they’re clearly responding: as of the end of 2023, more than 40 percent of Canadian households have abandoned a traditional broadcasting subscription in favour of online streaming options.

The precipitous decline of traditional broadcasting (some estimate that more than half of households will have “cut the cord” by the end of 2024) provides an alternative case study to the growth of the unregulated streaming world. It shouldn’t come as a huge surprise. Although some CanCon-supported content has performed well in the past several years (including shows like Schitt’s Creek), it’s fair to say that it’s the exception to the rule. Most CanCon programming reliably underperforms in the marketplace.

Yet it represents a significant share of broadcasting content. More than half of broadcaster content in fact is produced to conform to CanCon rules rather than reflect consumer preferences. That’s a policy-driven recipe for declining market share when up against the consumer-driven online model.

Canadians are consistently voting with their eyeballs and their wallets. Their consumer behaviour tell us that they prefer the open cultural policy model reflected in their streaming services over the closed policy model embodied in the CanCon regime and its influence over traditional broadcasting. It’s a powerful result of the controlled policy experiment started by the Chretien government twenty-five years ago.

Lessons from North and South Korea

Earlier this month, MIT economics professor Daron Acemoglu, who’s one of the most prolific and cited economists over the past decade, was awarded the Nobel Prize. The award was granted to him and his colleagues Simon Johnson and James Robinson for their path-breaking work on the relationship between institutions and economic outcomes. Acemoglu’s 2012 book (co-authored by Robertson), Why Nations Fail, is a popular expression of this research.

Their analysis uses economic methods and historical evidence to understand how economic institutions such as property rights and free markets contribute to positive economic outcomes and how their absence tends to be associated with poor outcomes.

In order to carry out this work, they rely in part on the “quasi-natural experiment” of the division of Korea in the middle of the 20th century. It’s a useful case study because the Korean peoples share the same history and cultural, ethnic, and linguistic roots. The geographic and economic landscape of North and South Korea are even quite similar. The only significant difference between the two societies is their institutions. North Korea is a closed society with no property rights and a top-down economic system. South Korea is a far more open society with consumer choice and a market-oriented economy.

As Acemoglu, Johnson, and Robinson explained in a 2004 paper:

We can therefore think of the splitting on the Koreas 50 years ago as a natural experiment that we can use to identify the causal influence of a particular dimension of institutions on prosperity. Korea was split into two, with the two halves organized in radically different ways, and with geography, culture and many other potential determinants of economic prosperity held fixed. Thus any differences in economic performance can plausibly be attributed to differences in institutions.

The results have been stark. On virtually every key economic or social metric, South Korea has pulled far away from North Korea. Its GDP per capita is about $33,000 compared to less than $700 in North Korea. Its poverty rate is estimated to be about four times lower and its life expectancy is about 12 years longer.

If the now 70-year division between the two societies has proven to be its own controlled experiment between open and closed models of governance and public policy, the evidence is overwhelming: the open society has won.

Bill C-11 closes off Canadian culture

As valuable as the CRTC’s New Media Directive has proven to be, its one major downside is that it created an asymmetry between traditional broadcasters and online streaming services. The differing treatment between the two may have been propitious as a basis for a controlled experiment but as a matter of public policy, it was inherently distortionary. It created a two-tier system of cultural policy that broadcasters rightly argued was unfair.

They still had to comply with the CanCon regime even as they faced growing competition from online streaming services that operate according to a simple and overriding premise: buy and produce content that consumers want.

Something needed to be done. And there were essentially two options: one, open up the system for everyone, including the broadcasters; or two, attempt to close off the internet.

The Trudeau government’s policy answer—Bill C-11 (the Online Streaming Act)—chose the second option. The Act effectively undoes the Chretien government’s hands-off approach by extending the heavy-handed reach of the CanCon regime to online streaming services.

It’s a dumbfounding choice. After observing the clear results of the controlled experiment between an open and closed cultural policy for 25 years, the government has inexplicably opted to make the open system more like the closed one. It’s the equivalent of trying to make to South Korea more like North Korea instead of the other way around.

It will predictably have significant downsides for Canadian consumers and cultural creators. The former will not only face rising prices, but they’ll no longer be fully responsible for the types of content that they listen to or watch online. The CRTC will now play a key role in determining what they hear or see.

For the latter, they’ll have to choose between producing content that they know their audiences want or conforming to the CanCon rules in order to maintain discoverability on Netflix, YouTube, and the other streaming services. Many creators—from Academy Award-winning musician Bryan Adams to popular YouTuber J.J. McCullough—are rightly concerned. The Online Streaming Act puts a bureaucracy between them and their audiences. It injects an element of small “p” politics into their artistic or commercial efforts.

Conclusion

Political legacies can be hard to discern in the moment. In hindsight, it’s now clear that the Chretien government’s decision to exempt the internet from regulation was an inspired one. Over the past quarter century, it’s led to a positive-sum explosion of Canadian cultural content—including film, music and shows—from new and different creators who’ve found success based on direct relationships with their audiences around the world.

It’s somewhat ironic that the Trudeau government’s own legacy will marked by ending this 25-year experiment. The Online Streaming Act is bad public policy. It misreads the evidence and overstates the government’s capacity to deliver better outcomes than a more market-oriented model.

If we’ve learned anything, cultural policy should ultimately trust Canadians, including consumers and creators, rather than rely on bureaucrats and politicians to decide for us.

This article was made possible by the Digital Media Association and the generosity of readers like you. Make a one-time contribution today.

Sean Speer

Sean Speer is The Hub’s Editor-at-Large. He is also a university lecturer at the University of Toronto and Carleton University, as well as a think-tank scholar and columnist. He previously served as a senior economic adviser to Prime Minister Stephen Harper….
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