Why Can’t We get Hulu, Pandora and other Over the Top (OTT) Internet Services in Canada?

Commentary, Disruption, Roland Renner

Why can Canadians get some Internet video and audio services, but not others?  With Rogers launching its OTT service option on its Netbox 2.0, Canadian viewers will be wondering why they can get access to some services like Rogers Anyplace TV and NetFlix, but not others like Hulu and Pandora.

Hulu is a web site providing advertising supported video services and premium subscription services.  NBC, Fox and Disney are all owners, which is why it has received so much publicity in the mainstream media. Pandora is an online advertising supported audio service providing access to radio stations and other music sources.  Individuals can adapt programming according to their subscriber’s listening history.

Hulu and Pandora aren’t licensed as Canadian broadcasting distribution undertakings.  They could try to establish a business with sufficient Canadian ownership to meet the requirements and then launch service, but they would then run into another problem.  They don’t own the Canadian distribution rights to the programming so U.S. and Canadian copyright holders will sue them unless they block access to IP addresses that they can identify as Canadian.

Access to programming content for video distribution is based on copyright, which is border-sensitive.  Owners sell programming rights based on national boundaries and distribution methods.  That’s why, for example, you can’t go to the video store or download (legally) a movie that just started showing in theatres.  Distribution rights to rent the movie in video stores are sold with specified timing conditions.

Similarly, on television, a new US comedy series is sold for first run distribution to a network like NBC.  NBC does not have Canadian television distribution rights.  The Canadian television distribution rights must be sold to a Canadian network like CTV.  This is why you see CTV ads when you are watching that show on NBC.  The cable company is required to substitute the Canadian CTV ads into the NBC feed during that program.  It’s called simultaneous substitution and it, too, is based on copyright.

The internet distribution rights may be sold separately, but are becoming more expensive.  At the beginning of internet video distribution, rights holders saw it as minor incremental revenue opportunity that had little impact on their main revenue sources or they may not have even bothered trying to enforce these rights.  Some viewed it as advertising for television.  It now has changed.

When NetFlix started, it obtained distribution rights at a very low cost, but when it became successful rights holders demanded more. NetFlix had to raise its prices substantially and make wrenching changes to its business model that upset many customers.  NetFlix does hold Canadian distribution rights for the programming it delivers in Canada.

Internet distribution is now considered a major growth area and rights holders are charging more.  As viewing patterns change, old deals are being renegotiated.  In the U.S. rights holders have pulled major sports programming from cable and other distributors that weren’t giving holders what they wanted.

Canadians have tried to provide OTT service as early as the late 1990’s.  Inetcable.com was unable to get distribution rights and JumpTV became a niche programming provider.

Until there is a big change in the system of distribution rights, services like Hulu will not be available to Canadians.  But there are other places to find alternative sources of television programming in Canada.  If you live in a condo or apartment building in a large city you may have a competitive cable company like Novus in Vancouver. 

Competitive distributors based on Internet technology have been licensed over the past year and are expected to launch soon in major markets.  Driven by the technology, the CRTC has made packaging requirements more flexible.

From a pricing perspective, it was never going to be possible for internet video to be free or cheap once large numbers of people started watching TV that way.  The new technologies also enable pick and pay for those who have narrow, specific viewing needs.  For others, though, Hulu, as well as traditional US distributors show that big packages are still very popular with a large segment of the market.

Some internet visionaries foresee a time when cable companies, networks and television stations will disappear and consumers will deal directly with programming producers over the net.  But we aren’t quite there yet, and it is going to take a while.