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Amazon Channels is coming to Canada and broadcasters say it poses an ‘existential threat to the regulatory system’: Government memos

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Amazon is planning to launch its online cable-package alternative in Canada, and broadcasters are concerned its arrival poses an “existential threat to the regulatory system,” according to federal government documents obtained by The Logic.

The move comes amid a government review of broadcasting rules, with some broadcasters calling for foreign streaming services to be subject to Canadian content rules and required to collect sales tax.

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Talking Point

Canadian broadcasters expect Amazon to bring its Prime Video Channels—on which users can bundle cable channels and streaming services and watch them online—to Canada, and they’re concerned it will disrupt the industry, according to government documents obtained by The Logic. The move comes as the government reviews broadcasting laws and as traditional television companies call for stricter regulation of foreign streaming services.

Amazon Prime Video Channels lets users of the tech giant’s streaming service add other on-demand subscriptions and digital versions of TV channels, which in the U.S. include HBO, Showtime and NBA League Pass. The app takes the place of a cable box, allowing viewers to avoid downloading several different streaming-service portals with separate logins.

“Amazon Channels is currently in discussion with several Canadian media companies in a bid to acquire programming rights and is expected to launch in Canada in the near future,” according to a November 2018 report prepared for Hélène Laurendeau, deputy minister of Canadian Heritage, and obtained via an access-to-information request. The report was based on department officials’ meetings with broadcasters and digital media companies in September and October of that year. It did not specify a timeline for the launch.

The virtual TV service is currently available in Austria, Germany, Japan and the U.K. BMO Capital Markets estimated that the platform generated US$1.7 billion in revenue for Amazon in 2018, with 70 per cent of that being paid out to the channels and streaming services.

The November 2018 report indicates broadcasters believed the arrival of Prime Video Channels was imminent, and that it concerned them.

“Several stakeholders said that the arrival of virtual BDUs, particularly Amazon Channels, is going to be even more disruptive to the Canadian broadcasting system than foreign streaming services,” reported Canadian Heritage officials. Broadcasting distribution undertakings (BDUs) are companies that provide cable or satellite television services.

Amazon declined to say when it plans to launch Prime Video Channels in Canada, which companies it was negotiating with and whether Canadian content creation and production rules for broadcasters would apply to its service. “As a rule, Amazon never comments on rumor or speculation,” said Zachary Goldsztejn, a spokesperson for the company.

In December 2018, Laurendeau was scheduled to meet with Amazon Canada’s Steve de Eyre, senior manager of public policy; Patrick Robert, manager of public policy; and with Amazon subsidiary Audible’s Jon Fleming, vice-president and country manager for Canada; and Micaela Klein, senior manager of international government affairs. A brief prepared in advance of the meeting proposed the deputy minister ask them about the status of the Prime Video Channels launch.

Canadian Heritage did not directly answer questions from The Logic about Laurendeau’s meeting with Amazon, including whether the company had made any promises about Canadian content.

According to the November 2018 memo, officials met with the broadcasters Bell Media, Blue Ant Media, CBC and Radio-Canada, Corus, DHX Media, Rogers and Shaw, as well as the foreign tech firms Facebook, Google and YouTube and Netflix. The briefing did not identify which media companies were in negotiations with Amazon about Prime Video Channels, or which stakeholders expressed concerns.

“While stakeholders accepted that doing business with Amazon Channels would be tempting for many media companies, they all acknowledged that – unless the CRTC intervenes – it poses an existential threat to the regulatory system, effectively rendering policies like ‘skinny basic’ and ‘pick and pay’ moot.”

The skinny basic system requires cable companies to sell a small bundle of channels for no more than $25 a month; the pick-and-pay policy allows consumers to add channels on a one-off basis.

“One stakeholder expressed concern that any nascent Canadian virtual BDUs will be forced out of business because they will not have the offering to compete with a company like Amazon,” according to the briefing note.

Rogers Media, Bell Media, Corus, Blue Ant Media and DHX Media all declined to comment on whether they had held discussions with Amazon about programming rights for Prime Video Channels, or whether they had agreed to license any of their channels or content for the service.

In February, Heritage Minister Pablo Rodriguez was scheduled to meet with the CEOs of Bell, Corus, Rogers, Shaw, Telus and Québecor. In preparatory notes, department officials suggested Rodriguez raise the arrival of Prime Video Channels and similar virtual TV services with each of them.

In a January submission to the federal government-appointed panel reviewing the country’s broadcasting laws, Rogers said over-the-top (OTT) streaming services like Netflix, YouTube, Amazon and the sports platform DAZN should have to “fund, exhibit and provide access to Canadian programming” just like other broadcasters.

The November 2018 memo indicates broadcasters told Canadian Heritage officials that their services were at a price disadvantage to foreign streaming services because the domestic players must charge sales tax.

Consumers do pay sales tax for Amazon Prime, the e-commerce company’s membership plan that includes its video- and music-streaming services as well as faster shipping. Netflix started collecting the levy in Quebec and Saskatchewan in January, after the provinces passed laws requiring foreign online services to do so.

Canadian Heritage did not directly address the concerns raised by broadcasters about virtual BDUs detailed in the November 2018 memo.

“The Government of Canada understands the concerns raised by Canadian businesses and the impacts that web giants have on our culture, our economy and our jobs,” said Daniel Savoie, a spokesperson for Canadian Heritage.

One of Canada’s biggest broadcasters said it’s not concerned about keeping up with virtual TV services.

Bell’s Crave includes content from Showtime and CBS All Access, and it offers add-ons for movies and TV shows from HBO and Starz. Those channels and streaming services are prominently advertised on the U.S. landing page for Prime Video Channels. “Bell Media is the exclusive home to HBO, Showtime, and all-new Starz original programming in Canada,” said Mary Costa, senior manager for specialty and streaming. “As for competition, [in] this day-and-age, all content is competition. But if you make or deliver great content, you can be a key player, and we believe Crave continues to grow into the best entertainment offering in Canada.”

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Rogers, meanwhile, cited its new Ignite TV platform. The technology provides “the deep integration of the best content in the world in one place across OTT services, on-demand and traditional TV,” said Sarah Schmidt, director of public affairs at Rogers Communications, adding that Amazon Prime Video will be accessible on Ignite soon.

Rogers and Shaw shut down their Shomi streaming service in November 2016, two years after setting it up. It originally carried Amazon’s first Emmy-winning show, “Transparent.” Amazon Prime Video launched in Canada the month after Shomi shut down.

Outside Canada, some broadcasters have embraced Prime Video Channels—which has more than 150 channels in the U.S.—and other such online bundling platforms. “Virtual TV service providers are stemming cord cutting in the U.S.,” according to a May 2018 CRTC report. Channel owners in the U.S. are working with services like DirecTV Now and Hulu + Live TV because doing so allows them to retain subscribers who do not want to pay for cable packages.

But the CRTC report notes that channel owners’ Canadian equivalents “may not have the same motivations to offer these channels to competing online distributors,” since they often control both the content and the cable boxes.

Eric Rancourt, director of media relations at the CRTC, said the regulator could not comment on the effect of Prime Video Channels on its policies because it did not have any information on what the Amazon service “would look like if it were to be offered in Canada.”