There's a Broadcast War Brewing Between Netflix and Canada

Netflix and the Canadian government have begun trading barbs in what appears to be the early stages of a potential legal battle that could determine the future of the company—and broadcasting—in the country.

Canada is in the process of reviewing its television regulations and, under its  current "new media" exemption, Netflix doesn't have to pay any taxes or tolls to the feds, but it is required to provide information on its operation to the federal regulator.

Even though its viewership is approaching broadcast network numbers, Netflix operates outside the same Canadian regulations and taxes other broadcasters are subject to, like CBC, CTV, or Global. While those entities more or less struggled, Netflix more than doubled its profits last year.

Canadian regulators are set to decide in January whether Netflix can continue to operate without paying these taxes, but the company is doing everything it can to make the decision tough.

Last week, the Canadian government's public hearings on the issue devolved into a tense standoff between Corie Wright, Netflix's global public policy director, and Canadian Radio-television and Telecommunications Commission (CRTC) chair Jean-Pierre Blais, with Blais demanding that the company fork over its customer data to the CRTC.

"You operate under an exemption order that requires you to provide information," Blais said, noting that the CRTC could unilaterally revoke the tax exemption Netflix operates under. "Failure to provide information puts at risk your exemption order. So the Commission is ordering you to provide the number of subscribers that you have currently in Canada by 5:00 p.m., Ottawa time, Monday."

Well, as of yesterday that date came and went and Netflix didn't comply. Instead, Netflix  sent a letter to the CRTC refusing in no uncertain terms to fork over that data to the Canadian feds.

"Consistent with Netflix's concerns about confidentiality, Netflix is not in a position to provide this information," it said in an unchanging response from Wright's original testimony.

You can see the CRTC's dilemma: It probably needs the Netflix data to come to a decision by January,  when it plans to release revamped broadcast regulations promising to take into consideration new technological realities and the future of online media. Understanding the customer data of the biggest online video provider in the country seems like logical and reasonable insight into that decision.

Netflix, meanwhile, wants to maintain its free ride from having to pay into Canadian media funds, which it might have to do if it's reclassified in January. By refusing to hand over the data, it might think it has a better chance of maintaining the status quo, and it can also hide behind the idea that it's keeping its users' data private.

"Netflix believes that regulatory intervention online is unnecessary and could have consequences that are inconsistent with the interests of consumers," Wright said in her testimony to the CRTC. "The television marketplace is changing and media policy should adapt to it. We urge the Commission to adapt in a way that will allow today's dynamic market to continue, rather than extending a legacy framework to new media."

In other words, this is the first salvo launched from Netflix in what could turn into a pretty nasty legal war between it and the Canadian government. Whether consumers see any backlash from all of this remains to be seen, but, right now, there's a lot of uncertainty about how, exactly, the company will operate in Canada moving forward.