Bill C-11 supporters have long claimed that online streamers are hugely profitable. Maybe not so much.
Throughout the Bill C-11/Online Streaming Act debate, supporters of the legislation (now law) wildly claimed that online streamers are making obscene amounts of money at the expense of Canada and leaving nothing behind afterwards. One supporter went so far as to proclaim that the legislation is the notice for online streamers “crashing on the couch” of Canada that “the rent is due”.
The thing is, if there is one thing you can count on, it’s that supporters of this law are wrong pretty much all of the time. This talking point is, of course, no exception to that rule.
As was widely known, even at the time those comments were made to senators, online streamers have a tendancy to actually make investments in Canada while offering their services. In fact, earlier this year, as Bill C-11 was set to become law, Disney+ cut back on investments in Canada, seemingly in response to Bill C-11.
Throughout the hearings, such as the one that Paramount appeared in, there is growing fears that if online streamers are expected to fork over hundreds of millions more just to be able to operate, then the financial viability of them offering their services in Canada comes into question. These are long running warnings of this being a possible outcome where online streamers simply leave Canada rather than pay the ransom payments just to stick around in this comparatively small country.
Supporters, however, seemingly remain unfazed by these dire warnings and continue to remain focused on fighting over who gets a larger portion of the free money they seem so certain to get. Further complicating matters is the fact that the Online News Act money bonanza that they were anticipating turned out to be a bust when the Canadian government folded to Google. Supporters furiously railed against this decision to fold since it means, for those supporters anyway, that they will have to seek their free money elsewhere since the money just isn’t there in the Online News Act.
While some might consider the $100 million from Google to be a huge payday, that dollar figure is, at best, a drop in the bucket for the entire news industry. Some estimates suggest that the industry needs $1 billion for the companies to achieve financial stability. The Google “windfall” is merely 10% of that, so the news sector is now focused heavily on getting the remaining $900 million from the Online Streaming Act CRTC hearings (yeah, good luck with that one!).
Some supporters might look at the comments that streamers wouldn’t dare leave Canada because Canadian audiences is just too important for their business models. After all, these streamers make lots of money anyway, so why leave? Well, uh, about that. According to a report from Arstechnica, the losses from the rivals of Netflix has apparently topped $5 billion in the past year:
The world’s largest traditional entertainment companies face a reckoning in 2024 after losing more than $5 billion in the past year from the streaming services they built to compete with Netflix.
Disney, Warner Bros Discovery, Comcast and Paramount—US entertainment conglomerates that have been growing ever larger for decades—are facing pressure to shrink or sell legacy businesses, scale back production and slash costs following billions in losses from their digital platforms.
Shari Redstone, Paramount’s billionaire controlling shareholder, has effectively put the company on the block in recent weeks. She has held talks about selling the Hollywood studio to Skydance, the production company behind Top Gun: Maverick, people familiar with the matter say.
Paramount chief executive Bob Bakish also discussed a possible combination over lunch with Warner CEO David Zaslav in mid-December. In both cases the discussions were said to be at an early stage and people familiar with the talks cautioned that a deal might not materialize.
Beyond their streaming losses, the traditional media groups are facing a weak advertising market, declining television revenues and higher production costs following the Hollywood strikes.
Rich Greenfield, an analyst at LightShed Partners, said Paramount’s deal discussions were a reflection of the “complete and utter panic” in the industry.
“TV advertising is falling far short, cord-cutting is continuing to accelerate, sports costs are going up and the movie business is not performing,” he said. “Everything is going wrong that can go wrong. The only thing [the companies] know how to do to survive is try to merge and cut costs.”
This is far from the tall tales of online streamers just raking in the cash that Bill C-11 supporters had dreampt up. If anything, online streamers are becoming money pits if anything else. Yet, somehow, businesses colleectively losing $5 billion is somehow going to be the source of revenue that “saves” Canadian news and production companies? That seems like a fools errand at that point.
Yet, the plight facing the online streamers trying to take on Netflix does track with the realities of the market.
When Netflix was becoming popular, there were few, if any, alternatives to the streaming platform. The giant enjoyed a comfortable place, business-wise, in the world of online streaming. However, at one point, executives from legacy conglomerates decided that maybe this online streaming business was the way of the future (not a bad assessment), so they decided that since they had the rights to their own content, they would build their own walled gardens (not the greatest assessment) in the hopes of cashing in completely on this.
So, as a result, you went from maybe 1 player in the online streaming market to something like 5 players in the online streaming market. Indeed, observers noted that this is problematic even from the early days because there are now multiple players with their own respective walled gardens. So, you go from 1 platform charging $15 or $20 per month for access to its walled garden to 5 platforms charging the same amount. In order to access it all, you are looking at paying $75 to $100 per month.
For a number of consumers, the idea of switching to streaming services is to save from having to pay hugely expensive television costs. When the rates to access everything gets jacked up to higher than what normal television would cost, then the math becomes hugely problematic for your average consumer. Some consumers might only pay for 1 or 2 services for a few months, then rotate one or both to cut down on costs. Others might only pick 1 or 2 services based on what they want to watch and stick with that, knowing they aren’t getting everything out there. Either way, the wallet gets stretched and choices are made.
This, of course, doesn’t bode well for the online streamers who find out that their subscription rates arn’t as high as they expected them to be. All the investments they made on infrastructure, digitization, and service maintenance? Yeah, they aren’t netting the returns that they expect.
If anything, it’s kind of surprising things more or less chugged along without too many noticable issues for as long as it has. It wasn’t a matter of if things would start to shake up, but when.
Indeed, none of this is really all that unprecedented. Take, for instance, the history of video game consoles. Have you ever noticed that, at any given time, there’s only maybe 2 – 4 major consoles available on the market at a given time? At one point, it was simply Atari and Nintendo. At another point, it was Sega and Nintendo. Then, it was Nintendo, Sony, and Microsoft – which is roughly where it is today.
To a degree, consoles are a sort of walled garden similar to the walled gardens of online streaming services. Consoles are very expensive up front, so there’s only so many a consumer can buy. What’s more, there’s only so many consoles game developers have the budgets to develop for. There have been other consoles out there that tried to enter the market. This might include the OUYA, the Phillips CD-i, and the 3DO Interactive Multiplayer. Not exactly household names to say the least, but, nevertheless, are examples of different consoles trying to break into the market, but didn’t really succeed.
It wasn’t as though some of these consoles weren’t backed by powerful companies. Many were produced by large companies. The problem was, there are only so many consoles that the market could reasonably support. Eventually, all of the above examples (and others) did ultimately fade away and were considered merely attempts to enter the market.
With that kind of history, you can see the similarities between video game consoles of yesteryear and online streaming services today. Numerous players to pick from, but only so many players you can subscribe to because consumers only have so much money to go around (among other things).
So, if the online streamers start consolidating and forming partnerships or bowing out entirely from the market just to survive, it would follow in the footsteps of video game console makers of the past. For instance, Sega eventually bowed out of producing consoles and focused on producing games instead.
If anything, Canadian legacy media companies picked a really bad time to try and mooch off of these platforms for free money. At the moment, budgets are being stretched thin and if there is a sudden jump in the cost of doing business in Canada, then a number of streamers are going to laugh in their faces, take their online service, and head for the exits. Sure, a few of the largest players might be able to make the ransom payments, but for numerous other streamers, the costs would be far from worth it to continue doing business in Canada.
All of this points to things heading in one direction: legacy news organizations who seem allergic to any kind of innovation at all suddenly finding themselves receiving far less money than they were hoping for. This, ironically, in a moment where they were planning on relying far more on the Online Streaming Act to make up for the shortfall that cropped up with the Online News Act. From there, they are going to find out the hard way how there’s no such thing as a free lunch. They may complain, but they can’t say that the experts didn’t warn them.
Drew Wilson on Twitter: @icecube85 and Facebook.
