In a world of threatened border walls, trade wars with China, a US government shutdown, politics, the rising cost of living and the weather, the annual SuperBowl classic is a welcome distraction for many, if not most, North Americans. For many Canadians it really doesn’t matter which US team is playing which other US team; the game is a pleasant respite from the icy grip of winter that prevails over most of the country at this time of year except, happily for me, on Vancouver Island where I am fortunate enough to live. It is not just the game itself; it is also about the half time entertainment (although this is not without its controversies this year), and the ads. The creative Superbowl ads have become an attraction in themselves and have ended up being a source of US-Canada trade friction, as I reported in a blog on this issue two years ago. Two years on, the issue is still before the courts in Canada (at the Supreme Court level) and until the updated NAFTA agreement (USMCA or CUSMA if you are in Canada) is ratified and in force, it will remain as a bilateral trade irritant alongside issues such as the Trump tariffs on Canadian steel and aluminum (because Canada is a “national security” threat to the US), softwood lumber tariffs, and so on. How did it all come to this?
To refresh the memory of those not familiar with the arcane world of broadcasting in Canada, here is a quick recap. Initially because of the proximity of some US broadcast stations to the Canada-US border, and the popularity of US programming in Canada, since the early days of television US signals have been received and retransmitted in Canada. Today it is standard for Canadian cable, fibre and satellite distribution platforms to offer a range of US non-specialty channels as part of their basic channel line-up, having accessed the signals through a compulsory licence which allows them to retransmit the US signals as long as this is done simultaneously with their broadcast in the US. (Non-simultaneous retransmission is prohibited by Article 2006 of the original Canada-US FTA, picked up in USMCA). Although retransmission royalties are collected in Canada for the retransmission of distant signals and are remitted to US private and public (PBS) border stations, some US border stations are not happy with this arrangement and argue that the signals are picked up and redistributed without their consent. They complained without success to the USTR to have this situation remedied in the NAFTA negotiations.
Canadian broadcasters often purchase the Canadian rights to the most popular US programs and in order to prevent the US broadcasts distributed in Canada from cannibalizing their audience, they normally choose to schedule their broadcast of the program in the same time slot, going head-to-head with the US feed. Thus Canadian viewers can normally watch the program on either a Canadian or a US channel. But here’s the catch. Under the simultaneous substitution (simsub) regulations of the Canadian Radio-Television and Telecommunications Commission (CRTC), the Canadian broadcaster can apply to the CRTC to require the Canadian distribution platform to substitute the Canadian ads into the US feed of the program if the Canadian and US stations broadcast the program simultaneously. This guarantees the full Canadian audience for the ads sold by the Canadian broadcaster, and generates greater revenues–allowing them, among other things, to purchase more US programming!
Apart from the obvious advantage for the Canadian broadcaster, one could argue that Canadian consumers will find local ads more relevant than ads for products available only in the US, and thus they won’t complain. Except of course, many ads are for products available globally, not for Mary’s Nail Salon. For brands with a global reach (think Pepsi or Nike) the simsub rules mean that if those companies want access to the Canadian market of 35 million consumers, they have to pay for it—no free ride. That seems fair enough and in fact it is not the US advertisers who are pushing for the abolition of simsum. The push is coming from within Canada, primarily from some consumer groups who want access to the unaltered US programming, ads and all, as in the SuperBowl. There is also opposition to simsub in Canada from some Canadian content producers who argue that the purchase of US programming, and its scheduling in prime time (so as to face off against the same program being broadcast on US stations) hampers the production and opportunities for broadcasting of original Canadian content. Canadian broadcasters respond by saying that simsub allows them to generate more ad revenue, thus allowing them to invest more into Canadian programming (as they are required to do as a condition of their licence).
While some US border broadcasters have complaints about the retransmission of their signals, and the removal of their ads, the arrangement works well for US content producers who have the opportunity to sell programming into Canada as a separate rights market. This explains why maintenance of simsub, which after all is a restriction on free trade, became a US negotiating objective in NAFTA. The clout of those in the US who benefit from simsub, in this case the NFL who own and sell the SuperBowl rights to Bell Media in Canada, outweighs that of those who oppose it. The result is Annex 15-D in NAFTA/USMCA. In plain language it says that Canada will rescind the CRTC decision that prevented Bell Media from requiring platforms to substitute its ads on the US channel broadcasting the SuperBowl game. In addition, the USMCA text says that the SuperBowl broadcast must be treated no less favourably than any other US broadcast retransmitted in Canada.
Given this language in NAFTA/USMCA you might think that Canadian audiences have already lost their right to view the US SuperBowl ads. However, when the CRTC’s original decision was issued, Bell Media challenged the ruling before the Federal Court, but its appeal was dismissed. Bell then appealed to the Supreme Court of Canada, an appeal that has yet to be heard. After the text of USMCA was announced at the end of September, Bell requested that the CRTC vary its decision for the 2019 broadcast. The CRTC refused, citing the ongoing court case and the fact that USMCA had yet to be ratified. As a result, Canadian audiences were able to watch the US ads in Canada this year, although this may be the last time this happens if USMCA is ratified in all three countries and comes into effect prior to SuperBowl 2020.
There is of course another scenario, namely that at some point in the future all simsub will be terminated meaning that not only the SuperBowl broadcast but all US broadcasts would be exempt from the simultaneous substitution policy. The SuperBowl transmission would be treated no less favourably than any other simultaneously retransmitted broadcast from the US. This alternative is looking less likely given Canada’s commitments in the USMCA regarding the SuperBowl broadcast. The original CRTC decision had come about as a result of hearings looking into the whole simsub issue. While there are arguments on both sides of the question, the CRTC decided to ban simsub only for the Superbowl broadcast. This could be seen as a compromise position or as the thin edge of the wedge. Clearly Bell Media saw it as the latter and has mounted a determined campaign to overturn it, with the assistance of the NFL. The negotiated outcome to restore simsub for the Superbowl will probably result in simsub reform in Canada being put on the back burner for the foreseeable future.
At the end of the day, the dispute was not really about whether Canadian football fans could watch the SuperBowl ads; it was about the future direction of Canadian broadcasting. If simsub is going to stay, it doesn’t make much sense to single out just one program, the SuperBowl, for an exemption from the policy.
Two years ago I wrote:
Canada’s networks may need to find new ways to generate revenue beyond selling and substituting ads around popular US programs. It would be an exaggeration to say that the future direction of Canadian broadcasting depends solely on what happens with the Super Bowl ad substitution issue, but the outcome of this dispute will send an important signal as to future policy directions for the broadcasting industry in Canada.
Now that simsub will apparently be with us for quite a while longer, to the delight of some and the frustration of others, attention will shift to the ongoing review of the Broadcasting and Telecommunications Acts by a high level panel, expected to report to the CRTC in January of 2020. The panel’s terms of reference note that the traditional business model of Canadian broadcasting is facing disruption as a result of the spread of digital technology, and comments that “traditional regulatory mechanisms by which creation and access to Canadian content have been achieved may not be as effective in the digital environment where usual practices linked to scheduled audio or television programming…no longer apply”.
Truer words were never spoken. Will simsub be able to resist the digital onslaught over the longer term? I doubt it. But for the meantime, it looks like it will continue to be the norm and if and when USMCA/CUSMA comes into force, simsub will also apply to the SuperBowl broadcast. No exceptions. Canadian fans in 2019 may have been the last to see the US ads on television in Canada. In future, it will likely take a trip across the border to a sports bar to be able to watch the “real ads”. In the middle of winter, I doubt if many will exercise that option.
© Hugh Stephens, 2019. All Rights Reserved.