Netflix, Philippines, Startups, Uncategorized

It’s Likely that the Philippines Will Block Netflix Too

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Today, the Wall Street Journal reported that Indonesia’s biggest telco has blocked access to Netflix.

State-owned Telkom concluded that Netflix didn’t have a permit to operate in Indonesia. Netflix also apparently contains violent and sexual content objectionable to Indonesian censors. Hey I’d feel violated too watching Francis Underwood do this to Zoe Barnes. Please don’t think of our very own Francis (Escudero) and Heart. Oh wait, now you just did.

Anyway, the big question is could the same thing happen to the Philippines?

Quite possibly… and in my opinion, very likely. There’s a weird set of interests that are at stake here. ABS-CBN and GMA would obviously want a strategic hedge, no matter how nascent the streaming market is. Bayan Muna and their leftist pals will decry the further encroachment by American capitalists (and do their loudest shouting, ironically, on Facebook). The BIR will want its cut. Congress will grandstand. The telcos will face a dilemma.

How could access to Netflix be blocked in the Philippines?

Here’s how I speculate this might play out.

One, in a rare display of haste, urgency, and cross-agency collaboration, the NTC, SEC, BIR, and MTRCB will band together to invoke Article XVI of the 1987 Constitution, which says:

The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.”

They will argue that because Netflix broadcasts movies and TV shows, it must be considered mass media.  The framers of the Constitution clearly did not imagine the impact of the internet, which the Philippines connected to just 7 years after 1987.

Blockers will also use a strange SEC opinion that argues that any activity that in effect “disseminates information to the general public through the internet” may be considered mass media. This leads to a possible bizarre interpretation of the Constitution that because your Facebook feed disseminates information, this is considered mass media and Facebook should thus be 100% Filipino owned.

Two, Netflix will argue that it is breaking no laws because it neither owns nor manages any local company engaged in mass media. It can say it’s not mass media because it doesn’t need broadcast frequencies to operate. One needs to pay a subscription, unlike free-to-air TV.

It is also possible to argue that the framers of the Constitution intended to protect public opinion and news media from foreign interests and foreign propaganda, and since Netflix is not a news organization dipping its hands in local politics, it should not be considered mass media. I’m no constitutionalist, so I’ll leave it to guys like Oscar Tan to dissect the legalities. Suffice to say that there are enough gray areas to give the blockers legal ammunition.

Three, the BIR will want its cut. It could try to impose the 12% VAT or a 15% final withholding tax. As far as I know, neither Google nor Facebook pays either when they receive programmatic ad revenue. I don’t see anything on my ads receipts that indicate that they do so.

Netflix will do its best to comply until they fully realize the extent of red tape they have to go through to comply with local tax laws. They’ll realize that the BIR is on the losing end of enforcement anyway and will go on business as usual.

Four, some honorable gentlemen in Congress – possibly the same guys that want to give Pia Wurtzbach a tax exemption because they don’t have anything better to do than fantasize that they get a chance of dating her by passing this law – will file a resolution blocking Netflix, similar to what these guys tried with Fox International.

Five, the TV and cable networks will join the fray, in a bizarre alignment of interests with leftists like Bayan Muna. They will naturally argue that Netflix is a long term threat to the domestic entertainment industry and to thousands of jobs. They’ll be on a wait-and-see mode, perhaps licensing some parts of their library but not too much to prop Netflix up. A young guy who gets it like Carlo Katigbak might be willing to play a smarter accommodation strategy. An older guy like Felipe Gozon might want to block them altogether. Or he might not care or be digital savvy enough to realize how big a thing streaming is in the first place.

Six, the telcos will be caught in a dilemma. Admittedly, it’ll be a more complicated tradeoff for the telcos. Each has its own streaming platform. But the lure of higher data revenues would be too enticing.

I’m wishing all this actually happens. No real damage will come out of it in the long term anyway. It’ll bring about the much needed public anger and discourse to push Congress to finally revise our absurd foreign ownership restriction limits. Maybe it’ll open the public realm to candidates like Bam Aquino who actually understand digital. Maybe it’ll push the next president to appoint our first cabinet-level CTO.

Streaming video is here to stay. A growing Filipino middle class with more choices will opt to pay that Php 370 a month. It’s tough to bet against a change of this magnitude. And we’re not even talking about the entry of that other streaming behemoth – Amazon.

So yes, let’s get the ball rolling. Filipino dinosaurs, let’s seek to block Netflix.

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