Must-carry TV (4): Ottawa disconnects from the video revolution

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As I’ve noted earlier in this series, the Americans have their own version of Canada’s anti-consumer, mandatory-carriage policy. But with this difference: the US is also seeing the rise of a video revolution that’s opening up new vistas for a more curious, engaged and demanding audience. The old guard, who got rich and complacent on top-down, linear TV, are fighting the upstarts tooth and nail. The courts in both countries have been alive with the sounds of the old guard squawking about their right to keep making gobs of money – up to and including threats to take their over-the-air networks off the air and make them cable-only (says Fox COO Chase Carey, among others).

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Must-carry isn’t Ottawa’s only anti-consumer, anti-Internet policy failure

Let’s consider one regulatory development in Canada first of all, in order to put the current must-carry proceeding into context. That context draws from the same old story: the CRTC has never felt bashful about making consumers pay to keep broadcasters thriving. In other words, the must-carry proceeding is not an aberration; it’s business as usual for Ottawa’s costing of “cultural” initiatives.

The case at issue concerns the CRTC’s proposal in 2010 to create a “value for signal” regime that would have put local TV stations on extended life support by allowing them to negotiate compensation from BDUs for non-local distribution (in Broadcasting Regulatory Policy CRTC 2010-167). That proposal grew out of the Local Programming Improvement Fund, which brought us the spectacle of the broadcasters’ “Local TV Matters” pitted against the BDUs’ “Stop the TV Tax,” with consumers abandoned in the middle. In December of 2012, the Supreme Court killed the value for signal idea on technical grounds (the CRTC’s attempt to establish an IP right was found to be ultra vires and an infringement on Parliament’s perogatives).

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Back in March 2010, Michael Geist had a couple of distinctly non-technical criticisms of the value-for-signal regime that apply just as well to mandatory carriage. The first criticism was that the consumer was getting screwed; the second was that the Commission was acting like the Internet had never been invented. As Michael noted:

…the Commission admitted that prices would go up, but maintained Canadians would continue to pay based on past experience of steady price increases imposed by cable and satellite companies. That conclusion prompted a stinging minority report from Commissioner Michel Morin, who argued the CRTC was defending “the interests of the industry to the detriment of consumers who, for their part, remain powerless” [my emphasis].

As for that new-fangled Interweb thing, it turns out that the very day of the CRTC’s decision, “a new [Ipsos Reid] study was published that found Canadians now spend more time online than watching television” – whereas the CRTC’s followup consumer report made no reference to streaming, YouTube, podcasts, BitTorrent or peer-to-peer technology.

tv-flag-4Geist’s point on digital media demonstrates why we should be alarmed by Ottawa’s level of ignorance about the Internet and its failure to acknowledge the real-world behaviors associated with it. The CRTC’s analysis of “new media broadcasting” – its attempt to justify the regulation of “programming” on the Internet – is based on the assumption that Ottawa’s Internet doesn’t include interactive or user-generated content, because they can’t be squeezed into the Procrustean bed that is the Broadcasting Act. I wrote about this point in June 2011 in regard to Peter Grant’s 2008 paper arguing for a levy on all ISPs to subsidize the creation of digital Cancon. The previous CRTC chair, Konrad von Finckenstein, saw the Internet the same way as Grant. My comment:

“… when you take away all that is personal and interactive from this transmission platform, what you’re left with is not the Internet. The CRTC chair used this divide-and-conquer ploy during the new media hearings, as when he made this distinction (transcript of March 10, 2009):

“I’m not talking about the Internet, I’m talking about broadcasting over the Internet. We made that clear in our notice. Obviously we are not talking about the Internet in general, et cetera. We are talking about new media which we defined as broadcasting over the Internet or broadcasting over wireless” (para 10253).

pig_farm_pigs_mud_dirty_snout-4KvF showed on other occasions that he didn’t get the Internet: the UBB debate comes to mind here. That comedy of errors was based on another industry-oriented assumption among policymakers: that we needed ITMPs to control the evil bandwidth hogs. That idea was wrong three years ago and today it looks like an even bigger mistake. This week, GigaOm’s widely followed analyst, Stacey Higginbotham, posted an item entitled We are all bandwidth hogs now. Her summary: “Last year demand for bandwidth rose by 40 percent, and much of that demand is now coming from all over the world, not just in developed countries.”

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TV on trial in the US

Meanwhile, our litigious neighbors to the south are in court over several issues that speak to the upheavals rocking conventional broadcasting. We looked last time at Cablevision’s anti-trust suit against Viacom for creating mandatory bundles that join popular channels with ones nobody cares about. Two other high-profile cases show how desperately the old-media guys are trying to preserve their decaying business models.

dish-hopper-2One case involves satellite-caster the Dish Network and its bleeding-edge DVR, which incorporates technology called The Hopper. It allows viewers to kill ads on broadcast TV completely – not simply skip them by having to fast forward through them. The networks are apoplectic about The Hopper, especially after a judge in California refused to accede to a request from Fox to issue an injunction against Dish. This squabble has now produced an appeal from Fox and a counter-claim from Dish.

(This case is reminiscent of the long-ago attempt by Hollywood to prevent Sony from shipping VCRs to the United States on grounds of piracy. But the Supreme Court ruled in 1984 that even making copies of entire programs on a VCR was fair use and threw out Jack Valenti and his histrionic fear-mongering: see Sony Corp. of America v. Universal City Studios, Inc. As Valenti remarked to a congressional committee in 1982: “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.”)

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The Hopper represents an assault on the networks’ traditional revenue source – advertising. But last year mogul-turned-renegade Barry Diller opened a second front in the war when he financed a startup called Aereo, which broadcasters say deprives them of their much-needed second revenue stream, the retransmission fees collected from cable distributors. Cable networks (what we in Canada call pay and specialty services) began eating into established network audience shares over two decades ago, precisely because they enjoy a dual revenue stream (when you watch TSN, you get ads and pay a fee every month to your service provider). The conventional broadcasters don’t want to see that old bandwagon disappear into the sunset.

Aereo works by picking up over-the-air broadcast signals and retransmitting them to subscribers in hi-def on their Internet connection. The company describes the setup in this disarmingly simple 1-2-3 punch:

  1. We made the TV antenna unbelievably small. So small it fits on the tip of your finger. But it still gets awesome HD reception.
  2. We connected these antennas to the Internet. We engineered a way to put tons of these antennas in data centers, along with massive amounts of storage and super-fast Internet connections.
  3. We give you control. We built a simple, elegant interface to let you control your antenna. Through the Internet. With any device you want. All without cords, cables, or boxes.

The U.S. Court of Appeals for the Second Circuit has upheld a lower court decision rejecting a request from the major networks for a preliminary injunction against Aereo, based on claims of copyright infringement. As of this week, we can add another legal defeat for the old guard’s relentless attempts to use copyright as a stick with which to beat innovators. On Thursday, a judge of the Federal District Court in New York told Viacom that its long-running, one-billion-dollar lawsuit against YouTube was “anachronistic” and tossed it out.

Innovation is also about the programming 

Earlier this week, the New York Times’ David Carr addressed bundling under the headline More Cracks Undermine the Citadel of TV Profits. Carr points out that the bundling model – or problem, depending on where you sit – is deeply woven into the mass media, not just TV, but print and music as well. Bundling creates what Carr calls consumer inefficiencies. Having to buy the whole enchilada and pick it apart with a knife and fork translates into something wonderful for the big media bundlers: profits from products for which there’s little or no demand. As The Hopper, Aereo and the Viacom-YouTube lawsuit indicate, the bundlers will kill any and every innovation that stands in the way of this traditional revenue source.

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So far we’ve given pride of place to the lawyers and disruptive technologies. But there’s also plenty of disruption – or innovation – going on in the way TV content is being created, distributed and consumed. Much of that action comes courtesy of Netflix, which has managed to roil the industry from top to bottom without finding itself in court.

A topical case in point. If you’re a diehard fan like me, you’ve got your calendar marked for May 26 – the day Netflix releases all 15 new episodes of Arrested Development, which Netflix financed. The re-birth of this series thanks to Netflix, six years after it got killed by Fox, gives a whole new meaning to repurposing content for the Web.

hemlock-groveThe upcoming May release won’t be the first time Netflix has pulled off this kind of launch. It released Lilyhammer in February 2012, and a year later almost to the day, it released the Spacey-Fincher vehicle House of Cards to much fanfare. And speaking of topical, just yesterday Netflix kept up the pace by releasing the entire 13-episode first season of the spooky Brian McGreevy thriller Hemlock Grove – filmed at St Clair and Avenue Road here in Toronto, as well as in Port Perry and Hamilton. (Uh oh, that probably means your taxes subsidized this project, labeled For Mature Audiences thanks to its “mild fornication, fellatio, heavy cocaine use, lesbian necrophilia and violent hemorrhaging.” Imagine if they’d tried to get that script treatment past Telefilm. Still, if it’s only mild fornication…)

The American TV industry has many reasons to be worried about how and why Reed Hastings has become such a threat to business as usual. We can sum up those reasons in four categories:

  • new ways of creating and financing programs;
  • new ways of distributing programs over IP networks;
  • a relationship with the audience based on loyalty and a tight feedback loop;
  • new ways of consuming programs, including marathon viewing.

I’m going to give more attention to these points in part 5, which I truly hope will be the last. Let me add one further comment here about the way Canada’s TV stakeholders have reacted to Netflix.

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Hypocrisy and misrepresentations, with the CRTC’s support

In my June 2011 posts on the sabre-rattling over un-Canadian OVDs (Get yer grimy paws off my Netflix, here and here), I pooh-poohed the hysterical discourse that developed around the industry’s desire to have Netflix and its ilk “regulated” because of the dire “threat” it posed to their welfare. So how was that different from the threats felt on the US side of the table?

The biggest difference lies in the hypocrisy and misrepresentations encouraged by Canada’s cultural goals for TV. Our industry stakeholders aren’t satisfied saying they’d like to kill off Netflix because it’s taking away eyeballs and revenue. No, they inevitably conjure with the damage Netflix is going to inflict on their customers. Shaw e.g. told our elected representatives in Parliament that over-the-top foreigners would “impact the quality of service offered to our ISP customers” – as if Shaw can’t fix access quality by spending a little money on network upgrades. Worse still, it ventured that “consumers will ultimately suffer, with fewer Canadian choices.” Yeah sure, as if Shaw wished it could have more mandatory Canadian services to fill its network.

One thing you can say about the sabre-rattling going on in the US over disruptions like Aereo: broadcasters like Chase Carey at Fox may have some crazy ideas, but at least he’s not a hypocrite. In fact, if he were to carry through on his threat to take Fox cable-only, some 11 million US households, those still using antennas, would suffer real harm since they’d no longer be able to receive Fox.

help-drug-addict-3Our industry’s regulatory duty to support domestic content production has also been put to good use in misrepresentations over what Canadians get out of foreign services like Netflix. In February 2011, then CMPA head Norm Bolen dismissed Netflix by observing that “All they do is take dollars out of the country.” The intended message is ludicrous: I get far more value for my $7.99 a month, whisked away to coffers in Los Gatos, than I ever got from Rogers Cable for nearly 10 times that amount. While it’s difficult to pin down how many Canadian subscribers Netflix has signed up, one analyst estimated last September as many as 17% of online Canadians either subscribe or are trying out the service. (Bolen, who once told the CRTC it needed to do something about the “heroin drip of American programming,” is slated to be CEO of the Starlight movie channel.)

Even if our conglomerates never manage to get Netflix “regulated,” they have the tools in place to make it more expensive for their Internet access customers to consume Netflix –  including data caps. This anti-consumer “economic ITMP” wasn’t foisted on us by greedy service providers simply creating a new cash grab. In a breathtaking misreading of how ordinary Canadians struggle with their Internet service, the CRTC added its explicit and enthusiastic blessing to data caps, after determining such economic practices are – wait for it – “transparent” to consumers.

The public hearing on the current mandatory carriage applications begins this coming Tuesday. Jean-Pierre Blais has a legacy of agency incompetence and favoritism to live down if he intends to come out of this proceeding showing he’s still serious about putting consumers – not moguls – at the centre of the Commission’s deliberations.

D.E.