Must-carry TV: putting viewers last in the US and Canada (2)

HomeTheatre1_midrezArtist’s rendering of pentup demand for 22 more mandatory TV channels

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Update (Apr 11). In citing Michael Geist’s post below, I neglected to point out the suggestion he makes to replace must-carry in the service of viewer interests. A must-offer policy would require “broadcast distributors to offer all licensed channels to their subscribers in a pick-and-pay format.” That idea seems sensible, although it’s difficult to see how it could be implemented across the board without a) confronting capacity and delivery issues, especially for smaller BDUs; and b) having the Commission set demand thresholds for very marginal broadcast services. What happens if 50 people request a service on a system with 5,000 subscribers? Whatever the merits, the big distributors are not exactly enthusiastic about pick-and-pay, if only because of the money they would have to leave on the table. But these are all yesterday’s battles and they demonstrate clearly what’s wrong with Canada’s broadcasting system: it’s 20 years out of date, based on outmoded assumptions about infrastructure scarcity, the need to “protect” our sovereignty and the passive role of the TV audience. If only we had a technology that offered a more economic, personal and interactive way to communicate. Wait. We do. It’s called the Internet.

In my previous post, I concentrated on channel-bundling in the US and how the market has been reacting to the pros and cons. Today I want to talk about the CRTC’s must-carry proceeding, an event that has triggered a lot of debate (see Broadcasting Notice of Consultation CRTC 2013-19).

Right after it was announced in January, Michael Geist tore into the CRTC, referring to the announcement as bad news for Canadians frustrated by ever-increasing cable and satellite bills (CRTC Should Put Consumers First and Drop ‘Must Carry’ Requirements):

Rather than convincing millions of Canadian consumers that their services are worth buying, the broadcasters need only convince a handful of CRTC commissioners that their service meets criteria such as making “an exceptional contribution to Canadian expression.” That is supposedly a high bar, yet it is surely far easier than convincing millions of people to pay for your service each month.

A few days ago, the Globe and Mail ran a more typical kind of mainstream coverage,robert-lantos entitled The fight for carriage: TV channels’ quest for prized cable spots. It begins and ends with comments about the temper tantrum Robert Lantos had about Rogers at an industry confab – exactly the kind of coverage Lantos lusts after as a must-carry applicant for crowd-financed movie service Starlight and exactly the kind of industry brawl Canadians don’t need to hear about any more. It’s time for the millionaires from Canada’s gold-plated media firms to button it up and time for the CRTC to focus on the rest of the population for a minute.

Protectionism and paternalism, still thriving in Ottawa

Selling TV channels in bundles or tiers isn’t new and certainly isn’t an American phenomenon. In fact, Ottawa invented what must be the world’s most complex and arcane regulations for the programming BDUs can distribute, and how it’s to be packaged and marketed (BDU = broadcasting distribution undertaking, like Rogers Cable TV). After all is said and done, the main point of the linkage regs, the eligible satellite service regs, the mandatory distribution regs, the local expression regs, the HD regs, the inside wiring regs, the interactive TV regs, the simultaneous and non-simultaneous program substitution regs, etc, etc… is to make sure you have a preponderance of Canadian content available to you, no matter what you want to buy from Rogers or Bell or ExpressVu.

Our so-called “single broadcasting system” is thus designed and managed to achieve supply-side goals, not demand-side goals. And the mandatory carriage of certain channels is the keystone to this whole apparatus. Thanks to the current proceeding, it has also become a flashpoint in the debate over whether and how the CRTC should tell viewers what they can watch. But let me emphasize something here. The real issue for the Canadian audience is not whether e.g. Sun News is good or bad for us, compared to any other service. Nor is it about finding a better way to decide what should be mandatory. The problem is much bigger.

Decreeing by regulatory fiat that there shall be must-carry TV channels everyone has to pay for – regardless of whether they want them – is an affront to consumer welfare. This policy had a purpose 20 years ago when Canada needed its own pay and specialty services, plus some incentives to promote the growth of an independent production industry. We’re long past that now, for many reasons. One is that “independent” production, such as it is, no longer qualifies as a fledgling industry. Another is that the great majority of Canada’s broadcasting services, conventional and cable only, are now owned by one of our four vertically integrated conglomerates (BCE, Rogers, Shaw and QMI). Another still is the big ol’ disruptive technology Ottawa just can’t get comfortable with: the Internet. Isn’t this the new world of on-demand programming? Isn’t the audience in control now? Not if the media old guard can help it.

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If the CRTC pays no attention to audience demand, how do the Deciders decide who’s going to win the must-carry lottery?

The criteria the Commission will be using to pick the “winning” applications in the next few months are not of recent vintage. They were decreed over two and a half years ago, in a regulatory policy entitled Criteria for assessing applications for mandatory distribution on the digital basic service (Broadcasting Regulatory Policy CRTC 2010-629). To provide a sense of how dated this policy is, consider that the Commission issued it one month before Netflix became available to Canadians. Consider also that it wasn’t until three months after the Netflix launch in Canada, in December 2010, that the company decided it should invest more money in the streaming business than in the DVD business. Netflix has become a crucial bellwether of the future evolution of TV, owing in part to the fact that its core US base now watches far more streaming TV on Netflix than it does movies.

The criteria that make a niche channel a national treasure

The Commission sets out the seven criteria it intends to use in the current proceeding Intreasure-chest paragraph 11 of the 2010 policy. With one minor exception, none of these criteria has anything to say about what Canadian audiences like to watch, or have watched in the past. The 2010 decision drew two dissenting opinions, one a lengthy statement from Commissioner Morin, whose so-called “Morin model” offers a simple and elegant way to reduce the decisions to award mandatory carriage to a set of readily computed numbers. For the purposes of scoring each service for possible mandatory carriage, Morin suggested the regulator add A) the percentage of Canadian content broadcast by a given service to B) the percentage of Canadian programming expenditures proposed, and then subtract from that total C) the retail price to be paid by the consumer.

But instead of a formula of this kind (Morin called it a “simple, but oh so fundamental equation!”), the Commission stuck with criteria whose overarching requirement is that each applicant offer evidence “demonstrating the exceptional importance of its service to the achievement of the objectives of the Broadcasting Act.” Here’s my paraphrase of the seven goals that supplicants must aim for (as outlined in para 11, using numbers instead of letters). Successful applicants must provide evidence that:

  1. Their service will make an exceptional contribution to Canadian expression and exceed the contributions made by established services.
  2. The programming they offer will promote social and cultural policy objectives, such as reflecting Canadian identity, or narrower objectives such as promoting the interests of Aboriginals or linguistic minorities.
  3. They will produce and exhibit lots of original, first-run Canadian programming with decent budgets.
  4. The intended audience for the service evinces an extraordinary need for the programming in question.
  5. The business and programming goals of the service require manadatory carriage because there is no alternative technological platform.
  6. The applicant understands how the proposed wholesate rate will affect the price of the basic tier – and be aware [somehow] of the service’s “widespread acceptability to Canadians.”
  7.  The proposed timeframe for achieving “exceptional status” is acceptable.

The only criterion here that calls for much comment is #4. I would divide the other six into two groups: those that are clearly intended to be supply-side measures disconnected from any actual viewing experience (1, 2 and 3); and those that are self-fulfilling or far-fetched (5, 6 and 7). As in… “Our service requires mandatory distribution because our business plan says so.”… “Ours is a niche service intended for [ _____ ] but is nevertheless widely acceptable to Canadians, even those who will never watch it and think their cable bill is too high already.”

To my mind, #4 is the most interesting provision both for what it says about “evidence” and what it doesn’t say about audiences. Here’s a keyword factoid: the term “audience” appears exactly three times in this 7,000-word policy. Two of them are right in criterion #4, verbatim as follows:

“…provide evidence, such as surveys of the prospective audience, demonstrating that there is extraordinary need among the intended audience for the proposed service.”

audience-logotypeThe third occurrence of “audience” comes much later, in the Morin dissent, a passing reference to the audience for a particular specialty service. In terms of keyword count, the 2010 decision also contains a grand total of three instances of “demand” or “demands.” By contrast, the terms “program,” “programs” and “programming” occur 40 times. I’m not saying this is a surprising revelation. On the contrary, the Commission’s broadcasting lexicon is all of a piece. What I am saying is that excluding demand from the calculus may have been fine in the past. But it’s 2013 and the Commission at last has a Chief Consumer Officer, who should be revisiting the assumptions behind this policy with great skepticism.

In the opening paragraph of the 2010 decision, the Commission attempts to square the circle by claiming that, through reviewing the relationships between BDUs and programming undertakings, it is helping ensure that BDUs will respond to “the demands of viewers for greater choice and control over their viewing options.” Gimme a break.

First of all, five conglomerates now own most of Canada’s distribution and programming undertakings, and this concentration of ownership hasn’t exactly made them any more consumer-friendly than they were before. Needless to say, if Bell has its way with Astral, then the risks associated with mandatory carriage will be much greater, and the public interest benefits will be even more paltry. (For an up-to-the-minute critique, see Dwayne Winseck’s report on Bell-Astral 2 for PIAC, filed last week. The PIAC page is here; scroll down for the pdf’s of Dwayne’s evidence.)

Second, I’ve been hearing the stakeholders, including the Commission, trot out that “choice and control” nonsense for over 20 years. Everything in Canada’s overarching broadcasting policy, the corporate interests of the industry, the Commission’s (statutory) obsession with Canadian content, and exercises such as the current must-carry proceeding indicate with stark clarity that none of the stakeholders has any genuine interest in responding to what viewers actually want – as long as they send a check. The best reason for taking a cynical view of the Commission’s stance on what viewers want is that it does absolutely no empirical research of its own on audience behaviors or attitudes.

logo-col-tContrast our regulator’s do-nothing approach with the keen interest shown by both Ofcom and the FCC in looking regularly and systematically at the public they each serve. Ofcom produces annual reports “into the consumer experience of the fixed and mobile, internet and digital broadcasting markets.” Yes, the consumer experience, not just what the CRTC’s licensees are experiencing: see here for Ofcom’s broadcasting links. Over at the FCC, we’re told that “data underpins every activity” – and this page offers a whole raft of numbers and tools allowing independent minds to manipulate those numbers. Which brings us to the third leg of this stool…

What data the CRTC does have on consumers tend to come from supplicants whose vested interest lies in using survey research to demonstrate significant pentup demand for whatever service they are trying to get licensed, renewed or moved to basic. Unfortunately, depending on “surveys of the prospective audience” is a less than perfect way of making decisions on what Canadians are allowed to watch on TV – and a terrible way of deciding whose service should get mandatory carriage.

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Introducing the role of advocacy research in CRTC proceedings

The system I’ve just described is an open invitation to applicants to indulge in advocacy research – surveys that try to draw out the slightest hint of interest in respondents and translate that into a compelling, and often misleading, story for the regulator. But even if applicants were being ruthlessly objective, asking survey respondents how keen they’d be on getting a service they’ve never seen is a minefield. Yes, this goes on all the time, and yes, some TV services have a built-in advantage. One of the current applicants e.g. wants to launch a Punjabi service. Like other third-language services, a Punjabi channel has a very well defined and probably well motivated “prospective” audience.

Clearly defined minority audiences are one thing. Gen-pop services are quite another. Take current applicant Starlight Television, which proposes to collect money from everybody so that Alliance Films co-founders Robert Lantos and Victor Loewy can make up to a dozen Canadian movies a year without the fuss and bother of finding all the financing. And without worrying whether a captive TV audience, which is already paying for their movies, actually wants to watch them.

A critique of both government-funded and privately-commissioned survey research is coming up in part 3.

D.E.