Pick-and-pay, Netflix and the CRTC’s TV policy review (1)

7111-mayfair-car-1dCar detailing – Shepherd Market, Mayfair, London W1 – Aug 2013

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tv-flag-4Memo to the CRTC: Even if pick-and-pay were to be implemented, it will never on its own advance consumer welfare by lowering costs or expanding choice, thanks to the market stranglehold enjoyed by Canada’s vertically integrated congomerates (VICs). When Chairman Blais kicks off the so-called “conversation” on TV policy this Thursday (Oct 24), he’ll face a daunting task: having to promise real change in the face of a) legislation that’s two decades out of date (which the Tories are not going to fix); and b) a heavily concentrated industry determined to preserve its bounteous status quo (which the Tories are also never going to fix). The best indicator of a meaningful review won’t be whether TV subscribers can simply pick and pay from among Canadian services at BDU prices not disciplined by either competition or regulation.

The real barometer of any new TV policy and its success or failure will be whether subscribers can choose services freely from outside the regulated broadcasting system – especially non-Canadian services delivered online, like Netflix, and do so without being subject to anti-consumer punishments like price-gouging through data caps. Netflix is a good marker to watch because it has conquered the OTT space and continues to grow in popularity; and because if the big broadcasting groups see any threat from a new policy framework, the first words out of their mouths will be, tax Netflix! If the CRTC continues to allow the VICs to brandish undue preference in our vertically-integrated media universe, then we’ll know the TV policy review has been a failure.

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ballon_fire-1Trial balloons and red herrings

So the Harper government wants to help consumers. As the Speech from the Throne indicated, that help would allegedly embrace TV subscribers, who might some day be allowed to select which television channels they want to pay for, rather than being forced to pay for bundles. As Greg O’Brien at Cartt.ca pointed out, the timing is a little weird: “Who’d a thunk the first submission to the CRTC’s television policy review would come straight from the federal government.”

Pick-and-pay TV, aka à la carte, aka unbundling, is being promoted as part of the Harper government’s recent love-in with consumers. Unfortunately, this piece of political opportunism isn’t going to help either consumers or the Tories. For one thing, as Michael Geist noted, what’s really significant is all the consumer-friendly stuff that did not make it into the throne speech (he cites privacy, copyright, surveillance and patents among other things). But there’s another catch here no one seems to have jumped on. The speech adds an important qualifier:

“Our Government believes Canadian families should be able to choose the combination of television channels they want. It will require channels to be unbundled, while protecting Canadian jobs” [my emphasis].

lg-tv-flag-detailAnd whose jobs would those be? The usual suspects: the tiny community of Canadians who make TV shows, whose long-term prosperity has come to depend heavily on subsidies from the public purse (e.g. the Canada Media Fund). Thus, Harper is trying to have it both ways. He can’t let us pick the networks we want without jeopardizing the very existence of many marginal and maybe not-so-marginal services, and thus the future of industry jobs. Moreover, any meaningful pick-and-pay system, by definition a pro-consumer social policy, will come into direct conflict with the decades-old paramountcy of cultural policy. As Greg O’Brien also notes, real changes to TV would mean amendments to the Broadcasting Act – and if there was any possibility of that, the throne speech would have let us know.

Which is not to say the Broadcasting Act, vintage 1991, isn’t overdue for fixing, on the contrary. One of most compelling reasons for an overhaul is that the legislation has always favored national cultural sovereignty at the expense of even the most minimal form of viewer (or TV subscriber) protection. That just doesn’t cut it in the Age of Convergence. But the Tories know that if they did try to meddle with the Act, the industry would be up in arms, given how well the status quo has served the established players. The whining oligopolists at Bell, Rogers, Quebecor and Shaw wouldn’t be on their own. Not once lobbies like ACTRA concluded “cultural” jobs would disappear if our TV system really did get pulled apart. In any case, Hell will freeze over before Harper and Moore get into that brawl. (One of the guys charged with protecting these jobs – Michael Hennessy, CEO of the CMPA – has posted some thoughtful ideas about pick-and-pay, as well as the TV conversation, on his official blog.)

The real consumer problem: our TV services are ridiculously over-priced

The Tory government’s hypocrisy is far from the only set of problems associated with pick-and-pay – never mind the general question as to whether Canada’s TV end-users will ever get any meaningful federal help.

Loonie stands for affordabilityFirst of all, fiddling with the distribution arrangements inside the regulated broadcasting system isn’t going to provide a quick fix, or any fix, for our two biggest consumer issues: the high cost of watching TV; and the subscriber’s very limited freedom of choice. High cost, you say? For the decade from 2002 to 2011, TV service fees went up in Canada at 2.5 times the rate of the CPI, as shown in the CRTC’s graph below (from its 2012 CMR; “TV fees soar…” is my embellishment).

Price indices for BDUs, CPI, TPI (phone), & Internet: 2002-2011 (source: CRTC)

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You’ll also notice that during this same period, the cost of both wireline phone service (TPI) and Internet access stayed comfortably below the rate of inflation. Why has watching TV in Canada turned out to be so expensive? The long answer concerns Ottawa’s long-standing protectionist policy and the zany idea that TV is the cornerstone of our national identity.

The other answer is more familar. Years ago, the CRTC chose to get out of the business of regulating our BDUs, because, in its humble opinion, the public interest would be just fine without any discipline exercised over the retail price for TV service. What a dreadful mistake that’s turned out to be. I can’t prove it, but the way the CRTC sets out the numbers suggests Canadians live in an oligopoly or near-oligopoly BDU market:

The top 5 BDUs control nearly 9 out of 10 of Canada’s TV subscribers: 86.3% as of 2012 – Rogers, Shaw, Vidéotron, Cogeco, BCE (see 2013 CMR, p.112, Table 4.4.2).

The thinking at the time was that intermodal competition – i.e. competition between the various technology platforms – would save the day. Indeed, one of the principal reasons adduced by both the CRTC and FCC for licensing DTH providers was that they would create competition for a market dominated by cable. That didn’t work out as planned – except for the incumbent telco in Eastern Canada and the incumbent cableco in the West…

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You can choose any platform you like, as long as I own it.

When the broadcaster is also the cable guy

Then there’s vertical integration, which brings us to another skeptical reaction voiced about pick-and-pay. For this accounting, the industry group we’re interested in comprises Shaw, Quebecor, Rogers and Bell. In his must-read update on the TMI industries (The Growth of the Network Media Economy in Canada, 1984-2012), Dwayne Winseck reminds us why we should be worried about the Canadian networks distributed by the BDUs, not just the BDUs themselves. That’s because the four firms that dominate distribution also dominate ownership of our domestic TV properties.

Dwayne notes that, while conventional TV has “stagnated,” the pay and specialty sector just keeps getting better for its owners. Of the 200 Canadian services in the pay and specialty sector, 116 are owned by the Big 4 (including what Bell picked up from Astral). But the ownership numbers greatly under-represent the financial benefits…

The 116 networks owned by the Big 4 capture 84% of the total revenues in the pay and specialty sector.

As the financials indicate, the VICs own the most valuable and popular services. As a BDU, Bell doesn’t want anyone doing any cord-shaving – say e.g. subs dropping TSN from their package. On top of having the opportunity to discourage drops as BDU, Bell also has the motive for keeping subs on TSN: Bell owns it, along with 39 other Canadian pay and specialty networks. These guys are not going to go quietly into the night while Canadians start dropping channels, any channels, owned by their BDU.

Gotcha by the balls: when your BDU is your broadcaster is your ISP

I’ve been arguing that tinkering with details like pick-and-pay won’t improve the subscriber relationship with the incumbent BDUs. I’m also arguing that we have much bigger problems standing in the way of a TV system in which the regulator and the licensees pay even a modicum of attention to the needs of subscribers.

All of that would be bad enough if they hadn’t invented a little thing called the Internet. But they did. And as everything we know as “TV” is turning into various forms of video delivered over IP networks, a great deal more is at stake for Canadians than simply how many channels they’ll have to pay for every month.

Will continue in part 2… Learn why the TV policy review may prompt the incumbents to make the Internet much less like an online commons and way more like, well, cable-TV.

D.E.

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