The CRTC tries to drag our TV “system” into the 21st century

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The public hearing announced by the CRTC last week (Broadcasting Notice of Consultation CRTC 2014-190) came with two other newsworthy documents.

One is the Commission’s trial balloon on instituting a pick-and-pay system for TV subscribers, which takes the official form of the CRTC’s Response to Order in Council P.C 2013-1167 (“Maximizing the ability of Canadian consumers to subscribe to discretionary services on a service by service basis” – here). This document contains the seeds of what might be a significant reform to the channel-bundling model.

The other document represents another step forward for the Commission: it’s a random-probability national survey, undertaken by Harris/Decima, entitled “Let’s Talk TV: Quantitative Research Report” (here). One of my persistent criticisms of the Commission’s work concerns its faith in casual “consultations” with Canadians, at the expense of real survey research. It’s therefore a big deal to see this survey up for discussion.

Factors working against a successful outcome

Before we get carried away with paeans of praise, however, let’s unpack some of the barriers that stand in the way of this brand of policy reform. As I read the notice of consultation, the following four issues sprang to mind:

  • The Commission has been obliged to frame this proceeding under the Broadcasting Act, which is enough to fill up a single post (this one).
  • The TV industry has undergone galloping concentration of ownership over the last decade, and that trend gets honorable mention below.
  • The public participation rates in the Let’s Talk TV consultation process were alarmingly low, depending on your baseline: I’m deferring that to another time.
  • And then there’s the vexing question that keeps coming up in CRTC publications: who is the readership for this damn thing? Another deferral for now (except to ask why, in a 72-page document intended for regulatory lawyers and MBAs, does the Commission take time out in footnotes to explain terms like curator, pick-a-pack, distant signal, content quotas and third language?)

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Thanks to its duties under the Broadcasting Act, the CRTC takes an expansive view of what constitutes our TV system, just as it takes an expansive view of the many social, cultural and economic goals set for the system under section 3(1) of the Act, the Broadcasting Policy for Canada. And on that point the Commission has all my sympathy, hemmed in as it is by enabling legislation that’s over-reaching, outmoded and tilted in favor of a carefully concealed industrial policy.

But whether its heart is in it or not, the Commission for present purposes falls in with the populist tradition favored by Ottawa, under which our TV system is a national treasure of mythic status, as well as a kind of benevolent club in which viewers have pride of place:

“The Canadian television system consists of viewers, programming services (such as, local television stations and specialty television services), BDUs and the production sector. Programming services and BDUs fulfill an important role as content aggregators. Programming services aggregate programs for broadcast to the public, while BDUs aggregate programming services for distribution to subscribers. Programming services and BDUs, include both licensed and exempt services. Often, programming services and BDUs with a large number of subscribers must operate under a licence, while those with a small number of subscribers can operate under one of the Commission’s exemption orders. Broadcasting services delivered over the Internet or on mobile devices are other examples of exempt services that form part of the television system” (para 15).

The most charitable thing I can say about this warm and fuzzy outlook is it doesn’t accord with the facts on the ground.

First of all, the self-styled cultural policy that forms part of the Act is nothing more than an industrial policy in disguise. This discrepancy is the product of a painful and insoluble dilemma. The only reliable way the regulator, or any branch of government, can measure success in the TV system is through the use of quantifiable economic measures – jobs created, programs made, dollars spent and earned. In the extravagent and ambitious language of the Broadcasting Policy for Canada, no stone is left unturned, no goal is too far-fetched.

Looking after everyone yet looking after no one

We might expect that our TV system should “serve to safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada.” But even in the mundane world of job creation, the policy provides that TV programming and the employment opportunities arising out of TV operations should

“serve the needs and interests, and reflect the circumstances and aspirations, of Canadian men, women and children, including equal rights, the linguistic duality and multicultural and multiracial nature of Canadian society…”

The flip side of these abstract intentions to look after everyone in general is that the policy does nothing to look after the real-world interests of flesh-and-blood viewers. Indeed, 19 years almost to the day that the CRTC published its first major report on convergence (Competition and Culture on Canada’s Information Highway: Managing the Realities of Transition), Canadians still live under two radically different systems for broadcasting and telecommunications respectively.

The most striking difference between these two sides of the convergence house divided lies in the absence of any form of protection for TV subscribers from the four vertically integrated conglomerates (VICs) that own most of the important TV properties in Canada. 

Television may be described as a cultural industry, but it’s industrial first and cultural a far distant second. Moreover, it’s an industry that, as Dwayne Winseck has demonstrated forcefully, has become highly concentrated in recent years (Growth and Concentration Trends in the English-language Network Media Economy in Canada, 2000-2012). First let’s go to an observation made by the Commission itself in the hearing notice, which confirms two unpleasant facts about the Canadian TV market. One is that this market is indeed highly concentrated and vertically integrated. The other is that the network holdings themselves don’t reveal the value of these networks in both audience and revenue terms (para 91):

[…] 49% of specialty, pay, pay-per-view and VOD services are owned by VI companies, but these services receive 84% of all subscriber revenues and 92% of all discretionary service advertising revenues (2012-13 broadcast year). Similarly, VI BDUs serve 80% of all subscribers across Canada and generate revenues of $7.1 billion as compared to revenues of $1.7 billion for other BDUs.

The CRTC writers seem to have been bashful about naming names here. The VICs in question are four in number: Bell, QMI, Rogers and Shaw. Now let’s go back to Dwayne’s analysis and take a different slant on the problem. Federal politicians and policymakers rarely point to success in our TV system in any terms other than programming. Programs are what viewers see and programs supposedly embody the values enshrined in the legislation. (I note in passing, however, that such successes are typically identified from the supply side and almost never from the demand side, because of the vexatious trade-offs between quality and popularity.)

But as Dwayne demonstrates, content creation is not what our TV system runs on. Take a look at the chart below, which shows how the four biggest media firms in Canada depend to a far greater extent on connectivity and distribution than on content creation (Telus is not considered one of the vertically integrated firms as it has no content holdings of its own).

content-creation-v-content-delivery-2012Content creation vs content distribution in Canada (Winseck, 2013)

As Dwayne explains, the control exercised by these firms over communications infrastructure (content delivery) is the fulcrum of their business, whereas content media are but “ornaments on the carrier’s organizational structure.” 

TV subscribers paying the price of media concentration

We would expect the market control exercised over distribution by such a small number of firms to have an adverse effect on the price of watching television. Here again the Commission has broken with tradition and offered up more bad news about this very subject (para 27):

Cable subscription fees have increased faster than the Consumer Price Index in recent years. In 2012, the average amount Canadians spent on cable and satellite TV services increased by 5%, when inflation rose by just 1.5%. Canadian households spend an average of $52 a month on television services—before factoring in telephone, Internet and wireless services. Added up together, these services cost on average $185 a month or over $2,200 annually. This represents the sixth largest expense for most families.

The Commission has provided a handy graphic to illustrate this point (it does not appear in the hearing notice, but in the pick-and-pay report)…

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The high cost of watching TV (CRTC)

The Commission is clearly concerned about that red line at the top, soaring into the great beyond. It seems self-evident that Ottawa’s relentless pursuit of success for the “system” is exactly what has encouraged the big media owners to grow prodigiously at the expense of the welfare of their customers. So much so that the Commission is going to try to turn back the tide.

In the passage in the pick-and-pay report on ever-rising TV fees (Effect on Canadians), the Commission allows that “providing subscribers with increased flexibility would give them more control over their bills.” That target is certainly what we should be aiming for, though it’s not yet clear how the incumbents can be prevented from adjusting their retail rates to compensate for revenues lost to pick-and-pay. One thing we know for sure: the responses to this trial balloon will be full of flag-waving and tears for Canadian services that might not survive.

“The Broadcasting Act is so 20th century” – Commissioner Denton, 2009

Several years ago, then Commissioner Denton visited my classroom to explain why the Internet represents such a radical departure from old media platforms. His views on this subject are memorialized in his famous 2009 concurring opinion, which accompanied the Commission’s Review of broadcasting in new media (Broadcasting Regulatory Policy CRTC 2009-329) – the 10-year followup to the landmark 1999 effort to corral the messy leakage of “programming” onto the Internet.

denton-table-2009

Denton’s 5,500-word opinion is one of the most eloquent explanations I’ve ever read of what’s different about the Internet and why it must be treated differently by policymakers.

Just to be clear, the 2009 proceeding was technically not about broadcasting per se, but about broadcasting in new media, meaning some might see Denton’s remarks as being at one remove from the current TV proceeding. But that’s exactly the point. The Internet revolution is not going away and trying to tame the online beast by fitting it to the Procrustean bed offered by the Broadcasting Act is a travesty doomed to fail.

Denton explains this truism from a number of angles. In the first section, for example, we read as follows:

The [Broadcasting] Act is an artefact of history. […] Therefore no sensible discussion of the Internet and the Act can take place in terms exclusive to the Act. Yet this is what Commissioners are asked to do.

In the next section, Denton tackles the thorny problem of vested interests – those Canadians who have come before the Commission to argue that, since the Internet is disruptive to their established businesses, it must be brought under control:

Many Canadians dependent on the Act for their revenues and business model seriously argued before the Commission that the legal model informing the Act both could and should be applied to the Internet, or at least to the portion of the Internet which distributes television programming. […] To devotees of Canadian cultural nationalism, the Internet and the possibilities it creates is yet another threat to cultural sovereignty that far-seeing government policy should refashion to its own purposes.

Denton was also very concerned, like many in the pro-Internet community, about gaining recognition for the bedrock principle that the Internet offers “innovation without permission” – an idea that runs counter not only to the closed, regulated TV system, which operates on the principle of innovation by fiat.

We can measure the harms to consumers that stem from our regulated system, like cable-TV prices outstripping inflation by nearly 300%. The harms to innovation are much less tangible and harder to measure, if only because innovations stifled are innovations we’ll never see. Remember that for most of its existence what Bell and its monopoly partners wanted on their networks was absolutely zero innovation from anyone outside the club – a corporate culture that, sad to say, was only encouraged by the advent of broadband and the opportunities afforded by vertical integration to stifle innovators like Netflix.

Full circle: CRTC endorses call for a national digital strategy

And in closing, a historic irony.

The Commission’s travails in this TV proceeding owe a lot not merely to an antiquated piece of legislation, but also to the ineptitude of its political masters. When the 2009 decision was released, many of us were stunned to see the Commission – the very folks who didn’t seem to get the Internet – recommend in the strongest terms that it was high time for the federal government, not the regulator, to fix the problems exposed by years of digital disruptions. Here was the Commission’s last word in the 2009 new media decision (paras 76-78), which Commissioner Denton singled out for support in his opinion:

“While the Commission’s focus on broadcasting in new media has been appropriate given its mandate under the Act, it is limited in scope compared to the wide range of issues resulting from developments in the digital age. […]

The digital environment is rapidly changing the everyday lives of Canadians and presents economic, cultural and technological opportunities. […] Canada’s ability to compete and prosper in this environment demands national leadership and a focussed agenda.

“Given the breadth and magnitude of the issues and their importance to Canada’s future, the Commission fully endorses the call by the NFB for the Government of Canada to develop a national digital strategy.”

If you’d care to fast forward to the Tories’ dismal failure to get us even one inch closer to what the CRTC saw five years ago as the crucial next step in the evolution of Canadian media, please refer back to my previous post, Digital Canada 150: why the Tory plan is risky, not just foolish.

D.E.