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Why Competition Holds the Key to a Broken Broadcast System

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Tuesday July 05, 2011
As the Canadian Radio-television and Telecommunications Commission concludes its hearing on the consolidation of the Canadian communications market into a handful of corporate giants (so-called vertical integration) and embarks on a "fact-finding exercise" on the impact of online video services (today is the submission deadline), my weekly technology law column (Toronto Star version, homepage version) notes the only obvious conclusion from the hundreds of submissions and hours of debate is that Canada’s broadcast law framework is broken.

The Commission’s struggle to make sense of the changing corporate and technological landscape - alongside lobbying for new industry codes of practice and Internet regulations - is rooted in a regulatory framework premised on scarcity rather than abundance. When the law was crafted, broadcasters occupied a privileged position, since the creation of video was expensive and the spectrum needed to distribute it scarce. As a result, the government established a licensing system complete with content requirements and cultural contributions designed to further a myriad of policy goals.

Yet among the more than 40 policy goals found in the current Broadcasting Act, the word "competition" does not appear once. The absence of competition may have made sense when there was little of it, but in today’s world of abundance featuring a seemingly unlimited array of content and distribution possibilities, fostering competition among broadcasters and broadcast distributors such as cable and satellite companies might hold the key to reforming the system.

What might a competition-focused broadcast policy look like?  

First, rather than erecting barriers to new entrants with proposed fees, regulations, or investment restrictions, Canadian law would seek to create a level playing field that encourages more competition. This would mean recognizing that video can be distributed across many platforms from broadcast television to the Internet to software games, but that broadcast regulation is not needed where there is no scarcity.

While some argue for the regulation of services like Netflix, the reality is that there is nothing to stop any Canadian company from establishing a competing service. The best way to beat Netflix is in the marketplace, not a CRTC hearing room. Conventional broadcast may still require some regulation (spectrum is still relatively scarce), but new online competitors do not.

Moreover, encouraging greater competition means inviting new competitors into the marketplace. Canada maintains some of the most restrictive rules for foreign investment in the communications sector and this would change under a competition-focused broadcast policy.

Second, broadcasters and broadcast distributors should be forced to compete more aggressively for viewers and original Canadian content. In the current environment, cable and satellite companies package hundreds of channels together in a confusing manner that leaves consumers frustrated with ever-increasing bills, while broadcaster competition is largely limited to outbidding one another for Hollywood hits.

Injecting competition into this environment would include establishing a pick-and-pay option for consumers that would allow them to pay only for those channels they actually want and removing the simultaneous substitution policy that grants Canadian broadcasters the lucrative ability to substitute their feed (commercials included) over the same U.S. feed. Dropping simultaneous substitution, which has turned some Canadian private broadcasters into little more than U.S. affiliates, would force the broadcasters to compete with their own original content and help to ensure that Canadian content is made to be watched, not just made to comply with regulatory requirements.

Third, a competition-focused approach would ensure that the vertically integrated giants do not leverage their controls across multiple platforms to stymie new entrants or independently created content. That would require guidelines on the implementation of Internet data caps (since ISPs can use the caps to hamper online video competitors), enforcement of net neutrality rules to foster different modes of video distribution, and restrictions on the use of exclusivity by ensuring competitor access to content on reasonable terms.

The result would be a sea-change in the Canadian broadcast landscape – broadcasters competing on the quality of their original programming, broadcast distributors on the basis of the value they provide to consumers, and creators on their ability to find an audience in a world of abundance.
Comments (13)add comment

Keith H said:

Agreed: Competition needed
An eloquent argument for change. The debate and over-analysis of the correct "level" of restriction and regulation can be solved simply and effectively with increased competition. The government's role in this sector should be to foster competition and the innovation that always accompanies competition.
July 05, 2011

Russell McOrmond said:

Some similar ideas in my CRTC comment
I made some similar comments, specifically about CANCON and related cross-subsidy regulations, in my submission to the CRTC.


Re: CRTC 2011-344: Fact-finding exercise on the over-the-top programming services
http://TekLaw.ca/5351
July 05, 2011

Andrew McCoubrey said:

The oft-reviled SimSub
Before long the CRTC will be irrelevant as OTT makes it impossible to achieve cultural goals through broadcast regulation. The sooner we realize this the better, since Industry Canada and the Competition Bureau are much better equipped to deal with the consumer protection issues that are already dominant.

In the meantime, the regime we have is better than nothing. Blowing it up would have negative consequences I'm sure you don't intend. Today, lots of Canadians watch lots of Canadian broadcast TV. They get national and local news and the common content that supports a national cultural identity. And they watch Canadian commercials, which are usually terrible, but which are a vital tool for Canadian business. There is value in preserving that system.

With simultaneous substitution, Canadian networks show lots of US content. Without it, would they instead make great Canadian shows? No, they would go off the air and show nothing. Broadcasting content acquired from foreign producers is the only thing that makes money for Canadian TV networks. It's what subsidizes everything else they do. Take away simsub, and their business case evaporates. Without a billion-dollar a year federal subsidy (the CBC model), CTV, Global, TVA etc. will move their valuable properties to specialty channels and shut down the broadcast generalist networks. Canadians will continue to watch their favourite American programs, on American networks, with American ads. Canadian advertisers would buy time on the US network affiliates near the border, and all the money which currently subsidizes Canadian TV production would instead flow to WIVB, WGRZ, WKBW etc.

As a TV viewer, I hate simsub. Especially during the Super Bowl. But its existence creates tremendous value by segmenting the US and Canadian audiences, and that value is what makes Canadian TV possible. As long as broadcast TV exists (another few years?), we ought to keep it.
July 05, 2011

Jim R said:

...
Exactly - many of the regulations we have are premised on the scarcity of spectrum and, to a lesser extent, the limitations of cable TV. These premises are tossed out of the window when it comes to OTT.

The CRTC needs to get on the bandwagon and prepare Canada for this new world order, not keep re-fighting the last battle.
July 05, 2011

Crockett said:

...
"would force the broadcasters to compete with their own original content and help to ensure that Canadian content is made to be watched, not just made to comply with regulatory requirements."

This is the reason I love British produced shows, the quality is amazing. There are few Canadian produced equivalents. Sometimes the British shows have shorter runs than I would prefer, the exceptional new Sherlock series for instance, but the focus of quality over quantity obviously makes a difference.
July 05, 2011

Bradly Strider said:

...
It's not the government's role to enforce any sort of national identity (if such a thing even exists, given how large and diverse a country Canada is). That's something that Canadians need to work out for themselves, not by relying on the state to favour some voices over others.
July 05, 2011

Gregg said:

I remember plenty of independents while growing up...
All the cartoons I watched were on independent TV stations.
All the radio programs I listened to were on independent radio stations.

They all failed.

There is one lone little inde TV station on Vancouver Island and it's struggling. The one bought from CTV for a twonie.

Competition won't work where collecting societies are demanding 20 times the royalties the USA does.
July 05, 2011

IamME said:

...
"Competition won't work where collecting societies are demanding 20 times the royalties the USA does."

And this is huge problem in Canada. We're so top heavy with royalties, levies and taxes that there's no way we can possibly compete without some serious restructuring of our broadcasting system. ...and it's legislated to be that way.

From my own experience, if I were to run a bicycle store in Canada, it's illegal for me to buy bikes and parts directly from foreign manufacturers. I MUST go through a recognized wholesaler. The one Canadian company that I know of, that "bucked the system" and bought directly from US manufacturers, and sold stuff for a fraction of what everyone else sells for in Canada, was eventually shut down by the competition bureau.

With the strength of our dollar, when I can still buy something from the US, or even the UK in many cases, for 40% - 100% less (More in some cases) than what I can buy it for in Canada, there is something wrong with the system. The broadcasting system is just as broken.
July 06, 2011

Greg Nakatsui said:

...
What is preventing this kind of forward thinking from getting to Ottawa? I guess what I'm asking is, what are the counter arguments to this type of policy?

t seems to me that having access to Hulu and Netflix would be beneficial to the consumer and if there was Canadian content that was worth watching then it would eventually show up there or through a competing channel.
July 06, 2011

Gregg said:

"What is preventing this kind of forward thinking from getting to Ottawa?"
Honestly, people do not want the change.

Look overall at the polls on many, many things from foods to politics to flashy electronic bling to cars - Canadians the age of the politicians are happy with what they have and don't have any interest in changing.

What IS driving our change more is the US envy - we want what they have (oh, but of course we're willing to pay ten times for it because, y'know, we're Canadian and that's the way it's always been) and the kids wanting the latest and greatest.

Now before you say, "Hey, we here all want this change..", as individuals this is true! But as a nation as a whole, the individual logic falls to dust. Take a look at this last election....

Before the election, there was anti-Harper this, anti-Harper that. The "unofficial" polls showed the Libs would squeak past the line with a bare minority. But when crunch time came, the individual logic went out the window and follow the horde it was! "NOOOOOOOOO! No change! I'm scaaaaaaaared!"

Same with technology.
July 06, 2011

IamME said:

@Gregg
"(oh, but of course we're willing to pay ten times for it because, y'know, we're Canadian and that's the way it's always been)"

This mentality is changing though, albeit slower than I would like. Cost of living is increasing much faster than salaries. People are getting more tech savvy as more and more of the younger generations become of working age. I know a lot of people who now look for the lowest price on many items. Really, when it comes to mail order does it matter if it comes from the neighboring city, country, or from across the world. You pick pretty much any item of shipping size and, most of the time, it can easily be found in the UK, Germany, US and many other places for cheaper than Canada, including shipping. Sometimes the price difference is substantial, in the order of 100% or more. Where we're getting royally $cr3w3d is on subscription services, but that will change sooner rather than later. Consumer pressure will see to that. Our providers and regulatory bodies are running out of believable excuses and starting to show serious signs of desperation. When this all comes to a head, they will have little choice other than to acquiesce. It's still a business and the customer is always right.
July 06, 2011

Gregg said:

@ IamME
I sure hope you're right!

CBC took a walkabout on a Vancouver street and asked various people what they thought of paying 40% more for identical items. One of the bunch cared (older lady). Everyone else (all gen-X/Y) said they don't care or expect it. One fellow literally said (where I got the quote from), "...but of course we're willing to pay many times for it because, y'know, we're Canadian and that's the way it's always been.."

Magazines and books are the worst and I started a local campaign against the magazine retailers, encouraging people to get subscriptions instead. The local paper gave me "airtime", but no one had the belly for it. They just did not care :-

"Cost of living is increasing much faster than salaries."

According to Stats Can, we families average $74,700 per year and are getting BIG increases annually: http://www40.statcan.gc.ca/l01...1a-eng.htm

Everyone in Canada drives new F350's and poverty is non-existant. What's this UN report on child poverty here going up and up? Leftist garbage!

Funny thing is I used a similar BS comment as above on the CTV comments in stories and was able to sell the "we are just fine" far easier than any facts or figures that we are not.

So, how's this relevent? Simple marketing - people will fall for anything and the companies know it. People do not want to think, they want to be led to their decision (not told how to decide, that's bossy. Lead them with spindoctored logic).

As a free thinker and trying to help people see they're being hosed, I have been defamed as the "...communist trying to destroy our local economy...", despite my proof that a simple subscription, the Canadian author and magazine get the same $, we just cut out the greedy middleman.
July 06, 2011

Scott Watkins said:

If CanCon is broken, how do we encourage Can con?
I've always thought, even as a child hearing Trudeau explain the concept, that simultaneous substitution was a bad and unfair idea. I think that basing a system to develop national content on leveraging bargain basement content from someone else's culture simply makes no sense.

That being said, I am currently appearing in a Canadian produced web series, the funding for which comes from mandated sources (www.tightsandfights.com, and the Independent Production Fund, respectively).

The budget from funding allowed my producers to make a more ambitious product - which is still well short of "broadcast standard". But to be blunt, our biggest problem is finding a large enough audience to sustain a business model.

I have no doubt that Canadian producers, large and small, can produce world class product. I've been involved in it. I also believe that models will emerge that will become sustainable. There are already online properties that turn a profit.

The question I have though, and don't yet have an answer to, is how should we as a nation develop a sustainable OTT and broadcast 'TV' industry if we can no longer rely on cross-subsidy and direct funding? And yes, I am aware that subsidies do not make a sustainable system.

If I could answer that, I wouldn't need the lottery tickets.
July 12, 2011

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