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The CRTC's Vertical Integration Decision: A Step in the Right Direction

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Thursday September 22, 2011
This past summer's usage based billing hearing featured a critical moment when CRTC Vice-Chair Len Katz asked a question of independent ISPs that made it clear the commissioners were finally getting it. Katz started from the following premise:

I guess I come from the position that we, the Commission, have already recognized there is a need to create competition, more competition in order to protect Canadians, and facilities-based competition is not yet here.  So it's our job to find a vehicle to create that competition and, in the simplest terms, it is to create an environment where broadband would be made available to a third party through a lease arrangement.

The acknowledgement about the state of Canadian competition and the responsibility of the regulator to address the issue was long overdue. While the UBB decision is still forthcoming, Katz's comments provide some reason for optimism. Yesterday's CRTC vertical integration decision contained a similar statement that offered a strong indication that the Commission got the concerns associated with vertically integrated media companies that can use their market power in a manner that harms consumer choice :

The Commission considers that the record of this proceeding demonstrates that VI [vertically integrated] entities have both the opportunity and incentive to give undue preference by providing themselves with exclusive access, on various distribution platforms, to content that they control. As a result, a consumer would have to subscribe to the distribution platform owned by the VI entity to have access to the exclusive content. The potential increase in the market share of the distribution services that form part of the VI entity would provide an incentive for a VI entity to deny competing distribution systems access to popular programming.

Once the Commission reached that conclusion, the only question was how far it was prepared to go to address undue preference concerns and their impact on Canadian consumers. The answer is further than some might have suspected, but still not quite far enough. The key elements include the CRTC deciding to:
  • Prohibit companies from offering television programs on an exclusive basis to their mobile or Internet subscribers. Any program broadcast on television, including hockey games and other live events, must be made available to competitors under fair and reasonable terms.
  • Allow companies to offer exclusive programming to their Internet or mobile customers provided that it is produced specifically for an Internet portal or a mobile device.
  • Adopt a code of conduct to prevent anti-competitive behaviour and ensure all distributors, broadcasters and online programming services negotiate in good faith.
  • Implement measures to ensure that independent distributors and broadcasters are treated fairly by large integrated companies.
  • Encourage television distribution companies to give Canadians more flexibility in choosing the individual services they want as part of their packages.
The decision marks a dramatic change in the Canadian landscape that will generate as many as 12 follow-up consultations by the CRTC. It does a nice job of address the conventional television exclusivity concerns, but focuses primarily on the provider perspective (Dwayne Winseck argues that it also fails to account for over-the-top provider competition, though I would say that is what net neutrality and UBB is all about). On the issue of consumer choice, the CRTC acknowledges that vertical integration could have a negative effect on consumers:

the Commission is of the view that the consolidation and vertical integration taking place in the Canadian broadcasting industry could have a considerable negative impact on consumer choice. For example, VI entities might attempt to include many of their own services on the basic service. With respect to the consumption of programming today, Canadians expect to be in control of what they watch, and these expectations are likely to be heightened with the ongoing transition to digital technology. Since VI entities provide online content on a basis of “see what you want, where you want, when you want,” it might be difficult for consumers to accept that BDUs do not offer more choice and flexibility. The Commission is concerned that the lack of choice and flexibility could motivate consumers to leave the regulated broadcasting system.

In response to these concerns, the Commission strongly encourages the distributors to offer more choice and directs them to report by April 2012 "on how they have provided consumers with more choice and flexibility in the services that they can subscribe to, while at the same time providing them with the ability to only pay for the services they want to watch, such as a pick and pay model." The CRTC says that if insufficient progress is made, it will launch a consultation to determine what obligations should be imposed on broadcast distributors. While the Commission could have adopted a more aggressive approach on the consumer concerns (I've argued for a full pick-and-pay model), its willingness to establish much-needed rules for the vertically-integrated Canadian market is a step in the right direction.
Comments (2)add comment

Crockett said:

A step in the right direction is still a step ...
Surprisingly, the tone at the CRTC has actually seemed to change recently. Has high profile criticism and accusations of cronyism made a difference? While the steps they are taking may seem too small by may of us, it is good to see them none the less. While I would prefer stronger up front language, I can hope that the planned follow up consultations will have meaningful teeth.

Hmm, I must have had an extra serving of optimism in my coffee this morning ;)
September 22, 2011

Watching said:

Coming down from the mountaintop.
I think part of the problem was that the CRTC in the past had not really been listening to many public groups and more to corporations. That, they seem to be realizing a bit belatedly, tends to skew things away from the public's interests. Now that the public is screaming out 'What are you DOING?!?!' they are starting to pay more attention to the people yelling into their ears.

One hopes that the earwax clears quickly as things have a long way to go.
September 22, 2011

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