It may be timely to review our foreign ownership policies for telecommunications and broadcasting

Last week the details of the Trans Pacific Partnership “trade” deal were released online. Upon reading the section on telecommunications, it was unclear, at least to me, if signing the agreement would remove longstanding regulations limiting foreign ownership and control over telecoms in Canada. It was also unclear if decisions to liberalize ownership would shift to the Investment Canada Act, leaving it to existing, and undefined, tests, albeit at a higher threshold, to be used to determine whether to allow takeovers of Bell,Rogers,TELUS and perhaps to a lesser extent Shaw and Quebecor.

On the broadcasting and broadcast distribution (cable and satellite) side it seems that there remains a carve-out for “cultural” issues. However even if that were the case, the fact that both the Harper government and the CRTC have taken a hands-off approach to regulating over-the-top services from Apple and Google to Netflix and HBO, suggests that ownership restrictions in broadcasting may have much less import over time, as broadcasting becomes more IP-based.

Regardless of whether you support ownership and control restrictions, or not, it is worth debating the implications of these shifts before formally adopting the TPP or pursuing laissez-faire approaches to IP-based companies operating in regulated markets.

In telecom, if the intent of the TPP is to allow direct entry by larger global telecoms like AT&T and Verizon to compete on a facilities basis, that changes the need for current rules shaping the market significantly.  For instance it should raise concerns about current proceedings to consider whether forced resale of fibre to the home investments of domestic carriers, distorts investment decisions or the capacity of domestic carriers to compete in a more open market. Arguably it reduces incentives of larger foreign conglomerates to compete by investing in the country in favour of leasing facilities at a marginal cost thus avoiding a lot of domestic regulation. Certainly at a minimum it would be important to determine if countries like the US were open to reciprocal treatment on this issue.

Particularly important in this respect is to also assess how that type of fibre unbundling would allow cloud-based companies like Amazon, Google and Microsoft to compete without regulation or obligation in the Canadian marketplace, because these companies may actually have more influence over the future of telecom and content delivery than last century carriers like AT&T.

From a shareholder perspective it becomes critical that there is some degree of certainty as to whether the domestic telecoms you are invested will be permitted to be sold to foreign carriers or not. Even if Investment Canada guidance was clearer, there is still a high degree of risk involved if final determinations are left to subjective decision-making, as we have recently seen in the case of Potash and other industries. Similarly if rules are lifted for carriage but not content, does that create significant distortions for vertically integrated carriers when it comes to achieving more open markets. And really, which carriers or cloud-based companies are not vertically integrated to some degree today?

Concerns over foreign control of broadcasting has been used in the past as a primary reason to prevent liberalization in carriage. Primarily because it was felt that if carriers, that were also in the cable business were liberalized, then Canada would be on a slippery slope towards liberalization of broadcasters too. And there were all kinds of concerns about the erosion of cultural sovereignty, including a loss of creative jobs, that suggested that would be a bad outcome.

Ironically the hands-off approach to OTT and broadcast apps has already greased that slope and, if pundits are right in suggesting that apps are the future of broadcasting, then sovereignty over content may already be sliding away.

The TPP could prove a tipping point but the emergence of IP-based (Internet) competition has already started to change the importance of ownership restrictions and its worth now discussing whether there are other effective ways to influence communications policy reasons than through these restrictions.  The longer we delay that debate, the harder it is as a Country to do anything about it, if we later determine some new policies are required.

Arguably you can achieve as much or more, through effective regulation of enterprises, no matter who owns the enterprises, as could be achieved by preventing foreign ownership in an Internet based market. In fact arguably any outcome from the consumer price of access, to subsidies for remote access to high quality broadband, to Canadian content obligations or production subsidies that support Canadian creators, could be managed and directed absent Canadian ownership and control of carriers and broadcasters. And such regulations could be designed to apply equally to facilities-based or OTT/IP-based entities whether these deliver carrier, content and/or cloud-based services to Canadians. That may be a better approach to achieving a level-playing field within our national economy.

Of course all of this comes with caveats. The first being that all of this requires a broader determination as to when to rely more on open markets and when to intervene. And the second and more important is to ensure if as a Country we wish to enact laws or regulations to permit a degree of intervention to affect investment,consumer price, privacy, access, creative jobs and choice, or to limit market power, we have the power to do so. But the ability to choose to enact laws or regulations, may be very dependent on what domestic powers the past government agreed to limit, in order to sign on to the TPP. That is why, it is important to determine the extent to which the TPP is really just a free trade deal or more a “new economic order” deal that allows larger trans-national corporations to provide goods and services within a country and yet still remain outside of the rules applied national entities to those bricks and mortar companies sustain our economy.

Can consumers survive the consumer choice revolution?

In September we switched our TV and Internet provider and in the process got a better deal for our local phone service. Net,net we saved $130 a month, got unlimited Internet and signed no contract. And we still ended up with virtually the same TV bundle. All this  before pick and pay kicks in. Who says there is no competition in Canada?

This is good news if you are a consumer, and perhaps not so good if you work in the broadcasting or content production business, because less revenues for retail services means disproportionately less money for content. The math is simple. Carrier services have very high rates of return and content does not; by a large margin. So any entity that is vertically integrated is going to invest where returns are higher and as a consequence invest less in original content, than in carriage, particularly as returns on the former decline. But the alternative may just as bad, or worse, for creators.

All creative industries are being buffeted by wide-ranging disruption enabled by the internet and that can have negative consequences for job creation.

We pay $8.99 a month for Netflix and have more content on our favourites list then we can possibly watch. This realization will influence our next negotiation, with our TV distributor when pick and pay kicks-in.

We pay $8.99 a month for the new Apple Music service and get access to millions of the best CDs to stream at home or away. Many people pay even less or zero, for other music services. We used to buy or digitally download around 50 CDs a year, but don’t anymore. Sure CDs are still ok for birthdays or Christmas. They have more substance than a digital download gift, but overall we don’t need to buy anymore to hear what we want.

We just got a subscription for around $8.99 a month for Texture, the latest version of Next Issue, Rogers magazine aggregation service. Now we can get on our tablets, all of the individual magazine subscriptions we used to have, for the price of a couple of individual subscriptions.

We still have a print subscription to the Globe and Mail, but we get all other news for free through the apps of national and international  papers and news services and we get even more news through aggregators like Zite and Flipboard and through social media particularly Facebook and Twitter. All for no cost.

We read a lot of books, but we don’t have a service like Amazon Unlimited, yet, because the Amazon library in Canada is not as attractive as the US version of the service. Too bad for me as a consumer but better news for publishers and writers seeking to make a living.

And this is the rub. The money these services make is not sufficient to pay artists and creators any reasonable amount of royalty for their intellectual property, and the returns publishers, producers and distributors from streaming substitution, will increasingly undermine, the viability of local businesses remaining in the content business. That is bad news for the creative side of the business because as costs and margins keep getting reduced in the enterprises that manage, or distribute content, the consequences flow down to the artists and other creative workers. And that not good, since the ability of our enterprises to support creative jobs should logically be an important element of any digital economy strategy.

That is the reason I suggested in a post in Digital Orphans last week, Is it time to set some policy priorities for communications? Or is it too late? that Canada needs a broader review of the state of the health of the content/creative ecosystem in Canada, that extends beyond broadcasting regulatory issues.

But let’s be realistic. These types of streaming services across all media are not going to disappear. Consumers, myself included, like the concept of leasing ‘lots for little’, even if we might not grasp the consequences of a shift occurring from owning to renting media.

But what’s happening in content, is only one aspect of a bigger issue of disruption and disintermediation that threatens the existence of local/national businesses across the economy and a dependent middle class, as defined by things like careers, good full-time employment home-ownership etc. Because new forms of businesses supported by the Internet are disrupting and bypassing seemingly all elements of local economies with potentially very negative consequences in terms of local employment.

In a recent article, Why every aspect of your business is about to change, (Oct 22) in Fortune magazine by Geoff Colvin; that I ironically now get with my magazine streaming service; it was argued that we have entered a “friction-free economy” where labor,information and money, move easily,cheaply and almost instantly.” And as a result, new enterprises from Apple,Amazon,Uber,to Airbnb and Tesla are competing more efficiently, than incumbent enterprises, from a capital perspective, simply by owning less capital (bricks and mortar), and leasing assets just in time and often offshore, (including labor). It is also this friction free element that allows these enterprises to operate often outside of the reach of national jurisdictions. That has the potential to undermine the sovereignty of local governments over their economies.

It seems to me that that the consequences, if you accept the premise, are ones millennials well understand. Following this model to its logical conclusion, if local enterprises, full-time jobs, steady employment and benefits, all things that anchor a consumer economy, are increasingly displaced by the emergence of trans national corporations; and if these enterprises have fewer links and obligations, including taxation, to national economies and no history or sense of social responsibility to local communities, that can erode local control of your economy. Equally however it can be a problem if you try to ignore many of these new efficiencies that are created, simply in order to protect incumbent enterprises. A more level playing field is reasonable. Simply protecting old industries is not.

Not an easy choice but perhaps this is the problem in the debate today. Perhaps the right way to think about this is from the perspective of people both as consumers and producers in an economy.

It is clear from a consumer perspective that the declining price of goods and services being produced out of this disruption and disintermediation is great; at least for in the short-run. But remember that “consumer” is merely an economic term that describes buyers in an economy. And consumers are also citizens of national states.

Consumers need jobs to consume. Consumers as citizens in countries like Canada, tend to live and work locally, but increasingly spend, transnationally, through the Internet. So no matter what the industry, if jobs are displaced by shifts of activity to global corporations that lease assets and labor, wherever is most efficient, the result can mean less employment across domestic sectors and less tax revenue to the economy. And the less money spent on consumption and the less taxes from individuals and corporations, the more problematic for the domestic economy to grow.

So back to the sector I know about; communications. As consumers, we want better deals and cheaper access to content. That is a given. But it would be nice to think that creators continue to have the opportunity to make a living being creative. That’s part of the conundrum not just for the content business in Canada but for similar creative activities in individual countries around the globe.

And you cannot assume the market may ultimately work it all out in content, or any other sector. It may very well, from a perspective of overall efficiencies in certain firms. But the market may work it out in a way that dis-intermediates local businesses, labor and national economies like ours in favour of cheap labor overseas and in the interests of a few global enterprises that transcend the era of the nation state. That may be efficient but arguably not always in our national interest.

For the past few years many of us have debated about the need for a digital economy strategy from the perspective of Information,Communications and Technology (ICT)  or of content. That is still important, but in the 5 or 6 years since this debate started, we have shifted from thinking about how to create a digital economy to increasingly living in one that impacts all sectors of our economy and society.

But we have not spent a lot of time,at least politically, identifying the nature of this shift, its consequences and our ability as a country to influence it.The new Liberal government has a unique opportunity to change all that. Part of that discussion needs to focus on how we can stimulate the growth of a creative economy and the opportunities that allows for creative workers to find work in Canada. That may make for a more worthwhile discussion than whether we need to favour new or incumbent mega billion corporations in our policy and regulations.

Is it time to set some policy priorities for communications? Or is it too late?

With the election over with, there will be some debate and discussion around the priorities of the new Liberal government with regard to shaping communications and digital policy. I suspect that, perhaps with the exception of more funding for the CBC, and a few other election promises, communications will not be an immediate priority for the transition team or for Cabinet. Its not that communications/digital policy is not relevant, whether in respect of competition and choice, price, culture, accessibility, economic growth, innovation in IT or jobs. It is. Its just these things are not seen, politically, to be broken enough, particularly on the carriage side, to merit immediate attention. These generally never are seen that way, which may be why policy in communications so often seems ad hoc, and policy issues more often than not, are driven out of the CRTC.

I read an commentary recently by Greg O’Brien in CARTT about it being time to reconsider the need for a Department of Communications. While a worthy point, that may be putting the cart before the proverbial horse. Clearly a healthy communications ecosystem can contribute to economic growth, innovation and inclusiveness, and, insofar as digital economy issues are concerned, there is still no coherent vision, years after a promised review of digital economy issues. Perhaps having one Department could ensure more focus and more coherent policy. But even if that was the case, are current statutory definitions of communications (broadcasting, telecommunications) broad enough to address policy issues in a broadband era?

It also seems, that in order to reach a conclusion that a single or integrated Department is a good idea, relative to the status quo, you first have to accept that issues related to content and carriage, have become so entwined as a result of “convergence” and vertical integration that you cannot make good policy without more consideration of the impact of carriage issues on the development and delivery of content, or vice versa. That seems valid in terms of vertical integration or market power across platforms, including the Internet, but not necessarily for numerous issues that are readily handled by the CRTC today. And maybe one Department is a good idea but will it be prone to sacrifice important policy issues on the content side because of a current focus on pressing carriage issues or vice versa? That would be sub-optimal.

However its also fair to point out that some of the most influential papers and policy ideas on the evolution of modern communications policy came out of the early days of the Department. And these ideas helped shaped much of the debate around competition into the early 1990’s.

But for those of us inside and outside government in the 1980s and 1990s that were involved in decisions to promote increased competition and choice, the Department of Communications always seemed, at that point, like an impediment to change and greater reliance on market forces; seemingly anchored on one side by the belief only the phone companies could manage telecommunications, and hobbled on the other by perceived biases in favour of culture over profit. To many, the shift of economic regulation to Industry Canada was seen as a positive move.To be fair the problems that lead to the break-up of the Department may have had more to do with the times and/or simple bureaucratic inertia and regulatory capture than with a fundamental problem of organizational structure, but it does beg the question as to whether a return to the past is the best answer to the future.

One thing to think about is whether,and to what degree, an integrated department will be the best way to resolve often distinct issues related to content and carriage? Since the breakup of the department of Communications, most carriage/telecom issues have been, or at least could be, adequately dealt with by the CRTC, under economic forms of regulation pursuant to the Telecommunications Act, that have focused on access, on consumer price and choice, on incentives to invest, restraints on market power and greater reliance on markets etc. So is change from the status-quo critical from a telecom or carriage perspective? And if so how do you exercise policy guidance on big issues  any better than we do today under bifurcated policy direction from Industry Canada and Heritage?

Regardless of organizational structure, my bias would be to get to a point where we can be again as focused on broader content and intellectual property issues, as much as we have been on access to broadband networks and consumer price. Arguably, the creation by, and ability of Canadians to exploit intellectual property, is threatened by disruption and that could result in lower economic and social  returns to the economy. And by content, I mean more than  on “broadcasting”, since the real convergence occurring today is not between network and content but between content industries as a result of broadband/Internet.

On the content side,(and with apologies to the ICT community which is another important part of the network ecosystem), addressing the impact of change is now perhaps more, or at least as, important/critical in terms of a sustainable content business ecosystem, than on the carriage side. The Internet has disrupted all content-based businesses and while “supposedly” it has done away with concepts of scarcity in the short run, that formed,in part, rationales for regulation and intervention, particularly in broadcasting, it has also resulted in new issues of market power that extend well beyond vertical integration by Canadian carriers, and that should have proponents of network neutrality at least a little concerned.

While there is a current abundance of content, due to a fight in the old and new distribution businesses for market share, what is also happening is that the of viability of creators and businesses producing content for film,TV,music, newspapers and magazines is under siege by new streaming services that are driving the returns on content towards zero. This in turn is raising legitimate concerns about the sustainability of independent creators and national enterprises in the face of the emergence of transnational players that are dominating, global and domestic platforms for distribution over broadband. The consequences of this are two-fold. First there is an increase in market power as walled-gardens become a primary source of content distribution over broadband. Second the ability to produce high value content is coming into question because, in the longer run it is hard to identify viable business models for the production of said content, given the returns to creators. Any discussion of the impact of this shift, in terms of Canadian communications policy should transcend debate around, one form of content like broadcasting and look, rather, at the importance of creative industries, and the intellectual property and jobs these create, from both a social and economic sense.

Arguably then, the degree of vertical integration that arises when owners of carrier networks, or increasingly walled-gardens, can control/exploit access of content creators or providers to large audiences, and through that control what intellectual property is created and monetized, does require more convergent thinking when it comes to policy. This type of control of access often now transcends current definitions of carrier and the Telecommunications Act even though issues of market power can arise in both circumstances.

There are other related, issues in addition to vertical integration, that also transcend distinctions between content and carriage. The first is the application of regulatory rules broadly defined, to national and transnational players. There is in the communications sector a bias that suggests traditional network enterprises, particularly those that are vertically integrated are too big and their behaviour needs to be regulated in order to limit opportunities to abuse market power. That’s not unreasonable, but the converse has been that big, often bigger, Internet-based players are perceived as more innovative and don’t have to play by national rules because these entities create more competition and are net good for consumers. The problem is that many of these players can exercise as much market power in communications, as “incumbents”.

The open Internet/World Wide Web that led to a hands-off approach, may still be alive in some respects, but increasingly a few multi-billion dollar enterprises are controlling how consumers access content in ways that may become the very converse of “open”. And increasingly many trans-national corporations in all sectors, not just communications, are finding ways to avoid basic tax and other obligations that apply to national incumbents, potentially undermining local businesses/employers that are subject to more stringent rules. This does beg the question as to why some multi-billion dollar enterprises must be regulated, while other even bigger multi-billion dollar enterprises get a pass. and it may have very real consequences for local economies and jobs.

Another critical convergent policy issue that needs some attention is the issue of foreign ownership and control. Critics of vertical integration or market dominance in Canadian communications point to restrictions on foreign ownership as the reason Canada is “less competitive” than other jurisdictions. Often in the past there was some political sympathy for liberalizing on the telecoms side of communications, but that was always tempered by a concern if you liberalized on carriage that would ultimately lead to liberalizing broadcasting as well because of convergence and cross-ownership. That was seen as sacrificing too much sovereignty on cultural and political matters. The irony today is that the CRTC and government effectively have now allowed foreign entry into broadcasting, when it was decided not to regulate streaming services, including the largest walled-gardens, online. So perhaps getting rid of the ownership rules and then treating/regulating all significant  players in national markets in the same fashion could be a better alternative to where we are today, than maintaining rules and restrictions that we are not prepared to enforce. It is at least debatable that you can achieve many of the objectives related to Canadian ownership and control indirectly through regulation, even if some of the regulated entities are not Canadian.

And one last big policy issue that relates to all of this. All that I have suggested assumes government retains the power to exercise some modicum of control over issues of foreign ownership, regulation of operations of broadband-based trans-national entities, intellectual property, and public support to achieve economic, social or cultural objectives. But maybe under trade deals like the TPP, the ability to develop domestic policy in communications, if government sees that to be in the public interest, may be circumscribed to a degree that makes a national digital strategy, or even a national Department of Communications somewhat unnecessary and redundant.

So while communications may not be a big priority right now relative to other platform promises made by the new Government, there are still very big issues to address and maybe less time than we think to address them, if we want to help Canadians derive value out of intellectual property and incent creative jobs and futures for the next generation, amongst other priorities. Getting traction on ways to address these issues much more holistically, is the next step. How to do that is the big question. and that may be where Greg’s idea has real merit. Maybe rather than another expert tribunal, leaving recommendations on bureaucratic shelves, setting up a Department to both review and distill ideas into policy and then implement such through direction or direct action may actually create results. That may create the right incentives to act.


Lots More Quality to Crow About Than Just Orphan Black

One of the things I have noticed in debates on Canadian TV in media and online, is that there is a lot more debate about policy, regulation, jobs etc., then there is about the shows we make here in Canada. And all too often critics of Canadian content will use the most obscure of our current shows or worse; dig deep in the archives, to argue it’s all a big failure, at least in English Canada. There are of course critics who do focus on current shows, good and bad, like @tv_eh and @MisterJohnDoyle. But too often it feels like our biggest critics don’t watch any Canadian shows. A lot of Canadians do.

At the CMPA Prime Time Conference earlier this month, I gave a shout out in my speech to a lot of shows and films that do resonate with audiences, large and small, in particular; Orphan Black. Lost Girl. Murdoch Mysteries. Income Property. Motive. Map to the Stars. Mommy. Republic of Doyle. Continuum. Bitten. Book of Negroes. The Grand Seduction. Heartland. 19-2. Rookie Blue. Saving Hope. Vikings. Sensitive Skin. X Company. Mr. Dee. Rick Mercer. This Hour Has 22 Minutes. Dragons Den. W5. Masterchef Canada. Yukon Gold. The F Word. The Nature of Things.

At the end of the day it is the shows that matter. So one of the things we began to work on, with journalist @BillBriouxTV was a report that identifies and talks about the shows in English Canada. What is linked is just a prototype, and still misses lots of shows, particularly in some categories like kids. But I think it’s worth sharing, if only so those that want to say TV is great or TV sucks, have some up to date shows to use to make their point.


What we asked Bill to do was do a cut of some of the more popular Canadian productions from three perspectives: 1) Domestic productions from Orphan Black to Murdoch Mysteries 2) foreign shows made in Canada like Suits and Once Upon a Time and 3) shows produced in geographic regions across Canada.

One of the reasons for the splits was to highlight that in addition to a lot of fan favorites there are economic benefits to productions. According to the latest numbers from Profile domestic overall production expenditure in 2013-14 was almost $6 billion and accounted for 125,400 full-time equivalent jobs. Breaking that down further, the spend on foreign productions like Suits generated $1.83 billion of the overall total and 39,500 FTEs. I was lucky to visit the set of Suits in Toronto last year and was blown away by the scale of the production. But what was even more interesting was that of the 200 talent and crew on set for that show, and most other big foreign productions like it, 90% were Canadians.

Canadian shows and feature film are not just made for Canadians anymore. Increasingly we are selling our productions to the world. Exports reached a ten year high in 2013/14, totally $2.5 billion.

Anyways as I said, it’s a prototype. We are missing some shows and whole genres because it’s a work in progress. And some of the shows may be new or since cancelled, like John Doyle’s favorite, Strange Empire. Hopefully whether you like many of our shows or not we can at least stick to 2014-15 for examples, as we debate. And that way next time some middle-aged white guy says “who’s ever heard of Bitten,” others like Kelly Lynne Ashton (@klashton27), Adam Barkin (@adambarken), or Denis McGrath (@heywriterboy), can respond that younger and/or female audience do and in great numbers. Who knows, a few people may get to watch stuff they have been missing. Have fun.

Michael Hennessy Speech Prime Time 2015 – The Golden Age of Uncertainty

Welcome to the 20th Edition of Prime Time. I am delighted to welcome you all here today. A special thank you to the Canada Media Fund, sponsor of today’s breakfast and Grand Patron of the conference. Thanks to our lead government partner and patron sponsor, Telefilm Canada. And thanks to our platinum sponsor Bell Media.

I would also like to welcome those of you joining us today by LIVESTREAM, courtesy of the Canada Media Fund.

20 years is a long time for our industry to prosper and grow; particularly measured in digital time.

But that’s nothing. 40 years ago I was writing job descriptions for Pierre Juneau’s CRTC. That’s a very long time ago, dinosaur time. However it does give me a different perspective on all the negativity, particularly online, about broadcasting in Canada.

Sometimes we forget that communications in Canada is actually a success story. It may not seem that way if you follow the noise around the CRTC “Let’s Talk TV” proceeding. But it is; particularly when one looks back at the levels of innovation, private investment and the political will and fiscal incentives that have helped build a uniquely Canadian controlled communications system for both carriage and content.

Think of this–collectively our model not only resulted in networks based on principles of universality that connected us as a nation–but we have created a broadcast system with a built in preference for Canadian creative resources.

We’ve been monitoring that success for almost 20 years, through our annual economic report Profile. The latest numbers, being released today, show our industry generates nearly $6 billion in production and more than 125,000 full time jobs. Make it 260,000 jobs if we count the whole broadcast and film ecosystem.

Yet even as this success enabled us to reflect our unique cultures and stories, and created jobs for Canadian talent and crews, it still provided the opportunity for audiences to access the best content from virtually anywhere in the world, even before the Internet made it easy.

A short history lesson.

1975 meant 12 channels, no satellite, no cable for the North, no pay TV, no telecom competition, no digital TV, no APTN or broadband, no HD, no PVRs, no Google, no Netflix. Yet we were recognized as a world leader when it came to innovation in communications.

The Internet had not yet given the power to the consumer voice, because there was no Internet. In fact, even though the record of the long distance competition proceeding of 1992 was over 50,000 pages, the word “Internet” never appeared. I note that only because it’s probably harder for policy-makers to predict outcomes today than it was 20 years ago. Yet today, the stakes are so much higher.

Increased competition and choice have been a constant in our industry throughout the last 40 years and the pace of change has constantly accelerated, if incrementally. That was how change occurred prior to the Internet going video.

Even so billions of dollars were still being invested annually in digital infrastructure; and regulators kept increasing choices as new technologies and content appeared.

But over all that time policy-makers, even as competition and choice increased, did not lose sight of either, the principles of universal access, balance, nor the need to help create a space for Canadian creative voices and ideas, along with consumer choices.

Simply put, from both a business and consumer perspective, it worked, and Canadians got the best of both worlds.

As a result communications became both an economic engine and gained global respect for its level of connectivity and innovation.

It is hard to argue that this incremental approach has not resulted in many positives.

Let me name a few positives right now: Orphan Black. Lost Girls. Murdoch Mysteries. Income Properties. Motive. Map to the Stars. Mommy. Republic of Doyle. Continuum. Bitten. Book of Negroes. The Grand Seduction. Heartland. 19-2. Rookie Blue. Saving Hope. Vikings. Sensitive Skin. X Company. Mr. Dee. Rick Mercer. This Hour Has 22 Minutes. Dragons Den. W5. Masterchef Canada. Yukon Gold. The F Word. The Nature of Things.

Yet, for all our achievements, it seems that the principle of having the best of both worlds is under the gun. All in the middle of some of our greatest successes and on the cusp of bringing the infrastructure, talent and money in this country into position to prosper, both domestically and globally, in the golden age of television.

There is an argument Canadians don’t have choice. But consider this fact the next time someone tells you that.

Fact, we not only have already have access to the best the U.S. and other countries have to offer through our regulated system, but evidence consistently puts Canada along with the U.S., as the top consumers of online video in the world.

Simply put, you cannot have that level of online access to content if your mobile and broadband networks are sub-par. And you can’t have limited choice and still achieve that level of consumption.

We have found ways to foster an indigenous broadcast market that provides consumers choice of content from around the world, without sacrificing the opportunity to serve the needs of citizens, creators and unique communities for local content. That is an incredible success story but the balance required to achieve that is now in question.

Constantly adjusting to consumer demand is a prerequisite for success. And clearly consumers want, and deserve a better deal, on the price side of the equation. But I worry that as regulators work to rebalance the consumer/diversity equation we are going to lose that balance that took 40 years to find.

And losing the best choices Canada has to offer, to get more choice, would be a poor choice indeed. But that’s a real risk unless there are some sound business principles underpinning the Lets Talk decisions.

Today the foundation is still solid. New data from Profile and the CRTC is showing that the industry is still robust on the production side and overall profitable when you look at conventional, cable and specialty services results combined. But over time that may be illusionary, because the political or regulatory will to create a space for Canadian choices in a broadband world, just as it created space in the linear, is not apparent.

And no, I am not talking about a “Netflix tax,” but about measures around supporting growth, inward investment and trade in content creation– and about the protection of intellectual property and territorial rights. This so we have the opportunity to not just continue to “tell our stories to each other, but to sell our stories to the world.”

I want to see a policy framework that puts as much priority on creating jobs for our kids in the global digital economy, as it did in creating opportunity for content creators over the past 40 years.

But future achievements need to build off a strong foundation. And it is not rocket science to conclude that while the market for content is increasingly global and digital, traditional broadcasting is still the dominant revenue source for commissioning high value original content.

We all increasingly know that much of the growth in our businesses will come from addressing the digital market and that requires a global perspective because digital is gutting borders.

But there is a big question mark about how to achieve that. Because, and for many enterprises, there is a big “opportunity gap” between the erosion of traditional sources of revenue to reinvest in growth and the payouts currently available in the digital space for traditional film and TV. Yet it is still traditional film and TV that continues to excite consumers.

This opportunity gap adds to uncertainty.

Right now we have significant uncertainty for TV producers around their ability to hold onto, and exploit the intellectual property, in the content they produce.

Yet that is essential to building sustainable companies with international reach. That is why our number one priority at the CMPA is a strong Terms of Trade regime, like that in the U.K. Because without it, there will be no independent production sector.

It is also why we worry constantly about the details, or manner in which the CRTC unbundles, because it’s always those details that make or break a policy.

And we can’t forget, therefore, that in terms of revenues, broadcasters must have the opportunity to exploit their own territorial rights in order to earn an adequate return on investment.

The Internet is a huge source of disruption and uncertainty, but so is regulation and policy. And that is what has the industry nervous.

We are engaged in a debate about choice when choice has never been greater. As I said, in my view, the debate is really about consumer price not choice, as well protection of the ability of businesses to legitimately exploit rights to intellectual property.

For others it’s about limits on market power arising from vertical integration or for broadcasters and distributors, the absence of scale relative to global players that have a free pass to compete in broadcasting on their terms. Our “Getting Ahead of Change” panel with industry leaders can fill you in on that a little later this morning.

But whatever your point of view it is hard not to argue that we start with a broadcasting and telecommunications system that is both world class and incredibly open.

Collectively we have created the capacity to compete on a global stage.

So what are some of the key things we need to get right in order to leverage the types of successes we achieved in the last 40 years in order to survive and grow?

  • We need to look closer at export opportunities in global markets because local models are fragmenting due to shifts to content on demand and going global affords scale
  • Leveraging, funding and tax incentives can create a huge opportunity to produce leading-edge shows, not just for local markets, but for platforms and studios around the world–just as we have done over linear platforms for the last 20 years
  • But that opportunity shrinks if we are relegated to service producers with no IP, relegated to producing to meet the obligations on broadcasters to deliver certain minimum and declining, amounts of local content. That is not to say the next Terms of Trade deal won’t be different. It will, but there is a risk in a vertically integrated market, that the demands to share in more of the IP to serve global platforms, will not be commensurate with the willingness to invest more in the marketing and promotion to exploit the global opportunity
  • We need to rethink what we mean by and how we measure Canadian content in a global world where scale often requires global partners. That is a hard but necessary debate; particularly if, as expected, regulation significantly fragments demand and revenue in the domestic space. The greater the fragmentation the faster we need to think global and to achieve sustainability as producers.
  • We need to get serious about protecting territorial rights because the exploitation of rights supports the creation of content whether you are a producer, broadcaster, film-maker or distributor.
  • We need to rethink support for public broadcasting if we really believe in the value of local content and diversity because unbundling will almost certainly reduce diversity in the commercial space.
  • If broadband TV and Apps are going to be the primary way of distributing broadcast content, perhaps we need to rethink restrictions on foreign ownership, particularly when it comes to carriage. A primary reason for restricting foreign ownership in the past was to ensure a place for Canadian voices and choices in the broadcast ecosystem. Yet it seems clear in the future broadcast milieu, public policy will be hands-off when it comes to how the largest online providers in the world operate in Canada. And if the largest content providers in the world can broadcast and distribute in Canada, without license or obligation, we need to ask why we are still concerned with protecting our carriers from foreign takeovers. Perhaps we would be better if there were fewer restrictions on foreign takeovers in return for such carriers and distributors committing to greater investment in and use of Canadian resources to create Canadian IP for sale around the world.
  • That may seem radical but if we are looking at net neutrality as being the new rule for broadcasting we might want to consider how to ensure there is a level playing field that supports indigenous productions across all platforms. After all the principle of maximum use of Canadian creative resources is still a priority under the Broadcasting Act and jobs in the sector remain a priority for the government.

15 years ago the public policy mantra around broadcasting was all about “telling our stories to each other”, now in my view the goal should be “selling our stories to the world” because that is where the market is heading and because that is the way to achieve scale in a fragmented, unbundled and on-demand world.

So we have to look beyond our borders if we hope to prosper and that requires scale in terms of libraries to sell, scale in terms of capacity to produce and partner on original productions, and the opportunity to leverage the intellectual property in the content we produce.


The capacity is in place to do that but will there be a policy framework to support that opportunity?

The devil is in the details.

Those Go Daddy ads during the Super Bowl may come at a hidden cost

A reporter asked me about my thoughts on the recent CRTC pronouncements on simultaneous substitution (sim sub) and local channels. Representing independent producers, who tend to swim lower down the food chain, given our limited market power, I decided to try to be discrete and merely suggested, off the record, that “it could have been a lot worse,” since getting rid of simultaneous substitution completely may have gutted a big chunk of the revenue streams that support broadcasting in Canada. Thankfully the CRTC listened to concerns on that scenario and maintained sim sub for the most part.

However the more I think about it, the more I have to conclude that even so “it probably was worse, than I initially thought”, because of the intangibles that always come into play when the rules of the game get altered.

Sure getting rid of simultaneous substitution on the Super Bowl, so consumers can get to watch all the “action” on Go Daddy ads, may seem like a popular thing to do. But it requires a lot of stick handling around public policy goals and objectives to get there. U.S. networks just got the bonus to sell Canada to U.S. advertisers, at the expense of Canadian broadcasters, and at no cost to the U.S. networks. And all with no obligation to the Canadian system.

Eroding the value of legitimately acquired rights is never a good idea. To begin with the viability of commercial broadcasting around the world is based on the legitimate opportunity to monetize territorial and/or platform rights that a broadcaster acquires from program rights holders like the NFL, Hollywood Studios or independent producers. That is how the business of broadcasting still works. Rights protections and rights management may be boring but an orderly rights market supports new businesses like Netflix just as much as it does traditional broadcasters.

In the case of local broadcasters and big sportscasters like TSN such rights tend to be exclusive to maximize ratings and generate ad revenues that support the viability of these channels. The monies that flow from the exploitation of these rights supports shareholder returns, the ability to produce more original content and to meeting obligations like providing local or national news.

Historically this model has worked extremely well in North America, particularly in the U.S., where the problem of the retransmission of cross-border signals is not an issue like it is in Canada. In the U.S. distant channels that carry programs for which a local channel already has the rights are often blacked out over cable to prevent erosion of the local broadcaster’s territorial rights. The principle is pretty easy. Distant broadcasters don’t have the right to sell someone’s content/property in markets where these broadcasters never bought the rights to show it. Or put another way you can’t sell someone’s stuff without their permission. That is pretty easy to understand.

In Canada this principle has always been a little fuzzy because U.S. free over–the-air signals that leaked over the border got picked up without compensation by cable and then satellite decades ago. And, access to these channels helped drive cable penetration in the early years of the business. U.S. broadcasters, however, have always opposed this form of retransmission and continue to fight for compensation for distant broadcast signals through the World Intellectual Property Organization (WIPO). If they ultimately win the cost to Canadian consumers could be enormous.

While distant signals have been carried without compensation, program rights holders in the U.S. now receive “some” compensation under compulsory license under the Copyright Act. It’s messy but by adopting simultaneous substitution we ended up with a system of checks and balances where cable and satellite customers get more choice, while Canadian broadcasters got the protection needed to exploit exclusive territorial rights they legitimately acquired and thereby generate revenues that in part support Canadian news and other program obligations. That balance may have changed with Friday’s decision and we may see a lot of unanticipated collateral damage as a result.

The point behind simultaneous substitution was to ensure respect for a monetization of the exclusive rights Canadian channels acquire and that make their businesses viable and meet regulatory obligations. The CRTC has recognized this principle in general and has recognized how important and necessary it still is to support Canadian programming obligations and jobs. However, based on a number of consumer complaints, it is going to kill sim sub for the Super Bowl in 2017, and other sporting events immediately like the World Series on TSN. There is speculation that Bell, which has the exclusive Canadian rights to the Super Bowl and other events, may lose between $20 -$40 million because of this. So what’s the consequence particularly for creators and jobs, and in the end consumers who enjoy the content, U.S. or Canadian, that an orderly rights market supplies.

First, when Bell makes a dollar on its broadcast business $0.30 goes to Canadian programming, including things like local news. Take out $20 million and the incentive is to reduce spending by the full $20 million, including at least $6 million on Canadian programming, probably more. And that means less original content, job cuts or station closures. And we believe the cuts will begin to happen long before it impacts the Super Bowl in 2017. The reason is because ad revenues are already well down, and no one knows if this is a cyclical phenomenon or not. What is clear is that the recent decision has just made the business a lot more uncertain.

Second, while the CRTC suggested Friday that broadcasters had to look beyond profits and still meet obligations, because of the privilege of holding a license, which may be wishful thinking, if broadcasters figure the value of that privilege has been eroded significantly.

That is going to lead a fractious debate. Arguably the right measure is not only to measure losses on the local side of the business but cumulative profitability across specialty channels too. That has been our view and remains so. Today specialty channels still make double digit returns and under the CRTC’s Group License Framework revenues from specialty can be shifted to support content on local channels. But all that “may” have a short runway because by the spring the CRTC is expected to order all specialty channels unbundled and many anticipate a big drop in profitability for specialty channels as a result. No one can accurately predict how much, but losses are assumed. The more a broadcaster anticipates a loss, the less program expenditure and more job cuts are likely across the board even before the full impact of these decisions are felt.

Third obligations and profits are intrinsically linked by regulatory precedent. Obligations to serve are always linked by regulators to the “opportunity” to earn a reasonable return on investment as a quid pro quo. Cut that link and the social contract is broken. Broadcasters may now believe that the “opportunity” to earn continued “reasonable” returns is unlikely given the direction the CRTC is taking. If that is what they believe, even if that is not the Regulator’s intent, then broadcasters are going to respond according to what they “perceive” the damage to be.

So the gloves are off, and we predict that the creative sector and related will be collateral damage in the interim, And while the CRTC and broadcasters fight over how to measure ” reasonable” profitability, producers, talent and crews will feel the first cuts.

Fourth. The assumption that broadcasters will innovate faster to keep losing channels afloat, including some local stations, ignores the fact that broadcasting has been through a constant period of investment in innovation for 20 years (digital, specialty micro-channels, HD, PVRs, VOD) and ignores as well the investment realities and options available to vertically integrated companies in Canada.

Most of the share price value and market capitalization of these companies is now driven almost totally or substantially by wireless, broadband and cable; not broadcasting. Investors already attribute little value to content relative to networks. These integrated companies, like virtually all owners of broadcast properties, are businesses. They will behave as businesses first. And vertically integrated companies have options. Broadcasting (content not carriage) is already predicted to be threatened due to shifts to the Internet and predictions around the impact of unbundling. There is lots of debate on this but many experts would suggest there is a shift going on from broadcasting to broadband.

Time may tell but in the short-run broadcasters will base their business plans around the market as they see it and the signals they get from regulators. It’s fair to presume the view is currently negative, regardless of levels of earnings today. If an integrated business perceives itself to be facing diminishing returns, it is more likely that it will reallocate capital to network businesses (wireless, broadband) where returns are greatest, than to face an increased investment risk on the line of business (content) that is seen as delivering a lower opportunity for return in the long run. The converse on the broadcast side will be more direction to hold the line on, or reduce costs.

Fifth. There are two other very negative business consequences of limiting the opportunities to exploit legitimate rights. It increases fears about the impact of diminishing returns that were already expected as a consequence of unbundling and it underscores that there is no certainty in respect of future business contracts. The latter is a big intangible, and hard to estimate its impact. But business people generally agree that if you think the rules are unpredictable, it is harder to do deals.

Take the case of Bell who having paid the NFL millions of dollars for a long term contract and may now see that investment collapse in 2017, perhaps before the end of the contract, because the exclusivity it bought has been substantially eroded by the loss of sim sub protections on territorial rights. That type of contract has always been standard business practice but now that certainty has been undermined by a decision that at least in part calls into question the economic value of future contracts modelled on normal business practice on both sides of the border. The question for deal-makers then becomes, “what next”?

Reasonable expectations of returns from buying and selling rights have now been called into question by a decision that, albeit limited right now, clearly reduces the value of “exclusive” broadcast rights. What is more confusing in this case is that both the Canadian rights holder(the buyer) and the NFL (the seller) oppose this intervention.

Also, because there is now less of  a reasonable expectation of return with respect to what were once legitimate contracts, revenues become more unpredictable and broadcasters become more averse to doing deals with independent producers and making new investments, again to prospectively minimize risk, even if in hindsight the impact is less than feared. Our members tell us they already can feel that type freeze as broadcasters await the “Let’s Talk TV” decision and this decision we suspect will only make the broadcasters more hesitant to close deals on new shows or renewals.

Finally let’s think about some other intangibles that are lost when audiences shift to NBC or whatever U.S. network is now the channel of choice to partake in the spectacle of the latest Go Daddy ads. The Super Bowl produces one of the largest audiences available to Canadian advertisers and one of the best opportunities to promote businesses in Canada as well as promote the best upcoming Canadian shows or simply show certain important public service announcements like we saw last night. The value of that for all intents and purposes is gone, along with the audience, once the decision takes effect.

Bottom line. Consumer choice has to be a priority for the broadcast system. That is why the Government of Canada wants more pick and pay and why the CRTC will adopt it probably this spring. But the ability to fairly exploit rights is also a priority if we want to sustain a business environment that supports original content, news and jobs. All that is linked to revenues from those rights. The social contract should not have to boil down to sacrificing one priority at the expense of another but like most things in the real world finding the right balance requires a lot of complexity and nuance. Promoting goals is easy. Making it all work is the hard part.

Everyone wants to regulate the internet

During the CRTC proceedings on “Let’s Talk TV” there was a lot of noise and rhetoric aimed at the CRTC and broadcast industry about the idea that somehow the internet should be “regulated” or “taxed”. While the genesis of the debate evolved out of the suggestion that internet broadcasting should, or should not be subject to broadcast jurisdiction and regulation, the level of debate descended quickly into a binary discussion around very simplistic propositions as to whether or not the internet should be regulated or taxed. Absent from the public discussion seemed to be any of the nuance that is often so critical for guiding public policy. Ironically while an open internet provides the vehicle to supply nuanced information, the nature of social media makes it increasingly easier to shoot first and often.

This is not meant to rehash what came to be referred to as the CRTC “Netflix” debate but rather to take a step back and look at whether, and for what reasons, the general public as citizens or consumers, may favour regulating the internet – which actually means businesses that use the internet – in certain circumstances. Because contrary to certain myths and misconceptions, businesses using the internet are subject to a lot of regulation already.

Context is important here. There are all kinds of reasons to regulate the internet, and we do regulate today. And even the most vocal opponents of internet content taxes or content regulation are equally vociferous proponents when it comes to regulating market behavior online where they see value. All of this is valid depending on the perspective of those seeking to intervene in the market or not. The debate in my view boils down to the public first perceiving value in increased regulation, and second, as social analyst Brue Anderson suggested at the recent International Institute of Communications conference in Ottawa, the belief that those imposing forms of regulation can be trusted to achieve positive outcomes.

Many persons who would oppose any form of content regulation and support open markets online are often very strong supporters of significant intervention when it comes to restricting physical network providers using rules like net neutrality or imposing wholesale price regulation to create opportunities for resale competition. Again, there are very valid reasons for such intervention by those that want to promote certain objectives like a guaranteed level of open access or regulation of carrier pricing. However, there are equally arguments against too much reliance on such interventions in terms of impacts on network investment or the creation of uneconomic entry. Not to say either side is completely right but merely to suggest there are tradeoffs in any form of intervention.

Issues of “market power” being a trigger for increased online regulation or intervention when certain players in the value chain start to reach a scale, suggests calls for even more regulation as those operating virtual networks or supply chains reach potential levels of market dominance well in excess of those that control communications networks today. Recent articles with respect to the role of Amazon in the publishing and distribution of e-books or on the power of Google on search and advertising or Apple with respect to wholesale pricing of apps, suggest the issues of market power online are becoming as significant and complex as in the network world.

Many small “c” conservative business people may react negatively to ideas that the government might seek to increase regulation of businesses using the internet or increase taxation of those businesses. But if it was suggested to the same people that businesses in the e-commerce world did not pay the same business and sales taxes their bricks and mortar businesses did, they may well support more intervention online to “level the playing field.” This is not a small point and the Government of Canada through the Department of Finance has a public consultation underway on the tax treatment of foreign e-commerce providers.

Many supporters of an open internet to support the free flow of information are likely open to censorship and surveillance when it comes to restricting child pornography or combatting terrorism. Many supporters of open content markets support limits on commercial forms of communications like spam. Similarly forms of internet regulation intended to combat fraud and invasion of privacy are seen by many as good things. And the internet is not unconstrained when it comes to being subject to copyright rules that enable creators and distributors to protect and monetize their intellectual property or exercise territorial exclusivity.

The internet is unique, innovative and extra-territorial in many respects but it is not separate from many of the values, norms and laws that exist in the countries and virtual communities it connects. That is not to say that all the rules that apply to business and behavior in a physical world can or should equally apply in the virtual. But we would be naive to assume that these can’t apply.

Complexity and nuance remain crucial to good policy decisions. That said, if there was one thing that also seemed clear from the CRTC debate, it was that just because something requires intervention in a bricks and mortar world does not automatically mean it should apply in the virtual. A demonstration of value to the public or consumer as your audience or customer is a prerequisite. Any proposals to further “regulate” still boil down to some segment of the public recognizing a positive value in intervention relative to the negative costs. And whether we are debating market power, access, price or content those answers are seldom clear without information. Luckily the internet is a great place to find more information. And a lot of it is accurate.