(Based on a presentation made to the On Screen Manitoba-All Access 2014, Winnipeg, January 13, 2014)
It appears that the CRTC policy review on the future of TV in Canada will be a process anchored by the interests of consumers. The CRTC is looking for solutions that support an open, accessible, diverse and affordable broadcasting system. However, it also remains equally invested in a future that supports creators and citizens. And part of the process will be to ensure that any policy changes provide audiences not only access to the very best in international fare but also the best content Canadians can create and exhibit.
In my view these objectives, while completely supportable, are going to be very difficult to achieve, given the competing pressures on the system today, starting with a completely supportable but unclearly defined emphasis on consumer choice.
First of all it’s important to find common understanding on what we mean when we talk about consumers. Consumers are not a homogenous group. And consumers as buyers, audiences and citizens can have conflicting needs.
Policies that aim for “one size fits all” could produce negative outcomes for many consumers and the public interest in general. Consumers subscribe to services based on choice and affordability. Many audiences are interested in a diverse range of content experiences. Others look to the system to experience and/or participate in our social, political and cultural mosaic.
Historically, bundling of TV channels has supported choice and diversity by aggregating consumer preferences for a variety of services that might not exist if sold only à la carte. Bundling has a “communal” benefit by spreading out the high costs of programming to ensure the sustainability of a variety of quality channels which meet the diverse needs of different consumers. For instance, one household may value TSN, the neighbour may love Space and the kids across the street may always watch TELETOON. And even if one may not value what the others watch, consumers collectively benefit from choice and access to many channels as a community. But bundling can create consumer dissatisfaction if the balance between price and choice is out of whack. And, what the CRTC is hearing from many consumers is that they are not getting a good economic deal from their bundles.
So part of the debate will center on that balance between diverse choice and affordable choice. Consumers will increasingly have more flexibility to buy à la carte and that can reduce the number of channels in the system. Diversity is critically important but is no longer measured only by the quantity of channels. In fact, assuming unbundling leads to the failure of some channels that don’t offer much original fare or attract any audiences, it may not be a big deal. Similarly, channels that generally focus on repeats of conventional prime time fare may also disappear as more repeats/catch-up viewing shifts to more efficient video on-demand technologies. Repeat channels are highly inefficient.
However, what is increasingly going to be a challenge as on-demand fragments audience, is how to continue to encourage diversity if “quality“ channels that support key genres (children’s, arts, science, documentary) have less revenue. That could be a big deal resulting in a loss to the public in general.
From a financial perspective for broadcasters, if channel penetration drops under pick and pay then rates per subscriber must increase to try to stay whole. But even if you could increase prices enough to keep subscription revenues constant, advertising revenues would still decline due to lower penetration. Lower revenue and corresponding lower CanCon contributions per channel will undermine support for original/first run Canadian content.
So if pick and pay increases costs for individual channels, reduces penetration for all discretionary channels and requires channels to increase their price to consumers—how will this improve the future of TV for consumers?
This is the crux of the matter. Consumers want choice and affordability plus continued access to first-run/original content, including first-run/original Canadian content.
What is sometimes not discussed enough is that change can come with as much opportunity as threat. Integrated carriers can make money from online, mobile, on-demand services even if traditional revenues decline. But it is clear that if policies that support and contribute to social and cultural objectives are not adjusted to reflect this more open/on-demand market, then diversity and the production of original Canadian content will suffer.That is bad for consumers when acting as audiences and as citizens. Any policy model that reduces the ability to create/acquire diverse and original domestic content that resonates with audiences is, in my view, ultimately bad policy.
To address the balance between choice, affordability and diversity, we can’t assume continuation of the status quo. The status quo is dead. So we need a new base-case. Increasingly audiences, particularly younger audiences, now gravitate to programs not channels. Variations of content on demand (time-shifting, PVR, VOD, OTT) are already part of the “new” status quo but their importance and value are not adequately measured. That is changing as big data enables content providers and advertisers to better exploit consumer/audience behavior across platforms.
Pick and pay is not new. Even prior to the possibility of mandatory pick and pay, there are already an increasing number of shows available on-demand from Canadian BDUs and unregulated online services. This regulated/unregulated dichotomy is becoming a critical issue. However, regardless of whether new SVOD/OTT services are regulated or exempt, they are all still broadcasting services under the Broadcasting Act. And the increasing regulatory asymmetry needs to be addressed both in terms of geographic/platform rights that support the system as well as contributions and obligations by broadcasters, if we are to have a fulsome discussion on the future of broadcasting next fall. In my view everything pivots off respect for and efficient exploitation of rights within the system.
The exploitation of rights on a geographic and often exclusive basis are what makes broadcasting a viable business, not just in Canada but around the world. Perhaps no issue is as central to the future of broadcasting as program rights and intellectual property. Control of, and the ability to exploit program rights, will make or break the Canadian system. We start from a good place to exploit program rights in a fashion that can increase consumer satisfaction. Incumbent advantages like control over most first-run program rights and the network infrastructure that delivers content on-demand are critical to supporting the system. This provides the ability to deliver solutions to aggregate and curate the best content available. And the best offence is to hold the rights to offer first-run original or live content over those same platforms in the manner in which consumers want to watch it (on-demand, on multiple platforms, ability to access full seasons). Canadian channels or distributors that can use these tools to offer unique audience experiences can still prosper.
However, regardless of the benefits of vertical integration, broadcasters and BDUs will seek reduced regulation, obligations and contributions “to better compete and serve consumers”. This is an understandable defensive strategy for big corporations to pursue in the interests of shareholders, but it does not address the root cause of consumer discontent or a broader public interest in diversity. Their primary argument will be that if giant online broadcasters like Netflix, Apple and Google don’t contribute, then Canadian broadcasters or BDUs should not either. And these arguments for reduced obligations will extend to contributions to the CMF, genre rules prohibiting exclusivity, and CPE requirements, to name a few.
Canadian control of program rights may be one of the most important issues ultimately influencing the future of Canadian TV. As we know, the current system is built upon the exploitation of Canadian rights.The control of these rights determines the capacity of broadcasters to attract audiences and for broadcasters and BDUs to contribute to the system.This ensures not only the ongoing creation of original first-run Canadian content but also the acquisition of the best first-run content from around the world. And because multi-national broadcasters now operate in Canada on an unregulated basis, Canadian control of critical rights is less certain going forward.
Many of these services are highly popular with consumers and I have heard few within the system suggest that such services should not be available to Canadians. That would be a bad idea. However, if Netflix or others begin to buy up North American rights to popular content, the fundamental underpinnings of the system are at risk. Deregulation will only increase opportunities to bypass Canadian broadcasters to exploit Canadian rights. The consequences of that will ultimately be a precipitous decline of a Canadian broadcast system and less diversity at the end of the day for consumers, audiences and the public at large.
So the CRTC has taken on a big task with its policy review on the future of TV because if the exploitation of rights rests outside of our borders there effectively is no Canadian broadcast system. Here are the key questions, I believe, the CRTC should focus on in balancing the interests of consumers, audiences, creators and citizens:
- Do certain channels and/or genres need a degree of protection/support because of their contribution to diversity and to social/cultural objectives? And does that protection need to come from genre exclusivities or basic carriage or targeted spending commitments (CPE) for the associated programming?
- Conversely, if broadcasters in a certain genre find it is no longer viable to compete under pick and pay, should they be permitted to change formats to meet “consumer” demand? Does this in turn increase lowest common denominator programming?
- How will the CRTC address the fact that Internet services like Netflix provide broadcasting services in Canada without any obligations to contribute to the system when contribution to system supports diversity? Some may not even pay taxes. Simply creating “a level playing field” by de-regulating Canadian entities undermines cultural and social objectives but still does nothing to protect Canadian domestic program rights that support the system today. A deregulated Canadian broadcaster without first-run rights is a dead broadcaster.
- Even if BDUs introduce more affordable packages, will these be able to compete with free content? Or with corporations that can offer services to Canadians but don’t even need to pay basic taxes?
- As sports costs escalate and increase content costs to distributors and consumers, will that lead consumers to drop discretionary services to control costs? Or is sports on basic critical to anchoring the system and to subscriber retention?
- What becomes the role of the public broadcaster, the CBC, in the new environment? How will the CBC fill 100s of hours of program gap once hockey is gone? Will there be more of an opportunity to exhibit Canadian films with this open time? Does this create an opportunity for more collaboration/integration between the National Film Board and the CBC? And, if pressure from unregulated services (Canadian or foreign) erodes traditional revenue streams that support the CMF, will the CBC, as a major recipient, face a funding gap to create this new programming?
In the upcoming TV policy review, I hope that the CRTC and interested stakeholders from consumers to creators will consider these critical issues. More pick and pay is easy to support but it is only a part of the puzzle. Increased consumer choice, on-demand and more flexible packaging are good for the system but choice or affordability without diversity are sub-optimal goals.
And finally, to finish on the upbeat, it is important to recognize regulation in and of itself is not the answer to everything. Being able to exploit, in a positive sense, the relationship to the consumer/audience through new technology is essential to survival irrespective of regulatory policy. But good policy can make it a lot easier to do business. So, at the hearings, building a new base case that better reflects how technology can be harnessed to exploit new opportunities to create content is essential. That is where Internet technology makes a considerable contribution. The Internet provides a new feedback loop between consumers/audiences and producers and broadcasters and new types of on-demand services may create more sales opportunities for producers.
That new loop has to be part of the discussion. But to be useful the debate has to be centered on the impact of more choice and more open borders on the rights and obligations that currently support the business of broadcasting in Canada.