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.

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