Investment in Cancon pays Dividends at CSA and Abroad

According to the annual Profile report produced by Nordicity under the auspices of the Government of Canada, CMPA and AQPM, almost $6B was generated in production activity in Canada in 2012/13. This included almost $2.7B on independent Canadian film and television, $1.4B in broadcaster in-house production and $1.7B in foreign location and service production associated with the shooting of US series and other foreign films in locations across Canada.  As a consequence of this activity – triggered by federal and provincial tax credits, Canadian and foreign broadcaster licensing and other forms of private investment – it is estimated that 127,000 FTE high-quality jobs were sustained in Canada.

The impact of this activity on jobs, in attracting private investment into Canada and in increasing export opportunities that flow as a result cannot be easily dismissed. Production is only one element of a much larger media entertainment value chain that has been estimated to generate over $20B in GDP and support some 262,000 jobs across key industry segments like production, broadcasting, cable, satellite, festivals, distribution and theatrical exhibition.

In our view not only do the jobs and export opportunities generated by a mix of public and private investment and regulation create gold in terms of economic activity; but the intellectual property these investments and expenditures create generates currency in an information economy that is anchored in part by media and entertainment.

Canada has become not only an attractive place to invest in this sector of the economy but it has become a valued brand when it comes to both buying and selling media goods and services. That is a good place to find ourselves in terms of opportunities for growth. But we need to look beyond the positive numbers to see some of the reasons for success.

First, the talent has become first rate, whether you look at the pool of actors and directors plying their trade in Canada, Hollywood or the rest of the world. Actors like Canada’s rising star Tatiana Maslany or directors like Denis Villeneuve are recognized both at home and abroad. And the Screen Awards last week were testament to just how deep the talent pool has become.

Second, contrary to criticisms about regulation, Canada is arguably one of the most open countries around when it comes to the ability to access content from beyond its borders.  Sure there are debates around “Netflix-like” services or simultaneous substitution on US border stations but the reality is that Netflix is available without constraint.  In many jurisdictions foreign distant services are often blacked out to protect territorial rights.

Third, the Government of Canada, most recently through Ministers of Heritage (Ministers Glover and Moore), have been supporters of the industry not only for the economic benefits it produces but for its cultural import and for the future opportunities that can be created for a next generation of Canadians using digital tools and means of distribution. And it is the ongoing investment by federal and provincial governments in Canada that created the synergies between “Hollywood North” and our domestic talent, production and broadcast sectors, that has made Canada a world class producer and exporter of media and entertainment today.

And fourth, support for independent voices and access through policy mechanisms — and particularly terms of trade to ensure independent producers have a right to exploit intellectual property rights in contractual relations with large scale vertically integrated carriers – has ensured that creative decisions don’t rest in the hands of a very small number of players.

Of course this does not mean we should be happy with the status-quo.  We can’t as an industry.  And, the audiences that increasingly consume and value what we produce won’t allow it. We absolutely need to follow the direction audiences and consumers are headed to remain relevant. But, equally, we should not simply throw out some of the elements of private or public initiatives that have productively contributed to success. The game should be to build on and exploit what has been successful, and to adopt new tools and seek new digital and global markets to grow the economic pie.

Much of the policy debate at the Content Industry Connect event in Toronto last week was all about “fair” ways to split the existing pie.  That type of debate is incredibly stupid and counter-productive for a couple of reasons.

First, the discussion in the middle of a week intended to celebrate the successes of the industry was way too much about our plumbing, too often negative and so disconnected from audience as to be a side-show “full of sound and fury, signifying nothing.” All it did was suggest our industry is too insular.  This is too bad because the support for Canadian shows from industry leaders like Kevin Crull and Paul Robertson is worthy of thanks and those efforts got lost in the noise.

Second, even if it was the time to talk about the “pie,” the debate should be about growth through audience engagement, new digital platforms and increased opportunities to use digital to access completely new markets. I would suggest that when you focus on making the pie bigger, the slicing gets easier.

And lastly, shouldn’t the essence of the Canadian Screen Awards be to celebrate the talent and even more importantly to celebrate the audiences that are supporting the TV shows and films and connecting with the talent in those shows?

We think so. That’s why we were a sponsor and supporter of the CSA Fanzone. Because through the Fanzone we got to be part of a social media experiment that was all about the fans or audience picking their favorite shows.

So let’s look back on Canadian Screen Week, not for the policy whinging, but for the celebration of success. Way to go Tatiana and Denis.  Congratulations to the producers of Orphan Black and Call me Fitz, best film Gabrielle, as well as the stellar number of other film nominees this year that are really worth catching. And a big shout out to Fanzone winner Lost Girl and all of you out there that cast their votes, because the fans are the ingredient that are going to make that pie bigger.

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Michael Hennessy Opening Speech at Prime Time in Ottawa, Thursday, February 20, 2014

Good Morning Ladies and Gentlemen I am delighted to welcome you to the 24th annual Prime Time in Ottawa Conference.

One of the real pleasures in my job is having the opportunity to represent the CMPA and our member producers at international markets like MIPCOM, the Cannes Film Festival and Berlinale.

It’s not travel that gives me a buzz but the high from watching hundreds of Canadian producers promote their films and shows and pitch and partner in a global marketplace. This month we had a contingent of 50 Canadians in Berlin alone, doing just that.

It’s also being part of efforts with the Canadian Media Fund, Telefilm and Embassy staff to promote our brand abroad that provides such satisfaction.

And it’s the rush you get talking to Film and TV Commissioners and Agencies from all over the world that really want to do business with Canada and with Canadian producers.

We are now truly part of a global market and we have real credibility and respect in that market as a preferred partner.

Growing our international presence is a huge opportunity for us; particularly in light of the challenges independent producers from many countries face in an increasingly competitive and very uncertain marketplace.

According to PWC the global market for content continues to grow at a compounded rate of 4.8%. Demand for content has never been higher. The quality of Canadian content by any measure is world class and the Canadian brand is a hot commodity overseas.

In a generation we have gone from “telling our stories to each other” to “telling, and selling, our stories to the world.”

Our own market at home is among the most open and dynamic around.

Canadian consumers today have more choice than any policy-maker could have imagined 20 years ago when His Excellency, and our keynote luncheon speaker, the Governor General David Johnston was Chair of the Information Highway Advisory Committee.

In part, that is due to our early adoption of broadband technology, but also because, contrary to common wisdom, we have one of the more open markets in the world.

So why then in what is arguably a golden age of content in Canada, are so many of us from producers, broadcasters, distributors and policy-makers so stressed?

In a word, uncertainty.

Uncertainty amongst film-makers and distributors about how to make money from the theatre in the home to replace what has been lost at the theatre down the street.

Uncertainty for TV producers about their continued ability to hold onto and exploit the intellectual property in the content they produce that is so essential to building sustainable companies with international reach.

Uncertainty for broadcasters and cable and satellite distributors about the erosion of a Canadian territorial rights market and consequent revenue erosion from unlicenced and unregulated over-the-top services.

And general uncertainty about the changes to broadcast policy that supports our industry as a consequence of the government’s promise to introduce pick and pay, and the CRTC’s promise of a proposed new policy framework this spring.

At Prime Time this year we are going to try to look both at the roots of uncertainty but more so at the opportunity that it presents, starting with our keynote speaker this morning Wendy Bernfeld who will shine a light on the growing number of VOD or OTT platforms emerging globally in virtually all key genres.

The search for new opportunities and new markets has never been more critical.

There has never been more competition, more choice and more demand for content than at any time in our industry. That should be good news but pressure on production margins has never been greater.

The problem is that with more competition and more choice there comes more risk. And while there is increasing demand at home and more platforms to distribute it, there are fewer doors to knock on.

And there are fewer broadcasters and distributors that are willing to consistently take that risk and licence high quality content and often not enough money to distribute and promote content that is licenced.

This is a real concern for our businesses. And make no mistake broadcasting and film productions are businesses–big businesses that are creating jobs and export opportunities for Canada.

In 2013, total production expenditure was $5.82 billion or slightly less than 2012. But there was also a big decline of $250 million in the Canadian independent sector, in part, by downward pressures on licence fees. That is our challenge; better productions, better talent, better audiences but less money in the domestic market.

Hence the need for finding new revenue models from international to digital to co-production and co-ventures.

So- many of our breakout sessions today focus on new financing sources for production. An expert panel will evaluate emerging options from crowd-funding to accelerator programs. And this afternoon cutting-edge producers share their successes and failures in exploiting these new business models to create film, television and digital media content.

Ironically even as we experience all this disruption and uncertainty, Canadian producers have never seen the level of success they have achieved with audiences not only domestically but internationally as well. And even as our brand grows overseas, some negative perceptions of Canadian content at home simply don’t reflect anymore what audiences, “the consumers”, are increasingly signaling through their viewing habits.

In Canada, according to recent BBM data, shows like Saving Hope, Murdoch Mysteries and Rookie Blue pull in over 1.4 million viewers. Dragon’s Den and Battle of the Blades reached 1.2 million viewers.  while other shows like The Listener, Republic of Doyle and Arctic Air are over or close to 1 million viewers.

Those are great results. It’s akin to a U.S. production hitting audiences of 10 million and above in their home market. And what is more remarkable is that we produce this content often at a lower cost than U.S. productions. That quality and cost efficiency in turn has helped open access to U.S. markets.

And ironically while some of these big hits don’t get the “critical” acclaim they deserve, they clearly resonate with Canadian consumers.

And at a time when broadcast policy is being heavily influenced by the interests of consumers, what is wrong with making shows that people most like to watch.

Later this morning we will be hearing from Canadian Broadcast Programmers who are constantly trying to read the minds of discerning consumers to make sure the kinds of TV shows they green light are actually the kinds of shows people want to see.

But it’s not just the conventional shows where we see success. Canada consistently punches above its weight especially when it comes to format programming, kids, and science fiction.

And it is no secret that Canada practically owns prime time in the sci-fi genre at home and in the U.S. with shows like Lost GirlContinuum, HavenOrphan Black and Bitten.

But even in the midst of success there are a lot of contradictions and uncertainties in our business.

Consumers around the world seem to have more access to more content, than ever before.

And Canadians in particular have more choice and more access to content, both authorized and unauthorized, than virtually any country in the world over cable, satellite, IPTV, the Internet and over some of the most advanced mobile networks in the world.

In many respects as consumers we already operate in an on-demand fashion be it through, the PVR, VOD and SVOD, online broadcasters like Netflix or BBC iPlayer or the most current episodes of most major shows and the latest film content on-demand from Apple TV.

And Canadians particularly millennial cord-nevers, as early adopters already feast on free OTA in high def, binge on Netflix, fill their tablet often for “free” with access to countless apps all for a fraction of the cost of some cable bundles.

Obviously introducing more viewing options into the way service is provided is a logical way to retain consumers in the system.

But different models require different tradeoffs.

Satisfying consumer demand is critical to success but consumers also want a constant supply of original and diverse content.

And that requires money to develop, licence, distribute, exhibit and promote that content.

I won’t get into details on this any further because this will be the topic of discussion for our “Let’s Talk TV Super Panel” of industry executives and stakeholders in a little over an hour.

We will also talk about the future of screen-based content production as CRTC Chair Jean-Pierre Blais grills independent producers on whether we are transitioning fast enough from regulation to outcomes and protection to promotion.

The CMF’s Valerie Creighton will also explore this key component of industry success—with an emphasis on promotion and access to Canadian-produced content in general.

This afternoon Jan Miller moderates a panel with practical tips on how to do it right at International sales markets like MIPCOM and Cannes.

So we have a big day ahead of us solving all of these issues. Let the conference begin.

Please note most of our Keynote speeches and Panels will be available on YouTube shortly.

Opening Remarks by the CMPA To Standing Senate Committee on Transport and Communications

Pursuant to the Study to examine the challenges faced by the Canadian Broadcasting Corporation in relation to the changing environment of broadcasting and communications

(as presented yesterday, January 29th)

Thank you, Mr. Chairman.  And, thank you to all members of this Committee for inviting the CMPA to share how the independent production sector’s business has changed over the past 10 years, specifically in light of technology and the digital world.

Of course, we are appearing here today against the backdrop of the Committee’s study of the challenges faced by the Canadian Broadcasting Corporation in relation to the changing environment of broadcasting and communications.

Without doubt there have been massive shifts in technology that are enabling consumer access to content from around the globe and over a variety of new platforms.  That said traditional television remains the core economic engine driving our industry.  And it is still the control of rights to broadcast the content in Canada that goes on TV that makes the business of broadcasting viable for all stakeholders from producers to broadcasters to cable and satellite companies.  This may be the most important aspect for all of us to understand and address.

We are pleased to be here today on behalf of our 350 members to answer your questions about Canadian broadcasting from the perspective of an industry that spends almost $6 billion each year producing screen-based content and employs a very considerable number of Canadians.

I am joined today by:

  • Jay Thomson, Vice-President, Broadcasting Policy & Regulatory Affairs;
  • Marc Seguin, Senior Vice-President, Policy;
  • Marla Boltman, General Counsel; and
  • Brian Goodman, Director, Government Relations and Policy

Over the past 30 years, I have worked in both the public and private sectors in telecommunications and broadcasting, addressing ever more complex issues arising from the intersection of competition, convergence and consumer choice through digital technologies.

But just as importantly, I am a direct product of the first generation to grow up connected to – and defined by – media.  One of my first memories, as a four-year-old living in Kingston, was of the neighbors across the street getting one of the first television sets on the block.  The neighborhood kids would sneak up to their house and peer in their window to watch TV.

In the early days, there was virtually no indigenous content to go with this amazing technology.  As a kid my choice was then limited to CBC or Radio Canada.  More content arrived with commercial TV like CTV, but as we moved towards Canada’s centenary in the 1960s, it was still the access to news, sports and entertainment from CBC/Radio Canada that most defined the space we lived in and the future we were entering.

As more content crossed the border and as technology increased competitive alternatives both to the public broadcaster and to indigenous content creation in general, the challenge facing policy-makers was how to create a national identity in a culture defined by another state.

This challenge ultimately led to the Broadcasting Act and the creation of the CRTC; the result of which was the growth of a vibrant and competitive media sector in Canada.

Initially, under the regulator, entry and choice were limited to protect a nascent industry.  Over time, however, the focus shifted to a balancing of domestic incentives, open markets and choice.  We think that remains a good approach to the future.  But again the system only works in favor of Canadians if the rights to create, produce, distribute and exhibit content in Canada are respected in terms of geography, the prevention of unauthorized use through the Internet and fair commercial practices.  It is on these issues that the future of the Canadian broadcasting system rests.

I think we ultimately got it right in this country by embracing choice and competition even as we embraced policies like public broadcasting, tax credits and regulation to ensure a Canadian place in the media world. Incentives attracted investment while competition and choice made our content world class.

Because of this balance in public policy, the Canadian film and television production industry now generates significant economic growth, exports and jobs.  In 2012/13 alone, our sector contributed $7.6 billion to Canada’s GDP, including $2.3 billion in exports, and sustained more than 127,000 full-time, high-quality jobs.

More information on these statistics, which were in fact just released today, along with a video that provides some of the highlights, can be viewed on the memory sticks that have been distributed to the Committee.

So, we have moved from an industry that survived only because it was protected to an industry that is increasingly export driven and which is exporting our entertainment and cultural products around the globe. But trade in content, as I suggested at the outset, can only occur if the rights to broadcast and exhibit content are respected and creators fairly compensated.

Twenty years ago we were focused on telling our stories to each other. Today we tell our stories to the world.  And the CBC has played an important role in achieving this success, as have our independent producers, which the CBC helps to support.

But we can’t be lulled by this growing success.  The industry and public broadcaster are at tipping points due to the restructuring of the media world due to digital technologies, the Internet and more a-la-carte consumption.

So what is the plan for tomorrow?  Forty-five years after peeking through that window in Kingston, I had a similar experience watching video on demand in its infancy while working for the cable industry as it transitioned to becoming an Internet provider.

Both times, it was the technology that initially dazzled.  The content came later, but when it came, it changed our world view and led to the creation of billion dollar industries, including right here at home.  For my generation, that content included a Canadian perspective that informed as much as it entertained.

It is unthinkable that this may not be the case for the next generation. The exclusion of a Canadian perspective would likely not affect the future of media on a global scale, but it would deprive a generation of Canadian creators, innovators and entrepreneurs of the benefits, both economic and cultural, that will arise from the opportunities presented by the Internet revolution.

Without regulation to promote diversity and to protect intellectual property, and without a public broadcaster, we would have no Canadian broadcasting system today.  And, in an Internet world where choice “seems” abundant, I still believe, as much as I still believe in the market and consumer choice, that such regulation and a renewed CBC must be part of the framework going forward if consumers as audiences are going to fully benefit from a broadcasting system that includes Canadian perspectives.

I also believe, however, that without the opportunity for both independent producers and independent broadcasters to have access to broadcast and cable networks – and indeed commercial opportunities to control and exploit rights in the content they create – diversity of voices will disappear.  This is increasingly a threat when our networks are controlled by giant vertically integrated corporations, and when multi-national corporations can effectively compete in Canada without any requirement to operate within the system.

The CMPA believes in choice and competition.  But we need to be careful when someone says rely solely on the market or rely solely on consumers to drive the future.  These are critical elements but consumer choice is a shallow thing without diversity.  And the market is a glass half empty if our marketplace cannot include Canadian goods and services.  What’s wrong with having the best of both worlds?

We should never forget that our system is unique in that it has increasingly been open to the best content in the world but has still been able to juggle public policy and competition and adapt to technological change.  This ensures Canadians get the best content from Canada without sacrificing access to the best content in the world.

We need to support the export of our cultural and entertainment products as enthusiastically as Hollywood did in the last century.  But we need a healthy Canadian rights market place to be that exporter.  And, in an increasingly market driven environment a lot of valuable and diverse content will only survive if there is at least one platform for it that is not dependent solely on return on investment.  And that platform is the CBC.  But access to that network also has to be on fair commercial terms to ensure the production of high-quality content, exactly because it may be the only network where diverse voices may be guaranteed a home.

So what is our recipe for achieving objectives of choice, diversity and growth in a more open market place.

First, we need to ensure that we are creating content that resonates with audiences both in Canada and globally.  That requires inclusion of independent producers and creators in the broadcast system in order to enable diversity and allow for the opportunity to create.

Second, we need to ensure the consumer has more flexibility to choose so she stays in the Canadian system.  But there needs to be recognition that an a-la-carte world can also hobble the opportunity to continue to create high-quality content for niche markets, from documentary to feature films to children’s programming.

Third, we must take measures to ensure Canadian broadcasters and broadcast distributors can exploit the program rights they have acquired and to ensure a level playing field when it comes to broadcasting in Canada, just as we have done for over 40 years.

That begins with (a) requiring that foreign-based content companies like Netflix, which now takes millions of dollars out of Canada every month, also put some of those dollars back into our country to contribute to our system as Canadian broadcasters and distributors must; (b) requiring that, in return for providing broadcasting services online to Canadians through an open Internet, Netflix and others ensure Canadians cannot use false IP addresses to access content that Canadian companies already own the rights to distribute in Canada and (c) ensuring that all over-the-top services like Netflix (which has 4 million Canadian subscribers) pay retail taxes for providing services here just like every Canadian business does.

Fourth, we must ensure that our public broadcaster has the tools to support diversity in critical categories, from feature films to documentaries, which cannot survive based on consumer demand alone.

And finally, we need to put measures in place to ensure that the public broadcaster and vertically integrated private broadcasters do not use their power as gatekeepers to squeeze independent producers to the point where there is no return on our investment in the creation of intellectual property.  Producers need creative control over the programs they make, as that’s what leads to diversity. And creative control derives from controlling the rights in those programs.

In summary, if we cannot prevent unauthorized services from operating in Canada and infringing on the territorial rights of broadcasters to the content they have paid for, then we have no broadcasting industry of any importance.

But equally important, if broadcasters, as highly concentrated gatekeepers, wrest control of rights from producers or do not fairly compensate them for content they created as “partners,” then we will have no diversity of voices.

In that regard, we often fear the power of the broadcasters, public or private, as gatekeepers as much as we worry about the ability of the Internet to redefine markets, by undermining territorial rights.

Without regulatory protections to ensure broadcasters and vertically integrated carriers don’t discriminate against the independent voices we have in our system, Canadian content creation and exhibition will ultimately fall under the control of a small number of large corporations.

Not only would this have negative consequences for our broadcasting system as a whole, it would also be contrary to Canada’s Broadcasting Act, which requires that our system include a significant contribution from the Canadian independent production sector.  It is concerns like this that ultimately led the UK to entrench independent producer rights in legislation. Perhaps we need similar rights in Canada.

I thank you once again for inviting us to appear here today and we now welcome your questions.

More Implications of CRTC Policy Review on Future of TV

(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.

This year Santa is leaving elephants under the tree for the broadcast regulator to play with

I was having lunch with a broadcaster the other day who is worried that the CRTC policy review around the future of broadcasting may put independent broadcasters in dire straits if it leads to wide-scale repackaging of cable and satellite (BDU) packages, particularly if that results in preferences to vertically integrated carriers and the decline of independent services that offer diverse and innovative products.  Interestingly, he is not worried about pick and pay packages per se as long as these become simply one more option amongst the current existing offers.

In fact, he strongly agrees that from a consumer perspective it is a no-brainer that BDUs have to make this element of choice available to consumers to retain subscribers. And as long as the deals with BDUs are fair he believes that channels that have built a distinct brand around a specific type of good content will succeed.

So I wonder what would happen if all BDUs, simply for pure market-driven reasons, have to have pick and play options in place anyway by the September 2014 hearings?  Would the CRTC’s job be done? Would the Conservative Party be happy with that result and be in a position to claim, going into the 2015 election, that the consumer had won as a result of its policies?

Or is pick and pay a small part of a bigger discussion? If so, there is lots more to discuss, if the interests of consumers, creators and citizens are to be reflected through the broadcasting system in a manner that serves the objectives of the Broadcasting Act. Pick and pay may be a no brainer, but messy in many respects, even though it already has widespread support in principle. More choice, including à la carte will make many consumers happier as long as they don’t lose their favorite channels or have to pay too much for same. But even if all Canadian broadcasters agreed to offer services à la carte and fair rates were easily negotiated, if the consumer price/ value proposition was right, and the U.S. cable channels ever agreed to pick and pay, and the CRTC was not beset by affiliation pricing disputes (irony intended), most of the fundamental challenges facing the industry, creators and citizens would remain. Remember that the CRTC has been very clear that it needs to address not only consumer issues, but the interests of creators and citizens. And that is where the elephants really start to gather knee deep in the big muddy river.

Because while pick and pay sounds like an easy fix to consumer concerns, and one that matters big time to consumers, it does not really guarantee that the shift of consumers to the Internet will abate or that overall pricing for TV services will decline. There are bigger issues at play that may still negatively impact diversity of content on TV and the supply of high quality original content whether from Canada or abroad.

So Elephant #1 is actually a question:  how, if it is even possible, can BDUs create attractive packages at any price if they are competing with free? Arguably pick and pay may be a solution in search of a problem  for many cord-nevers and a growing number of BDU subscribers increasingly attracted to content for “free.”

It is naive to assume that unauthorized use is no longer a problem because it’s easy to buy content on-demand. Both those options can co-exist quite easily.

I was listening to some younger people at the Film Flash Conference the CMPA and Telefilm Canada recently co-hosted in Toronto. They made the following argument: “Today with a Netflix account and simply accessing other content for “free” online, I can get all the content I need, so why would I pay for it even if cable had more à la carte or Netflix like alternatives?”  By the way, these comments came not from general consumers but from kids just starting out in the industry.  And it’s a common refrain from consumers of all ages.  Let’s be honest– a lot of “free” content has been “liberated” for unauthorized use and the practice is generally accepted as “ethically” ok by a growing group of consumers. (Similarities to music industry intended).

So in designing a “solution”, it’s important therefore to question if this is the “consumer” segment government particularly wants to respond to. Face it, most of these consumers are not even into channels. They are into shows, most of which they can get legitimately on-demand today; and many do. And many don’t.

That does not mean one shouldn’t improve the offers in response.  BDUs need to improve the on-demand offer, with options like complete seasons for catch-up, although that won’t attract the majority of consumers that already get those shows for free. It may be that pick and pay can, at best, help retain existing subscribers. Simply put, a broadcast policy that does not at least recognize unauthorized use (whether or not actually addressing it) won’t generate long-term solutions.

Elephant #2 is Netflix and other online VOD services, both domestic and foreign.  As long as broadband VOD can compete within the broadcast system for customers without any obligation to contribute to the Canadian system, then Canadian BDUs and broadcasters will argue they should be unregulated too.

But the net result of such deregulation would be a lot less money in the system for Canadian programming, particularly original and niche content. And that would be a big problem because, while a lot of broadband services might buy Canadian libraries, they will likely not invest in original content production. That would be a perverse outcome after all the vertical integration and consolidation allowed by the regulator to stabilize the system. But as long as online broadcasters grow and compete without obligations, BDU/broadcaster calls for deregulation will be the constant refrain.

Luckily the CRTC could address the broadband elephants under its clear and existing jurisdiction over broadband broadcasting. Or maybe the fact the CRTC could regulate Netflix et al is yet another elephant in the room.

Elephant #3 is the impact of consumers accessing broadcast content from unauthorized foreign services.  An unknown number of consumers are subscribing to services, like Netflix U.S., either through parties that can set up   “fake” U.S. IP addresses or by simply learning “how to” by ”googling” for instructions.  In a recent article online, I read that this is all supposedly “legal.” That sounds like bull to me, because legitimate foreign VOD services which don’t own the Canadian rights for their content, cannot (and would not knowingly) sell their services in Canada.  Nevertheless, to the extent Canadians are stealing Netflix U.S. and other similar foreign services, they are eroding the value of the program rights which Canadian broadcasters acquire, and that creates a loss of revenues and a growing problem for Canadian broadcasters that use the profits from those programs  to fund the acquisition and development of original Canadian shows.

Next let’s go to Elephant#4 and simultaneous substitution. Simultaneous substitution annoys consumers who claim to like U.S. ads, particularly at Super Bowl time. But with all its warts substitution generates a lot of legitimate revenue for original content. So before we trash simultaneous substitution let’s not forget why it came into force. The reason substitution came about in the first place is that the CRTC permitted cable to import U.S. services even though Canadian broadcasters had already bought the Canadian rights for the most popular shows on those services. Substitution is simply meant to protect the value of those rights, while increasing consumer choice.  And while Canadians now may take access to the U.S. services like ABC, CBS, NBC, Fox and PBS for granted, this type of regime is quite unprecedented. In the U.S., programs on distant signals are blacked out in local markets, if the local broadcaster owns the applicable program rights. So arguably if you killed simultaneous substitution there would be a legitimate argument to blackout U.S channels, in whole or in part. The obvious consumer anger could be very negative.

Now simultaneous substitution does create real problems for growing audiences to Canadian shows since they often get shifted around due to scheduling changes in the U.S., and that issue needs to be addressed. But you could do that and still protect rights perhaps through non-simultaneous substitution. But further undermining legitimate Canadian rights because some consumers want U.S. ads is not the way to balance the interests of all stakeholders in the system.

But even if we fix the substitution issue the cross-border Elephant #6 may still raise consumer costs. Something bad for consumers may be about to happen under the muddled umbrella of WIPO. Broadcasters around the world, including those in the U.S., may be close to getting new broadcast signal rights. One implication of that could be that Canadian BDUs would be required to compensate cross-border stations for carrying their signals (as an addition to their existing obligation to compensate program rights holders). This is a very real possibility. Treaty negotiations are occurring right now after a long hiatus. And so consumers may suddenly be faced with bills of a few dollars more to get the U.S. channels they grew up with. And more money paid to get such “basic” services could lead to reduced subscriptions to discretionary specialty services and thus less money for original Canadian content.

And it gets even more complicated because if BDUs have to pay the big U.S. networks for their channels, the logical next step is that fee for carriage for Canadian local signals will be implemented too. That, in turn, will help local services in continuing to offer quality programming in the face of erosion of rights but the overall cost increases to consumers could again lead many consumers to drop many specialty channels (owned by the same broadcasters) to keep costs in line.

And that takes us to Elephant #7 and what the cost of sports is doing to affordability. The big mantra around pick and pay has been to provide consumers more choice at a better price. Both choice and price are required to make a pick and pay value proposition that delivers value to consumers. And all that is going to be heavily influenced by the price of sports programming. The Rogers/NHL deal means the cost of sports programming is going to increase a lot. Rogers is going to argue that other BDUs should pay it at least as much, and likely more than TSN, and if SportsNet and TSN remain primarily on basic, then the cost of basic is going to ramp up significantly. The problem here is that BDU rates are not inelastic. The more the price of basic goes up, the less consumers will likely spend on specialty channels and the less money these channels have to expend on original Canadian and international content. But even this is not cut and dried because if sports is taken off basic does that make BDU subscription less attractive and make sports packages so expensive, the 60% or more group of consumers that buy sports have to drop even more channels?

I am going to ignore Elephant #8, what does the CBC look like without hockey and Elephant #9 how will the CRTC handle just the affiliation arbitrations that are sure to come just around the price of sports services? And Elephant #10,”what the hell is basic service in this new world”? All those are worth a blog or two on their own.

But all of this suggests a couple of things. Any review of broadcast policy cannot add much value unless the elephants are recognized, debated and addressed. That includes the question of whether it is time for the CRTC to exercise its jurisdiction in a different way over broadcast services that are currently exempt. And to deal with the issues around unauthorized use and unauthorized services in Canada. Elephants can be quite happy if left alone to wallow in the big muddy but those of us swimming in the same river need to pay attention to them.

Too bad there are no penalties for unsportsmanlike conduct at CRTC Hearings

At a CRTC hearing earlier this week, Corus, one of Canada’s leading broadcasters, implied that Canadian TV producers aren’t doing enough to market and promote themselves overseas to increase international sales. To feel insulted to hear that spin presented to our regulator is to understate our anger. To suggest that spin is misleading is to suggest Rob Ford tells little white lies.

Simply put, Canada’s film and TV producers cannot survive without international sales. They would not be successful without attending all major international markets en masse to promote and sell their shows and seek fruitful partnerships. Every year in Cannes, Berlin, New York and Los Angeles and other locales around the globe, scores of Canadian producers pitch their wares, on their dime, and if their pitches and the projects they develop fail, they eat the losses not the broadcasters.

Producers and their distribution partners, not broadcasters, are the Canadian ambassadors for promoting their shows. So it’s beyond insulting when one of them implies we have missed the boat on international markets to promote and sell Canadian shows.

Right now I am on a plane to Vancouver on the first leg of a journey to Australia where we will bring a formal trade delegation of 17 producers to Australia funded jointly by DFAIT, the CMPA and the individual producers’ companies. We are there to increase trade with Australia.

Last year the CMPA helped fund a group of producers to go to Rio to crack the Brazilian market, while CMPA-BC, with the support of Western Economic Diversification, went on a trade mission to the United Kingdom. We also took a formal delegation to Argentina last year under one of the other 53 co-production treaties Canada has signed.

These missions and markets pay off in sales and co-productions, which is why we punch way above our weight when it comes to generating exports. To be fair, some broadcasters punch above their weight when it comes to imports of U.S. programs.

International is our business and we take it very seriously. We also take great umbrage when one of our broadcast partners demeans our efforts abroad before the CRTC. It is patently unfair and paints a picture of what we have been doing that is as misleading as it is wrong.

So, if I sound angry, I am. But next time you hear about the efforts to brand Canadian Content at home and abroad through Red Carpet events or joint promotional activities, just remember that it is producers standing beside Telefilm, CMF and our government representatives. And take note that the CMPA and the Canadian producers we represent are very seriously engaged in the business of international sales and promotion and we back that work up with both our money and our resources.

Competition, independence and the “Golden Age” of TV

At MIPCOM 2013 in Cannes this month The “Golden Age of Television” was one of the dominant themes of the world’s largest television market. It has also become news, at least in the Canadian industry, due to an article by the Globe and Mails John Doyle who suggested that Canada, while producing “good” TV, was missing out on the golden age. The question he raised was why? There may be a simple answer. Perhaps the types of independent channels like HBO and AMC that are driving golden age production no longer exist because of consolidation.

Here are a few thoughts on the golden age from someone who represents the interests of independent producers and worries a lot about the loss of independence on screen –not just in Canada– but in the U.S., because independence is critical to diversity and innovation in programming. While the situations in Canada and the U.S. are different, there are linkages between both regimes and the golden age.

In Canada, we have lost all major independent commercial broadcasters due to consolidation, but still maintain a healthy independent production sector. Conversely in the U.S. the independent producer has been virtually forced off network TV, but the presence of independent broadcasters permits for the production of cutting edge product in competition with consolidated entities.

From a content perspective there is some incredible TV being produced outside of traditional network television from The Sopranos, to The Wire, Breaking Bad and Dexter, Homeland and Justified, House of Cards, The Fall, The Killing, Top of the Lake and Game of Thrones. On the Canadian side of the border Orphan Black, Intelligence, Durham County and Call Me Fitz deserve to be on the “cutting edge“ list in my view. But here’s the thing:

All those cutting edge, golden age shows in the U.S. have three things in common. First, these are not produced as mainstream network (ABC, NBC, CBS, Fox) shows. Second, even though the golden age shows are critically, and often commercially successful, mainstream network shows still draw larger audiences. (More sophisticated ratings data may modify the latter conclusion a bit). Third ,and critically important, is that these shows tend to come out of cable channels (AMC, HBO, Showtime, FX) that are often independent (HBO, AMC) of the main networks or operating as competitive responses to the lead cable innovator, (HBO).

This is an important point in respect of Canada because there are virtually no, perhaps not any, independent cable channels left with big budgets to fund domestic high value serialized dramas. Super Channel and Movie Central (Corus) are independent but don’t have the budgets to produce very many shows on their own.

In the U.S., with the deregulation of broadcasting in the 1990s and removal of the financial interest and syndication rules (fin syn) the independent production sector was crushed along with protections to ensure diversity on screen. And, network broadcast production done by ABC, NBC, CBS and Fox became virtually all in-house (service) work. That, in turn, shifted the balance from producer/director/writer to corporate interest when it came to making creative decisions, with negative impact. There have been wonderful exceptions, of course, to the rule like Lost, but until recently most serialized dramas on Prime Time were cancelled faster than you could build buzz.

Arguably this decision by deregulated US networks to kill off independent production may also have helped speed the decline in conventional TV audiences, as innovative ideas tended to be replaced by a tendency to try to hold a mass audience by keeping content predictable. Conventional TV in the U.S. generally became derivative and often boring as a result for many viewers.

It is therefore hardly surprising that the real innovation and lift for serialized drama happened outside the major networks starting with HBO and ending, so far, with Netflix. And while audiences have tended to be relatively lower on cable versus conventional TV, there has been a steady decline in audience for the top conventional shows. What we are now beginning to see as a result is a shift back to serialized TV in the U.S. in order to stem a steady erosion of viewer to cable or online TV. This competitive dynamic is occurring in the U.S. because even with consolidation there is still room for a level of competition in the U.S. due to the sheer size of the market.

In Canada we don’t have room for both the level of consolidation we have undergone and a healthy independent broadcaster sector. That is an issue of scale.  So, it’s no surprise that the focus of our industry has been producing good shows for prime time audiences because Prime Time is the business.

In the US there has been massive consolidation but the market being 10x the size of Canada continues to have room for independent broadcasters like a standalone HBO or an AMC that is looking to produce cutting-edge marquee shows to guarantee its brand a place on the cable lineup.

There is no HBO scaled enterprise in Canada to fund that level of innovation and our largest Pay TV player (Astral) has been now subsumed by Bell Media. That lack of scale has also meant that bigger budget shows by definition tend to be made for conventional channels like CTV, Global and to a lesser extent City TV.  That has produced benefits. Looking at the metrics for shows like Murdoch, Saving Hope, Flashpoint, Rookie Blue, The Listener, Motive or Cracked, one can argue Canadian production is producing good shows that are better than ever. And lets not ignore the fact these are drawing good audiences. Audience matters; a lot.

Regulators in Canada and, similarly in the U.K., have also had a hand in the balance in recent years by supporting the production of innovative content and increased diversity through either, targets that require a percentage of content be independently produced, and/or terms of trade that protect ownership of intellectual property and limit abuse of market dominance.

But to produce shows that have the edge and budget of the best of the golden age requires more private investment and partners outside of Canada. That is a model in the works not only for Canada but is increasingly being looked at in the U.K., New Zealand and even the U.S. A  great example of that is the Space success (now being carried also on CTV) of Orphan Black, produced by Temple Street with the support of BBC America — or the big budget Copper produced by Cineflix and a cast of international producers and broadcasters.

The shift to the golden age of TV and the need to finance high quality productions will bring about some significant structural changes particularly as VOD, broadband TV and pick and pay reduce margins of some networks.

More co-productions are obviously part of the deal but as margins decline in the U.S. we may also see a shift away from the fully-funded studio back to an increase in independent producers picking up more costs in return for more control over IP. That will allows networks to hedge more bets and reduce financial exposure. That was the case in the U.K. when broadcaster margins declined and ultimately led to an emergence of much larger independent production entities.

If the pendulum does swing back, in part, to the glory days of independent production on conventional TV in the U.S., that may bring back the production engine that created big golden hits like Hill Street Blues and NYPD Blue. It would be a shame if that is the case, to see the decline of independent production in Canada just as the shift globally is to more diversity. That is why it was gratifying to see a recent CRTC notice on benefits highlight the importance of independent production.

TV in Canada has definitely got a lot better because there have been checks and balances between consolidation and diversity through safeguards on independent production. Shows like Murdoch Mysteries, Rookie Blue, Continuum, Mr. D and Republic of Doyle prove domestic shows are increasingly popular with Canadian audiences and that is what matters most. Let’s never forget that these shows are often more popular than the so-called golden age shows because they are really good.

But the talent is also there in Canada to produce critical successes like Orphan Black or another Intelligence. And if we look to Orphan Black for guidance on how to create more success stories for the golden age it may be the scale of the conventional network like CTV balanced with a strong independent production sector and the increased level of participation of an international partner like BBC America that turns out to be the secret sauce that creates more of these success. Stay tuned but let’s not discount those shows that the audience has already signaled they like. To repeat an earlier comment, it’s audience that ultimately matters; a lot.