Pick and Pay: Escape from the Walled Garden

The decision of the CRTC to require the unbundling of cable, satellite and wireline delivered broadcasting is the single most radical decision that the CRTC has made since philip palmer lawthe forced sale of American interests in Canadian radio and TV stations in the 1960’s and the simultaneous introduction of Canadian content requirements for both TV and radio.

Over the air broadcasting is unbundled. Bundling is only possible where there are more programming services than can be profitably broadcast or where available spectrum is exhausted.

So it is that, for the past generation, distribution undertakings have held the trump hand in choosing how consumers receive their programming. Regulatory policies helped create the special role of broadcasting distribution undertakings (initially cable, then satellite, and now telcos over DSL and fibre lines). A Faustian bargain was made between the regulator and distributors: by penetrating Canadian homes to satisfy the popular demand for American programing, cable would expand the reach of Canadian programming to its cable subscribers.

As the demand for specialty channels, Pay TV, and Video on Demand expanded, the CRTC stood aside from close scrutiny of the offerings of distributors. This ensured that unique Canadian specialty channels would be offered as a corollary to the offering of foreign (read US) specialty offerings. With the growth in available content, the distributors determined that the chosen model for delivering the extended programing options was through bundling: simply put, consumers who wanted access to a particular channel had to buy a package including a bundle of other channels that may or may not have had any interest for the consumer. In doing so, distributors hid the real costs of given channels from consumers and subsidized the consumers of expensive channels to the cost of those who watched cheaper channels. The most spectacular beneficiaries of these subsidies are the devoted viewers of all the variations on sports channels.

So what has happened that the world of bundling has suddenly lost its regulatory appeal?

First, the CRTC has been informed that it is now a pro-consumer regulatory agency and not merely the extension of the interests of those who have a financial stake in the Canadian broadcasting system. It is not clear whether broadcasters yet understand what has happened.

Most importantly, Canadians have found alternatives to the walled garden of Canadian broadcasting. All of us (and not just the young) have been cutting the cord to cable and relying upon over-the-top services such as Netflix and YouTube and a large variety of Internet-based streaming services to satisfy our programing tastes. As broadband speeds and volumes have increased, Internet- based services have become a realistic alternative to traditional delivery mechanisms for program content. Consumers are going to the programing they want – when they want it.

Consequently, advertising dollars are flowing into the Internet. Canadian taxation rules deny deductibility for advertising by Canadian business in American magazines and American broadcasting channels that are distributed in Canada. Simultaneous substitution rules artificially maintained the value of advertising dollars spent on American programs exhibited on Canadian channels. The Internet enables the bypassing of these barriers. Advertising dollars follow the eyes. As more and more Canadians adopt new methods of accessing programing, advertising dollars are diverted from the old media to the new.

This is not to say that Canadian broadcasting is dead: what is dying is the regulatory framework that has denied Canadians access to programing that they want on terms that are reasonable. If you are a consumer of Internet-based content services such as Netflix, you will appreciate that Canadian, American, British, French, Danish, Belgian, Swedish, Australian and New Zealand programing is available and is watched. HBO and CBS are launching Internet -based services. The demand for premium content is enormous. Canadian producers can and should be supplying the emerging global market for programing content.

The development of Canadian dramatic programing – at least in English – has been one of the great cultural disappointments that we have experienced as a nation. Much of Canadian content is imitative of successful US game shows, cooking shows, and the likes of Canadian Idol and the Great Race Canada. Some of it is fine – but little of it stirring. My hope is that Canadian drama can find a new international audience. If Danes, Swedes and Flemish can find audiences beyond their linguistic barriers, then so can Canadians.

Because of the tightly protected nature of the Canadian broadcasting market, it is likely that the Canadian broadcasting market will be disrupted more than those of many of our international counterparts. It is also likely that we will see shrinkage in the number and variety of Canadian specialty channels. These changes should be welcome to consumers. The Canadian production industry, after some traumatic adjustment, will engage audiences in a way that has never been possible in the confines of English Canada.

When the current Broadcasting Act was conceived and adopted, all concerned were aware that its form of broadcasting regulation would make little sense in a thousand-channel universe. We now have hundreds of channels available to most Canadians. The Internet provides close to unlimited content in every language and format imaginable. It is time to reconsider the purpose and mechanisms of broadcasting regulation in Canada.

The issue that poses itself, as we move into a truly competitive programing market, is what justification remains for a broadcasting regulation? Can’t we just auction the over-the-air broadcasting spectrum to the highest bidders? Is there any reason we should regulate what can be watched on cable or satellite channels? Why should we continue to tolerate continued regulatory intrusion on free expression?

Pick and pay is lamentably late in arriving. It arrival does, however, encourage a far larger and more significant debate.

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