CRTC 2009 Hearings: Broadcasters v. Cable Companies
The battle between Canadian broadcasters and cable companies taking place before the CRTC is a about the past and the disappearing present and not about the future of traditional television and other forms of video. If the protagonists and the CRTC are to consider the public interest as reflected by how consumers spend their money and time, they need to look for ways to profit from what consumers want instead of struggling over what consumers have been forced to take.
Today, consumers use their Kindle and computers to read books and view pictures, use their Iphones and Blackberries for all types of media, and their personal video-recorders to store content to watch at their convenience. The media world is changing from public and private broadcasters delivering a signal including advertising to be watched at the convenience of the broadcaster, to the viewer deciding what and when to watch. The bookstore and library format of personal choice from a large and growing inventory of titles, to be enjoyed at the individual’s convenience, has come to television.
In the future, the television networks will be consigned to a museum of technology to recall what happened in a short period of time (1950s to now) when the broadcasters were in the driver’s seat deciding what and when to produce and distribute, and consumers had to accept these decisions or not turn on the set. The situation is now different. Viewers can choose to watch programs from the remaining traditional broadcasters as well as the increasing amount of content available over the internet. All traditional media, print, video and audio are making their content available online where they are experimenting with ways to make money from new delivery channels while protecting intellectual property rights. Google, a newcomer, has found a way. Currently, it makes more than $23bn a year from online advertising, a sum equal to all advertising in US magazines and two-thirds the advertising in US newspapers, by using its search engine to direct users almost instantaneously to the content they select. There are now over 23bn web pages to search up from 3bn in 2002.
The CRTC hearings are the battleground between the traditional broadcasters such as the CBC, CTV and a financially troubled Canwest and the cable companies such as Rogers, Shaw and Telus. Each makes much of the business failures and commercial decisions of the other side while attesting to a desire to look after the consumer interest. The cable companies threaten to increase fees to subscribers if they are made to pay for signals provided to them by the broadcasters, and the broadcasters threaten to withhold signals from the cable companies unless they receive payment for them. Either choice does not look particularly consumer friendly. The Commission acts as a referee, hopefully with the consumer interest in mind, while taking into account the views contained in several thousand submissions available on the CRTC website with more being posted.
What is the consumer interest and what is it they want? Consumers want access to a wide choice of content that they can select and watch in their own time. They are willing to pay for this but want it supplied and delivered in a competitive not a monopolistic marketplace. Payment has to be made to content producers and to those who deliver the signal to consumers, as occurs in other familiar markets. For example, consumers pay for their utilities delivered to them by wires, pipes and cables that carry the electricity, gas and conversations they want. Consumers buy these services from competing suppliers who may use the same delivery system, similar to the way that buyers select from competing trucking and taxi firms that use public roadways.
At present, broadcasters provide a combination of content and delivery systems but also broadcast the content or productions of others. Cable companies provide the delivery system for content. Some of this comes from broadcasters, payment for which is at the centre of the present CRTC hearings, and some is contracted for directly by the cable companies for specialty channels like HBO and TSN. Consumers receive their television/video signals in a variety of ways, over the air, perhaps with a rooftop antenna, via cable or by the internet which in turn may be provided by wireline, wireless or a combination of the two.
Who pays for this? The broadcasting and cable companies would have us believe that they pay. They do not. Consumers pay in various ways. A glance at the financial statements show that taxpayers and advertisers fund the CBC, taxpayers to the tune of $1.2 billion in 2009 plus receipt of subsidies, and advertising to the tune of $356,000. The private networks receive most of their funding from advertisers.
The claim that consumers get their broadcast signals for free ignores the fact that advertising revenues derive from revenues received from the sales made by firms to consumers of the advertised goods and services. When the consumer buys an advertised item of food, clothing and automobiles, some of these funds are used to buy broadcast or cablecast advertising time. In this sense, individuals as both consumers and taxpayers are paying for programming whether produced in-house by broadcasters or by independent producers.
Consumers also pay a monthly rate to cable companies to receive signals from broadcasters and for other programs for which the cable companies contract directly. These companies provide related services such as high-speed internet, mobile phone service, video-on-demand content and purchase or rental of personal video recorders. The content carried by cable companies are paid for by consumers who are offered various bundles of programs, some required to be carried by the government, and some purchased individually. Consumers thus pay for content and carriage in a variety of ways by purchasing goods and services that are advertised, by taxation (and subsidies) and by paying those who deliver the signals by wireline or wireless.
Leaving aside the treatment of Canadian content, which is an issue in these hearings, the consumer interest is in getting a wide range of diverse and quality content. They want to purchase content (news, sport, entertainment, children’s programs) and carriage in competitive markets. At present there are two carriage mechanisms, wireline via cable and telephone line, and wireless either off-air or via satellite. Off-air signals are received with a rooftop antenna, or picked up off-air by cable and retransmitted to distant viewers. Cable and other companies also use satellites for the delivery of signals but these are usually combined with cable (wireline) service on the ground to pick up and deliver the signals to or receive signals from the satellite.
An alternative and emerging competitor for cable is satellite service that carries signals from content provider to the consumer directly avoiding cable and telephone service, like wireless communication between two ships at sea. If this becomes competitive with cable and there are enough alternative suppliers, then competition will increase and cable rates for internet access will decline. Cable companies and telcos are already in the satellite business in different ways so that consumers will only enjoy declining rates if there are more suppliers or a framework that promotes competition. For example, if cable companies control satellite frequencies this will decrease the opportunities for new competition. Note the downward price effects of competition in the cases of the increasing number of electronic book readers, and the declining prices of flat television screens and computers. As the number of sellers increases, prices fall and choice increases unless either firms or government policy restricts competition.
While the CRTC will need to report on the question posed by the government, it should also show how the consumer interest can best be protected in the future, recognizing that traditional broadcasters will atrophy while new means of delivery will continue to grow. Hopefully this will be done without creating a regulatory structure that stifles competition and the associated consumer benefits. Luckily, for the consumer, technology tends to win anyway despite the public and private obstacles put in its way.