Analysis: They are all ‘exceptional’ channels. Well, not quite

The CRTC launched into two weeks of hearings Tuesday to consider a number of “exceptional” channels applying for mandatory carriage on basic TV packages. At least that's how the applicants for the special licences describe their proposed or existing channels. They would make exceptional contributions to Canadian expression under the Broadcasting Act, they say, which the regulator would require them to do before awarding the special licence, called a 9(1)(h). What has been missing from this week's hearing discussions, at least so far, is a little bit of context about a pretty big communications network that Canadian consumers use every day: the Internet. “The standard that you see throughout is an exceptional contribution,” Michael Geist, the Canada research chair in Internet and e-commerce law at the University of Ottawa, said in a phone interview Wednesday, referring to the CRTC's requirement that 9(1)(h) channels make exceptional contributions to the Canadian broadcasting system. “In an environment where there is no more scarcity, it's hard to make a case that any of it is exceptional.” A mandatory carriage licence on basic cable typically means the channel receives per-subscriber, wholesale carriage fees for each of the 11.5 million people subscribing to TV in Canada. That's a lot of carriage fees paid by the TV providers, which say they would pass the costs onto their subscribers. For its consultation, the CRTC has received mandatory carriage applications for an all-Canadian movie channel, a law enforcement tips and clues channel, a natural resources sector channel, a Canadian user-generated video channel, a conservative all-news channel, a youth educational channel, a faith channel, and a Punjabi channel, to name a number of them. No one at the CRTC hearing Tuesday acknowledged that any of these channels could try competing for subscribers and revenues online, in the unregulated marketplace where there are few if any barriers to distribution, Geist noted in a well-circulated piece published on his blog Wednesday, titled “The Mandatory Distribution Hearing: The CRTC As Last Hope for Failed Broadcast Business Models.” He has a point. What is stopping any of these channels from trying to licence their content or channels to Netflix, YouTube, or for that matter, CTV.ca? Alan Breznick, a media, telecom and technology analyst at Heavy Reading, said there's nothing stopping them. One of the problems is that broadcasters in traditional industries don't know how to innovate, he said. That means technology companies like Google Inc. instead come in and disrupt their businesses, and all the while, the broadcasters make arguments before regulators to support traditional models. “Broadcasters are presuming what consumers want, and in some cases trying to prove to the CRTC that they know,” Breznick said in a phone interview Wednesday. “No one's looking at what people are using, or choosing to use, over the Internet. They should be looking at the Internet. The Internet is the marketplace.” No one at the hearing Tuesday acknowledged that there is a wealth of content available through exceptional online Canadian platforms, like Netflix, Tou.tv, NFB.ca, and others. CRTC Chair Jean-Pierre Blais opened the hearing with an appropriate warning to all 9(1)(h) applicants, saying that, in today's environment, consumers want more affordability and choice, though even he did not acknowledge the Internet in his opening remarks. The chair did mention that the CRTC is looking at the applications because it is required to, according to the Broadcasting Act, and that mandatory distribution licences are “an exception.” Geist said it was ironic to watch the CRTC hearing online Wednesday, streaming free on the website of CPAC, while officials with the parliamentary channel made arguments to commissioners about why it needs mandatory distribution on basic cable. CRTC commissioner Louise Poirier seemed to touch on similar irony Tuesday when she asked officials with Fusion, the proposed user-generated video channel, why a YouTube-type channel should be on TV and not online. “Why do you need the TV to broadcast what you could show throughout the world online, solely?” Poirier asked. “My viewpoint, at this moment, is trying to bring back people to the former way of broadcasting TV, instead of keeping them in a media they just love, online, Internet, and so on. You are going against a trend.” Cable TV subscriptions are not falling, but growth is slowing. It is declining at such a rate that, this year, Deloitte expects negative growth, or an overall decline. Over the long-term, that should worry broadcast distributors and specialty channels, and it's an issue that a 9(1)(h) licence won't fix. Duncan Stewart, director of technology, media and telecom research at Deloitte Canada, said in a phone interview Wednesday that cord cutting is changing the conversation. “All of a sudden, it turns from, 'We're growing slower than we'd like,' to, 'We're shrinking,'” Stewart said. “As an industry, the BDUs will almost certainly start having comments around must-carry .” They already are commenting, at least, in the discussion about the channels applying for new 9(1)(h) licences. In the CRTC's consultation on the mandatory carriage applications, several distributors, including Rogers Communications Inc., BCE Inc., and Shaw Communications Inc., said even a $2 monthly price hike on TV bills would be enough to push subscribers away from the regulated broadcast system, in favour of online alternatives. “The commission appears to be more reluctant to give out 9(1)(h) licenses today," Stewart said in a follow-up email. He said that, compared to three years ago, there seems to be a shift against proposals to increase the package of TV channels that Canadians must accept on basic cable, and this probably reflects the rise of over-the-top, Internet TV options. “The Chairman didn't mention the internet or services like Netflix in his introductory remarks,” Stewart added in his email, “but they feel like the elephant in the hearing room.” The Internet has created more choice, putting the broadcasting system, and the CRTC, under pressure to do the same. Consumer advocates and critics like Geist are lining up to call for a pick-and-pay specialty channel regime, as opposed to channel packages, which would invariably shake out the weak and put many channels out of business. Granted, some channels want carriage on basic cable because that is the best way to reach their key viewers. Officials with Sun News Network made that case Tuesday as they said they want mandatory distribution on analog as well as digital systems to reach seniors and lower-income viewers, many of whom use analog cable. Sun News isn't likely to reach those viewers through an online platform, and the same case might be made for a described video channel for visually impaired people. Geist said most consumers have access to those services if they want to subscribe to them. The market, and consumers, should dictate success, he wrote on his blog. If there's market demand and a business case, the product will be successful. Simple as that. In his article, the law professor wrote that the CRTC's reluctance to give out 9(1)(h) licences is not enough. The commission should not grant any more mandatory distribution licences, Geist said, and it should phase out all existing mandatory carriage licences with a three-year sunset provision, giving them time to work out a new business plan. “roadcasters need to convince consumers, not commissioners, that they have something worth buying,” he wrote. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and copy editing by Danika Grenier at dgrenier@thewirereport.ca

Analysis: They are all ‘exceptional’ channels. Well, not quite

Broadcast | April 24, 2013

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