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Two Open Broadband Internet Proposals vs the Pay-per Internet Model

Two new research papers released in the past week add insight into the Usage-Based Billing (UBB) debate in Canada, or what I have been calling the evolution of the pay-per Internet model. The papers are by Michael Geist, the University of Ottawa law professor, and by Bill St. Arnaud, the Chief Research Officer for CANARIE for 15 years (until 2010) and a telecoms engineer. Geist’s paper can be found here, while St. Arnaud’s paper is here.

Both papers were commissioned by Netflix, in light of the fact that developments in Canada are sucking it and others such as Google, Apple, and so forth deeper and deeper into digital media policy issues. All are becoming fixtures in CRTC proceedings. Both papers bear one significant subtle influence of this sponsorship (as I will discuss briefly below), but other than that provide extremely valuable help wading through the technological, economic and regulatory issues surrounding the UBB debates.

Geist and St. Arnaud are both convinced that the CRTC’s plan to revisit it’s January 25th UBB decision that ignited the firestorm over the pay-per Internet model in Canada is far from sufficient. As Geist indicates, a whole series of decisions over the past few years will have to be revisited and the regulator and policy-makers are going to have to deal head-on with the fact that underlying these problems is a heavily concentrated market for Internet access in Canada. I feel similarly, and have laid out the ‘long march’ to the pay-per Internet model in an earlier post.

Playing on earlier decisions regarding the incumbent telecom and cable companies use of technical measures to ‘throttle’ different types of Internet uses that they argue put excessive strain on their networks — the so-called Internet Traffic Management Practices — Geist’s first proposal is for a series of what he brands IBUMPs (Internet Billing Usage Management Practices). The basic gist of which is to make the incumbents’ billing practices for Internet services easy to understand and reasonable when it comes to so-called excess usage charges.

His second set of proposals aim to promote greater competition in the Internet access market. This includes allowing more foreign competitors to enter Canada.

It also involves allowing smaller ISPS and Content Distribution Networks (see below) more scope to interconnect with the incumbents’ networks much deeper in the network and closer to subscribers’ homes (especially the cable companies, who have dragged their heels on this matter for more than a decade). Finally, it means cultivating a greater role for alternative Internet access providers, from city-owned networks, to cooperatively run ISPS, as well as expanding the role of provincial and federal broadband development programs.

As an interesting aside, the Liberal Party’s platform announced on April 2nd as part of the current federal election campaign effectively doubled the commitment that the Liberals would put into expanding broadband networks in remote and rural areas compared to the modest $225 million announced by the Conservatives in 2009. The Quebec Government went even further in the 2011-12 budget passed in March, where it announced that it will invest around $900 million in bringing very high speed Internet access to all Quebecois (see here at pages E.93-96; also see St. Arnaud).

It did not specify the exact capacities of the network, but its references to similar plans in Australia, France, Finland and the US suggest that the bar is high, probably around 100 MBps. Neither the Liberal Party’s election platform nor even the much more ambitious Quebec Government’s scheme are equivalent to or the same as Australia’s National Broadband Company initiative, and nor should they be.

However, they do underscore (1) the under-development of broadband Internet in Canada, (2) the lack of competition offered by the current market, and (c) a willingness to rely on a variety of providers, from the traditional incumbents, to municipalities and provincial governments to improve on the situation at hand. They also suggest that Geist’s proposals, far from pie-in-the-sky, are grounded and with some real, even if tentative support in some crucial quarters.

Bill St. Arnaud’s paper also offers much food for thought and complements Geist’s paper very well. He makes three key points.

First, the massive growth of video online is not necessarily causing congestion. Huh?  How could this be, with clear evidence that the growth of video traffic has been stupendous, ranging from 50 to 100 percent per year and with continued high rates of growth expected in the next few years ahead?

This is because sources responsible for this massive increase are increasingly turning to Content Distribution Networks that, basically, bypass the public Internet and deliver their content as close to their subscribers as possible. These so-called Content Distribution Networks are not only being deployed by outfits such as Netflix, but other large Internet content and service providers, from Amazon, to Google and Facebook. The basic point is that they take traffic off the network for much of the distance a message has to travel.

Second, to the extent that congestion is a problem, this is an outcome of decisions made by the incumbent telecom and cable companies about how to apportion the capacity of their network. As Geist quips in his paper, the ‘chicken roasting channel’ recently introduced by Rogers, for instance, is just so much bandwidth allocated to that ‘service’ rather than to the Internet.

Third, and this is where I think St. Arnaud has an amazingly powerful and clear point, the incumbent telecom and cable companies — the ‘big six’, as I have called them: Bell, Rogers, Shaw, Telus, Videotron and Cogeco — appear to have no problem with congestion when it comes to launching their own video content services delivered over the internet, e.g. CTV.ca, globaltv.ca, TVA.ca, etc. Congestion is only caused by other providers’ video services.

Lurking in the background of all this is that we’ve seen this all before. A few years ago, P2P/file-sharing and music downloading sites were the culprit; now the target is online video services. The cable companies have been especially remiss in dragging their feet for a dozen years or more on allowing independent ISPs to access their distribution infrastructure. Despite being required to do so before the turn-of-the-century, the cable cos have thrown one obstacle after another in the path of ISPs requiring last mile access through cable facilities to gain access to subscribers.

All said and done, Geist and St. Arnaud’s paper respectively do a great service. They are timely interventions that help us understand the issues at hand and, if successful, they may help to frame the debates that take place at the hearings that the CRTC has scheduled to revisit the UBB decision in June.

However, we should not hold our breadth on that, and in that regard these papers do a real good job at holding the regulator’s feet to the fire (see my earlier post on this point). The CRTC has a very broad remit to regulate in these matters, as the Telecommunications Act (1993) (sec. 27 (5)) makes clear, but has chosen to draw the proverbial camel through the eye of the needle. With the magnitude of the issues at stake, this is unacceptable.

However, I also think that both papers need to go even further in at least four ways. First, both papers make claims about the highly concentrated state of the telecom, cable and Internet access markets in Canada, but offer little to no data to illustrate and support these claims. Good quality data is now available on these points and they should use it.

Second, both papers focus on the UBB issue, or what in regulatory parlance is now called an economic measure for managing congestion on the Internet. However, the CRTC’s Internet Traffic Management Practices decision (2008) sets out a hierarchy of preferences for dealing with such problems when they can be shown to exist: (1) network investment, (2) economic measures such as UBB, and (3) technological measures, aka throttling.

Neither paper says much, if anything, about the top priority: network investment. Why? At between 15-18 percent of revenues, current levels of investment in their networks by the big six is low by historical and global comparative standards (although in line with similarly low levels in the U.S.). And this despite the fact that the Internet represents a massive new source of revenue ($6.5 billion in 2010).

Third, neither paper pushes as hard as they might on how the use of UBB and the allocation of network capabilities by the incumbents to their own services may constitute a form of “unjust discrimination”. The issue is not totally ignored by any means, but I think it could be pushed further and that doing so is important not just to the question of whether or not we’re going to be stuck with a highly concentrated Internet market and the pay-per Internet model in Canada, but concentration across the whole sweep of the network media ecology, from traditional media to the Internet.  Let me explain. I’ll conclude by returning to my fourth point.

Insofar that these papers deal with ‘unjust discrimination’ they seem to have in mind section 27 of the Telecommunications Act that specifically outlaws such practices. It is a good victory to be had, if it can be had. And the CRTC has, as I stated above, much discretion in how it goes about making such determinations. To the extent that it has chosen to blinker itself is a problem of the first order.

However, it may be possible to go even further and look to the next clause of the Telecommunications Act, section 28, that specifically makes the issue of discriminating between video services, or broadcasting as such things were known when the act was written nearly 20 years ago, a matter of potential concern. Indeed, the CRTC has enormous authority under this section to deal with the issue of discrimination while meeting other objectives of the Broadcasting Act.

Herein, however, may lay the rub, given that both of the papers being discussed here were funded by Netflix, and the last thing that it and other services like it (read: Google, Apple, etc.) want is to be defined as broadcasting services, which could happen if we were to assign the ‘online video distributor’ label on them like the FCC and Dept of Justice did recently in the US in relation to the Comcast/NBC merger.

I, too, am very leery about slapping the label of broadcaster on such entities because of all that would mean with respect to CanCon rules and the like. The CRTC has always indicated that it believes that it has the authority to regulate online video distributors under the Broadcasting Act (see its seminal 1999 new media decision here), but up to now has not seen Internet television services as being significant enough and too experimental to actually do so.

The question of whether ISPs could also be brought under the purview of broadcasting regulations so that, just like cable and Direct-to-Home satellite providers, they too could be required to contribute to funding and displaying CanCon has also been hotly contested. That route seemed to be foreclosed by a Federal Court of Appeal decision in 2010, but that too has now been appealed to the Supreme Court of Canada.

Now, the incumbents en masse are pushing hard to have OVDs like Netflix, Apple and Google regulated as broadcasters just like their own broadcasting-related services. The irony here is that for Netflix to push its case on UBB as hard as possible, adding some water to its wine by accepting some such designation could go a very long way to putting a stop to the discriminatory practices that are now hobbling its access to Canadian subscribers.

While this is far beyond the scope of what I can say here, perhaps a new designation along the OVD line devised in the US might be imported into Canada for just such purposes. That would mean distinct treatment from broadcast television in general, but also some obligations to open up their services to Canadian media creators.

It might also allow a much more forceful push against the anti-discrimination rules of not just one section of the Telecommunications Act, but both sections 27 and 28. Done right, this need not ‘trap’ new players like Netflix in the maw of outmoded aspects of the Broadcasting Act. Instead, it could potentially help to usher in an entirely new media model where all of the bits and pieces that make up the traditional media model are disassembled and reassembled anew in light of the realities of the digital network media industries in the 21st century.

And finally to return to my fourth critique of the Geist and St. Arnaud papers. Both papers target the upcoming UBB decision. This is great, but I think it might be helpful to try and kill two birds with one stone by putting another potentially even more important upcoming regulatory review in their sights: namely, the CRTC’s hearings scheduled for June 2011 on vertical integration.

The ‘vertical integration’ hearings were scheduled late last year but given added impetus when the CRTC approved Bell’s acquisition of CTV last month. The idea of holding such hearings reflects the fact that Canada now also has the dubious honour of standing alone in the extent to which fully-integrated media conglomerates have become the norm. In the U.S., the fully integrated media conglomerate has become the exception (e.g. Comcast/NBC-Universal) after the disastrous AOL Time Warner merger and is pretty much in retreat in almost every other developed capitalist democracy.

There is indeed every reason to be very skeptical about these hearings given that they are a classic case of “bolting the barn door after the horse has already left the stable”. However, given that the use of UBB is completely tangled up with the crucial question of whether or not the “big six” media conglomerates in Canada — Bell, Shaw, Videotron, Rogers, Shaw, Telus (the latter to a lesser extent) — are using the pay-per Internet model to disadvantage competitors and to protect their own traditional television services, as well as their recently-minted internet video services, we must keep our eyes on the full range of big issues before us.

The Google Switch and +1: Search vs Social, Google vs Facebook

Today, according to the press releases now multiplying like bunnies across ‘online news sites’ and major newspapers of record around the world, Google added a social layer to its search functions.  It’s new “+1″ function is the online media behemoth’s response to Facebook’s ubiquitous “Like” function, although Google has been ‘going social’ for a while (e.g. Orkut, YouTube, Blogger).

Why does this matter anyway? For one, it gives us insight into two key functional characteristics of the Internet — search and social. It also sheds insight into Google itself, a subject that has gained increasing attention from academics such as Siva Vaidhyanathan (the Googlization of Everything), the media savvy journalist Ken Auletta (Googled) and staunch ‘new digital media’ sage and Google defender, Jeff Jarvis (What Would Google Do). Google is big business and what it does matters.

Google is increasingly competing for advertising revenue and Internet users’ time and attention with Facebook. Indeed, a shrinking number of digital media giants are battling for control the time that people spend online. This is especially important in Canada because Canadians, according to Comscore’s 2010 Canada Digital Year in Review, are the heaviest Internet users in the world spending, on average, 43.5 hours per month — greater than the 33 or 36 hours spent online per person in the U.S. and Korea, respectively (see p. 6).

In some ways, +1 is just another addition to Google’s ballooning suite of functions: search, gmail, Google Books,Blogger, Docs, browsers (Chrome), video (YouTube), operating systems (Android). The aim is to grab more of users’ time and to put more and more of the Internet ‘in the cloud’. In this case, it is Google’s cloud.

More services provides more reason for people to stick around with Google, rather than just the typical ‘search and run’ mode.  Moving more services off the desktop and in the cloud also keeps people connected more often, in more places, and for longer periods of time overall. This has largely worked from Google’s point of view.

This is why Google dominates online advertising markets and search — accounting for between 75 and 95 percent of all searches — in every country, except Russia, China, Taiwan, Japan and Korea. The power of search as a general utility, and Google’s role as the leading provider of this utility, is also growing in lockstep with the rapid growth in smart phones and the mobile Internet, as a recent Goldman Sach’s presentation shows. Overall, search dominates social in the ‘mobile Internet’ and Google’s grip with respect to search functionality is typically growing across the board.

There are a host of things that we should rightfully be concerned about by Google’s dominance of Internet search functionality and as things migrate from the devices and desktops in our own home’s to someone else’s cloud (read my earlier post on ‘social media and memory ownership‘).  Siva Vaidhyanathan has recently provided an extensive argument, in the Googlization of Everything, for why we should care. Some of his arguments are very thought-provoking. They go well beyond just the issue being discussed here. Here is a video clip of him responding to the question whether Google is a monopoly.

I don’t find Vaidhyanathan’s account quite as good as he seems to think it is, or quite as deserving of the praise showered upon it by some reviews. Some have trashed it, as the libertarian technophiles at the Technology Liberation Front did, but I definitely don’t think that their dismissal is right either.

Google is shaping the architecture of the Internet and the digitization of the media industries across the board. To think otherwise is to have one’s head buried in the sand. To think through why it’s important, however, is another matter.

Google so far has provided primarily utilitarian functions: search, scan, link, store. However, its not these functions, but rather the ‘social web’ and social networking sites — Facebook in particular — that are growing fast. Time spent on SNS sites overtook email in late-2007, according to the Goldman Sachs’ presentation referred to earlier. Will search be the next ‘killer app’ to fall?

The drift from search to social means that Google is increasingly competing with entities like Facebook — for users, for capital investment, for advertising revenues. In terms of the number of unique Internet page views per month, the yawning chasm that once stood between Google and Facebook has steadily closed (see here).

It is from within this context that we can understand why Google’s vast ambitions to colonize every nook and cranny of cyberspace/network media space now include adding “a thicker social layer” to its offerings. Always count on the tech-heads and marketing mavens to come up with a good line to summarize what’s going on. Here’s Dave Karnstedt, CEO of Efficient Frontier, in an March 30, 2011 Advertising Age article: “Injecting a social layer into the algorithmic search is key to relevance.” Translation: friends and family are key to Google’s bottom line.

Google’s ambitions have been seen as competing with and forcing traditional media to adopt new methods for the music, television, film and news industries for some time now. Now, competing with Facebook for the new coin of the realm — user attention — can be added to the list. There are several important dimensions of this.

The shifting balance between search and social needs to be seen in the context of competition for advertising revenues. Internet advertising growth is and has been explosive, growing globally from roughly $16b in 1998 to $66.2b in 2010. While online advertising has indeed grown very fast, we need to bear in mind several things.

First, recent trends will not not continue forever because, yes, like the ‘real world’, advertising spending online is subject to the ‘normal laws’ of capitalism.

Second, Internet advertising is tiny in comparison to Internet Access market, the pipes and ISPs that run the infrastructure that get content from one place to another: worldwide, the Internet access market in 2010 was worth $247.5b, or four times the size of online advertising market. It is smaller yet than the global television market: $351.3 billion in 2010.

Third, like the rest of the media economy, online advertising is also highly susceptible to swings in the macroeconomy. Like almost every other sector, except movies, Internet advertising fell in 2008 and 2009 amidst the global financial crisis attests.

Fourth, attention online has become more and more concentrated. According to figures cited by Wired, the top 10 websites in the US in 2001 accounted for by 31% of all page views. By 2006, the number had grown to 40 percent. In 2010, the top 10 accounted for roughly three quarters of all page views.

Online advertising is also very concentrated. With revenues of roughly $30 billion in 2010, 97 percent of which come from advertising, Google dominates the global online advertising revenue (e.g. accounting for 44% of the total $66.2 billion in online revenue in 2010).

In other words, while the galaxy of websites, blogs, information sources, uses, etc. continues to grow, Google and Facebook are becoming bigger constellations within the overall Internet universe. Growing concentration is sharpening the struggle between search and social, or between Google and Facebook — at least for the time being.

Google’s attempts to insert itself at the cross-roads of the emerging network media ecology have also upset many interests in the news business, book publishers and authors, as well as those in the television, film and music business. Many of these groups are pushing hard to leverage Google’s dominant position at the cross-roads of search as a major chokepoint for intercepting illicit downloads (see my earlier Rogues, Pirates and Bandits and Goliath vs. Goliath posts).

Cleavages between Google and the traditional media industries also means that its attempt to launch Google TV has met with mixed results. The fact that it has ruffled so many feathers is not unconnected to this.

The significant tensions between Google and other elements of the traditional media also plays into the competition between Google and Facebook.  This point was underscored last week when Time Warner chose Facebook to distribute  the latest Batman sequel, Dark Knight. For $3 a shot, Facebook subscribers can now download Dark Knight from the SNS. Does this mean that Facebook and other SNS will become significant new distribution channel for traditional media?

With its own ambitions for Google TV already having a hard time getting off the ground, Google now faces  the prospect of competing with Facebook for a role in the online television and movie distribution business, alongside AppleTV, Netflix and the incumbent media conglomerates’ own ‘over-the-top’ offerings such as Hulu. Add to this that search is a utility, while social networks function as the electronic watercooler of the digital network media, and we can see why Google is scrambling to make the shift from search to social.

Popular entertainment has always relied heavily on massive marketing and word of mouth, with the latter point being given ‘scientific heft’ by classic studies in communication by Lazarsfeld & Katz in the late-1940s and early-1950s. Today, the links in the two-step flow that they identified in ‘small town America’ have been digitized and commoditized writ large.

As Christian Fuchs, Mark Andrejevic, Elizabeth van Couvering, and a few others show, search and social functions are fundamentally intertwined in the production of the audience commodity and the organization of audience attention. They are also crucial to organizing the vast quantities of user created content (UCC) that underpins the digital media economy.

Together, these functions are crucial to the digital media economy and the sky high market capitalization of entities such as Google and Facebook. However, with social already putting the Internet’s first ‘killer app’ — email — in a downward spin, we can ask: is search (and Google) next? Or, will these two functions themselves converge?

4 Phases of Internet Development: From the Open to the Contested Internet

I’ve just come across what looks like a very interesting article by John Palfrey, a Harvard Law School Professor. You can find the article here.

Here’s the basic gist of the article, in his words:

The four phases of Internet regulation are the “open Internet” period, from the network’s formation through about 2000; “access denied,” through about 2005; “access controlled,” through the present day (2010); and “access contested,” the phase into which we are entering.

The paper draws on a decade of interdisciplinary work conducted by members of the Open Net Initiative, a group that consists of researchers who I have long thought have been doing some of the best work on the topic at the Citizen Lab at the Munk Centre, University of Toronto (Prof. Ron Deibert, principal investigator), the SecDev Group (Rafal Rohozinski), and the Berkman Center (Palfrey and Jonathan Zittrain).

Cassandra’s and Copyright: Creative Destruction and Digital Media Industries

A new study released yesterday on peer-to-peer content sharing and copyright in the United Kingdom, Creative Destruction and Copyright Protection, provides a further challenge to those who claim that strong new measures are needed to make sure that swapping digital content online does not damage the bottom line of the media and entertainment industries. The study was co-authored by London School of Economics and Political Science Professors Bart Cammaerts and Bingchun Meng.

It is a part of several steps being taken in the U.K. that challenge last year’s hastily passed Digital Economy Act. The bill became law after only two hours of debate in the House of Commons and is a real gift to the media and  entertainment industries and the various lobby groups that represent them: e.g. the International Federation of the Phonographic Industry (IFPI), its British counterpart, the British Phonographic Industry Association, the Recording Industry Association of America (RIAA), Motion Picture Association (MPA), and so on.

Among other things, the Act turns Internet Service Providers into agents of the media and entertainment industries. Upon notification, ISPs must send a warning notice to suspected copyright infringers and if that does not work they can be directed by the Secretary of State to disconnect the offending user.

As the IFPI noted in its latest Digital Music Report, it has been pushing for such measures around the world in the past couple of years. Indeed, this push supersedes the emphasis earlier in the decade for DRM (digital rights management technologies).  The IFPI has chalked up several ‘wins’ for this approach in the UK, France, Sweden, South Korea, Taiwan, and a few others (see pp. 25-27).

Two of the biggest ISPs — BT and Talk Talk — in the UK have not taken these requirements lying down. They have launched a legal challenge that will be heard this week by the UK High Court of Justice on the ground that the Digital Economy Act’s requirements amount to overkill.

Cammeart and Meng are clear that P2P technologies should be encouraged rather than discouraged. In contrast, the Digital Economy Act stifles innovation and attempts to shore up faltering traditional business models. The message of this report, in other words, is that governments are not in the ‘business model’ protection racket. However, as I have written in earlier posts, that they are in just such a business is also evident in Canada, where Usage Based Billing is clearly linked with attempts to protect the cable and telephone companies forays into the online video business by hamstringing would-be rivals such as Netflix, Apple TV, even Youtube.

In contrast to the current approach, the authors and various people interviewed for the study suggest a significantly different approach. Thus, as one of the report’s authors, Bart Cammaerts states,

“The music industry and artists should innovate and actively reconnect with their sharing fans rather than treat them as criminals. They should acknowledge that there are also other reasons for its relative decline beyond the sharing of copyright protected content, not least the rising costs of live performances and other leisure services to the detriment of leisure goods. Alternative sources of income generation for artists should be considered instead of actively monitoring the online behaviour of UK citizens.”

Early in the report, they also quote from Ed O’Brian from the band Radiohead, who had the following to say:

“We disagree with the industry on what should be done with the persistent file-sharers. The industry has said we will suspend their internet accounts. But you can’t just do that, it isn’t possible and neither feasible. The kind of technical measures that are required to implement this get you into dodgy areas such as civil liberties, tracker software and the second thing is that it costs a lot of money to do this, and even if you do it, you are going to drive a lot of people underground into darknets. Our problem is how do you differentiate between a serial infringer and someone who does it in the spirit of discovery” (Ed O’Brian from Radiohead on BBC, 22/09/2009).
My only real criticism of this report is that the authors take the IPFI’s data on the drastic decline in sale of recorded music at face value, but attempt to offset it by pointing to changing patterns of music consumption, falling disposable household income and the rise of online digital platforms. Their points are well-taken.
Indeed, income levels in western capitalist democracies, including Canada, have largely stagnated for the past 30 years, while wealth has concentrated at the top. To this, we can also had the decline in ‘liesure time’ over the same period, as the historical tendency for the workday to shorten was reversed, resulting in people spending greater and greater amounts of time at work. It doesn’t take a genius to understand that less time and money erodes media consumption.
Such trends run exactly counter to the massive rise in both income and ‘liesure time’ that gave rise to the media and entertainment industries between 1870 and 1945, as Gerben Bakker exhaustively illustrates in his 2009 book Entertainment Industrialized.
These points are indeed important, but I would add another that I think is even more important: namely, that taking into account all sources of income, the music industry has not contracted, but expanded greatly since the late-1990s, precisely alongside the massive popularization of the Internet. In order to understand that, we need to focus not just on the sale of ‘recorded music’ and ‘online revenues’, but also publishing royalties and, crucially, live entertainment. When we do that, as I showed in another post last week, the music industries have expanded greatly.
Here’s the data showing, first, the drastic decline in the sale of recorded music, followed by the full picture:
Figure 1: Worldwide ‘Recorded Music Industry’ Revenues, 1998 – 2010 (US$ Mill.)


Source: Source: PWC (2010; 2009; 2003), Global Entertainment and Media Outlook

Clearly, just on the basis of recorded music sales, the music industry is in dire shape indeed. However, things look decidedly different once we take a look at the full picture, as the following figure does.

Figure 2: Worldwide ‘Total Music Industry’ Revenues, 1998 – 2010 (US$ Mill.)


Sources: PWC (2010; 2009; 2003), Global Entertainment and Media Outlook and IDATE (2009). DigiWorld Yearbook.

The top line shows the picture: a sharp increase in total revenues. Against declining revenues for recorded music, each of the other segments has risen considerably: Internet/mobile; publishing and concerts. Cammaerts and Meng do an excellent job showing the rise of digital revene

CRTC Approves More Media Consolidation: BCE’s Acquisition of CTV / CHUM (again)

This is a first take on today’s decision by the CRTC to approve BCE’s return to the broadcasting business (full decision here).  For those with what constitutes an elephantine memory in these fast and harried times, BCE had taken CTV over once before, in 2000 and failed. It left the television business six years later.  Today, it returned with the CRTC’s blessing and typical sop thrown to the Canadian ‘broadcasting system’, albeit at perhaps an even more meagre and self-serving level than usual.

The decision allows Bell Canada Enterprises a second run at making vertical integration and so-called synergies work between its telephone, satellite and ISP (i.e. network infrastructure) businesses and the largest media group in the country, with its CTV and A-channel networks, 31 satellite and cable television channels, 28 local television stations and 33 radio stations.  The only things really different than 10 years ago is that BCE has dramatically scaled back its ownership stake in the Globe & Mail (the Thomson family holds the rest) and sprawling media conglomerates have, by and large, gone out of fashion since the turn-of-the 21st century.

Another important thing that should catch our eye is that the value of CTV is now less than it was a decade ago, not because the tv business has shrunk — overall it has expanded from a $5 billion industry to one worth $7 billion (adjusted for inflation) — but because the first six year’s of BCE’s tenure were pitifully poor. CTV was worth less than half its original value when BCE left in 2006.  Today, and after all the growth in the industry plus the acquisition of CHUM, the combined value is about the same as CTV was ten years ago: $2.45 billion.

That number is important because it’s the one that the CRTC uses to peg the value of the contributions that BCE will have to pay into the ‘broadcast system’ in order to gain the CRTC’s blessing. At ten percent, BCE’s contribution is $245 million.  Even worse, $65 million of that amount will go to directly into the pockets of Bell TV, BCE’s direct-to-home satellite provider.

The rest is for the usual content, news, drama, culture, music, etc. etc. funding — the ‘cultural industries’ sop that the CRTC requires and that company’s on the prowl exploit to line up support for their take-overs from media workers, directors of Journalism and Communication schools across the country, and so forth. The result is greater media concentration blessed by the state with a few crumbs off the table for others with a stake in the game.

Others, with broader interests can go packing.   The CRTC fudges the language to conceal the fact that while vertical integration and media conglomerates are on the wane elsewhere, they’re on a tear here in Canada, despite the regulator’s supposed new rules limiting media concentration set into place in 2008.

Elsewhere, the crash in the value of the turn-of-the-21st century star of collosal-sized media conglomerates, Time Warner, wiped out nearly a quarter of a trillion in market capitalization, falling from an estimated worth of $350 billion in 2000 to $78 billion in 2009. AT&T also went belly-up in its aggressive move from the wires into all things media, only to be resurrected in 2005 when the moribund company was bought out by SBC. Vivendi Universal in France is another poster child of media conglomeration gone bad.  Others examples are as easy to pile up as leaves in autumn.

But here in Canada, in a manner akin to what takes place in oligarchic capitalist societies — think Russia and South America — giant media enterprises are again on the rise. Today’s blessing of BCE’s acquisition of CTV/CHUM (A-Channel) follows last October’s approval of Shaw’s take-over of the financial wreckage that was Canwest television, and at fire-sale prices to boot!

Of course, the trend is not all in one direction. Indeed, swimming against the tide, in the U.S., Comcast’s, that country’s largest cable provider, acquisition of NBC – Universal was approved by the Dept. of Justice and FCC (but also see Commissioner Michael Copp’s scathign dissent). Besides being exceptions to the rule, it is interesting to compare the US decision approving Comcast’s take-over of NBC with the CRTC’s decision to sanction BCE’s acquisition of CTV/CHUM.

In the US, the Dept. of Justice and FCC put fairly tough demands on Comcast to make its television and film content available to Internet competitors and ‘online video providers’ (OVPs), to adhere to open Internet requirements and to “offer broadband services to low-income Americans at reduced monthly prices; and provide high-speed broadband to schools, libraries and underserved communities, among other benefits” (FCC Press Release).

The CRTC, in contrast, will look at issues of vertical integration in a future set of hearings that it intends to hold on the issue in June.  Any of the other issues are not even on the table, or at least so it appears.

Well, another sad day in Canada. A great opportunity to articulate vision and to implement ideas and practices that could build one of the most open media systems in the world.  Instead, at the CRTC and in Canada’s media industries, it’s business as usual.

The Search for ‘New Media Models’

Here’s an interesting link to a talk given by Alan Rusbridger, the editor of the Guardian in the UK.  It offers a glimpse of how he, and the Guardian, see the emerging media environment. The tone that he strikes is interesting insofar as it is not one saturated with the ‘journalism in crisis’ trope, but rather the opportunities that exist as established models are forced to adapt to fast paced and relentless changes.

Rusbridger demonstrates an openness and understanding of media trends that appears well ahead of his counterparts in NA media.  He also fleshes out some of the potentials of a ‘collaborative model’ of journalism between the traditional media and new developments in social media, from WikiLeaks to Twitter. In this regard, he points to how the Guardian now casts itself not just as a newspaper publisher, but also a platform for OPC (other people’s content).

Finally, Rusbridger offer his thoughts on the way ahead not by throwing history and serious thinkers from the past overboard, but by embracing them. He discusses the continued threats of media concentration, highlights the undeniable dependence of most media on some form of subsidy, whether advertising, allocations for public broadcasters, wealthy patrons, etc. by drawing on Walter Lippmann’s 1922 classic, Public Opinion and waxes about the relationship between Raymond William’s observations from 1958 on communication and culture and conditions today.

In other words, media ownership and concentration, how stuff is paid for, and the relation of each to bigger questions about the kind of societies and cultures we currently live in, and those that we might imagine, are all given a serious nod.

Goldberg / Incumbent Report: Canadian telecoms — laggard or leader

This report by Canadian telecom economist and analyst, Mark Goldberg, takes aim at the growing perception that Canada has become a laggard in telecoms, internet and digital media policy generally.

I’m not sure exactly when it was written because it does not say.  While not buried altogether, the study, inconspicuously, acknowledges in footnote 2 that it is sponsored by several of the largest cable and telecoms giants in Canada: Bell, Rogers, Shaw, Telus, Cogeco and SaskTel. The source of funding behind the study is not suppose to be a big deal. Instead, the aim of the report, it states, is to ‘set the record’ straight.

For a study that takes a holier than thou attitude towards facts, this one is remiss in not even stating when it was commissioned and/or published.  The data is mostly vintage 2007 – 2009, but it is clear that it is intended to inform the heated debates now taking place in Canada. Mostly, it aims to replace the idea that rather than being a laggard, the telecoms and Internet industries in Canada, even if not a leader in anything, are not too bad either.  Its wishy-washy conclusions are meant to soften the case against Canada’s incumbent network providers for lacking in innovation, throttling the Internet, and dominating concentrated media markets.

None of these charges, it claims, are true.  But this is because, instead of dealing with actually existing markets and the real levels of competition/concentration in them, the Goldberg/Incumbent study invokes something called ‘intermodal competition.  This concept is fashionable amongst a minority of incumbent defenders and some economists.  This is not, however, competition between real players in really existing markets — i.e. the sponsors of this study — and their real share of these markets.  Instead, it refers to potential competition between different media technologies: cable, DSL/Telco lines, wireless, satellite. I have recently offered an overview of what things look like when we take actual market share into account (see here).  The conclusions are far different than the ones presented inthe Goldberg/Incumbent study.

Besides overlooking evidence on really existing markets, the study conveniently overlooks two other essential facts.  First, that the incumbent telco and cable companies’ serve 95% of the market.  Satellite and wireless technologies do account for some of the rest, but these technologies are not competitors to the incumbents, but adjuncts to, ahem, the operations of this study’s sponsors: Bell, Shaw, Rogers, Telus, Cogeco, SaskTel. Players in so-called MMDS wireless broadband Internet, notably Look, went belly-up a few years ago, although this too is ignored in this study. Thus, while most economists and regulators have thrown the ‘intermodal rivalry’ model overboard in the past few years, this study gives it pride of place.

The Goldberg/Incumbent study shadow-boxes with a 2010 study by Harvard U’s Yochai Benkler all the way through.  However, nowhere in the study is the Benkler Report mentioned or cited.  Here’s a link to that study.  It is far more comprehensive than this one, a product of an initial release in 2009, months of critique and revision before republication in 2010.  Unlike the Goldberg/Incumbent Report, the Benkler study is done by independent academics and is not sponsored by vested interests.

In contrast to the breadth of the sources cited by Benkler — OECD, ITU, Globcomm, Oxford University — Oveido University, etc. — across a much more comprehensive set of measures, the Goldberg/Incumbent study takes aim at OECD data, cherry-picks evidence from Stats Canada, the CRTC, Ofcom, FCC, etc. and relies on sources that are generally supportive of its position. Such supportive studies are well represented in those cited from, for example, authors affiliated with the Progress and Freedom Foundation as well as the Information Technology and Innovation Foundation in the U.S.

The Goldberg/Incumbent study relies heavily on a study by Scott Wallsten of Stanford U in the US.  It was originally done in 2008.  If scholarly citations are any measure of success, it’s 8 citations (according to Google) pale alongside the attention drawn by the Benkler Next Generation Connectivity report.  Throughout the Goldberg/Incumbent study, minor sources are put alongside more credible sources, as if putting them side by side makes them equal.

Wallsten does have an axe to grind. He is, among other things, a senior fellow at the Progress and Freedom Foundation, a libertarian think-tank that always lines up four-square behind ‘free markets’ and new technology every time, and is of the school that there was never a monopoly worse than State intervention. Wallsten’s study appears alongside references to others from the Information Technology and Innovation Foundation (ITIF), another group highly deferential to incumbent telecom and cable interests in the US, and deeply suspicious of government intervention.

The Wallsten paper as well as one presented by Robert Atkinson of the ITIF last year at the highly-regarded Telecommunications Policy Research Conference at George Mason U Law School (Arlington, Va) last year represent the stance of writers who are unavowedly in favour of incumbent driven broadband telecom and Internet development. It is also from such authors that the ‘intermodal competition’ concept versus real competition in the marketplace is borrowed.  The basic thrust of these authors, and of the Goldberg/Incumbent Report, is that, given enough leeway to do as they please, the dominant providers will invest sufficiently in networks for everybody who seeks it and at sufficient levels to meet consumer demand.

The lack of access in Canada, to the extent that it is a problem at all, is a ‘demand’ side problem, rather than a supply side one. Canadian prices are relatively affordable.  As the Goldberg/Incumbent study states, comparisons between advertised specials in Canada and the OECD reference study that it takes aim at shows that the OECD’s data is flawed.  It overstates the cost of high-speed Internet service in Canada, while under-stating the bandwidth, speed and other capabilities of Internet connectivity in Canada.

The problem with this conclusion is, first, taking the OECD data as the main referent points selectively picks from one study among the wide range of studies available.  Second, taking ‘best advertised prices’ for Internet services currently available on ‘the market’ is silly.  This is because such ‘specials’ come and go; they also expire after the promo period, followed by lock-in periods, and penalties for early withdrawal.  All of these things, as Timothy Wu pointed out nicely in a recent Globe & Mail article, basically extend the same loathed practices of the cellphone carriers (who, again, are one and the same as those sponsoring this study) to the Internet.

This is to say nothing of acceptable user policies that contain more limits on what people can and cannot do with their connectivity than could be admitted in the most draconian of states with even a hint of pretense that people’s freedom of expression and privacy rights deserve respect. Far beyond bandwidth caps and so-called over-usage charges lay the assertion by carriers of broad editorial authority over users content, ownership of user-created content, limits on the ability to attach certain devices (servers) or run certain applications (news feed, multi-user processes, etc.), the right to use deep packet inspection technologies to manage communication flows, and so on and so forth.

In the Goldberg/Incumbent report, these concerns are dealt with and dismissed in chapter five, which covers issues of network neutrality, government intervention and the potential for government ownership of broadband Internet providers. Network neutrality is, states the report, a kind of propagandistic, populist ploy — i.e. who can be against something that is ‘neutral’ — and the CRTC is praised for being wise enough to have rejected the terminology in favour of the, ahem, really neutral language of “Internet Traffic Management Practices” when these issues came to a head in 2008-9.  Vertical integration, economies of scale and scope, and the leeway to devise whatever ‘business models’ they desire are the keys to success, according to the report.

A less beholden report might point to Jacques Ellul and a different kind of propaganda: one that puts you to sleep by obscure language and a mountain of technical detail that makes your eyes glaze over and your brain go to sleep.  That is the language of the CRTC, this report, and those who want to junk not just the language of Network Neutrality, but the principles and values that it stands for.  Funny thing is, I don’t much like the concept of ‘network neutrality’, either.  This is because I prefer common carriage and the history of that concept, largely because it reminds us that common carriage was the status quo for most of the 20th century and was sp because it is generally a bad idea to let those who control the medium to control the messages flowing through it.

The Goldberg/Incumbent report is right that economies of the scale are propelling a certain sense of scale, or bigness, and that this can sometimes be good for investment.  However, while digitization magnifies economies of scale for certain things, claims regarding economies of scope as justification for the creation of fully integrated media conglomerates are mistaken.  Moreover, even if bigness was the result, that might be reason to step in to turn back the tide.

All of the major incumbent telecom and cable companies now systematically regulate the contents flowing through their pipes. The question is whether this is only for some ‘peak’ hours of the day (Bell) or all day long (Rogers)? Bell’s abysmal experience with so-called convergence between 2000 and 2006 should give us little comfort in its ability to run CTV today. The fact that bandwidth caps and UBB tilt the playing field against Netflix, Apple TV and amateur video (YouTube) alike just at the time the companies are ramping up the presence of their on online video services is indication enough that the marriage between the medium and the message gives an inherent bias to the incumbent’s to discriminate in favour of their own services and against those of others.

While this is the case for Bell, Rogers, Shaw, Videotron and Cogeco, for example, the examples of Telus, SaskTel, MTS, Bragg Cable, etc. shows, and indeed others around the world, that there is no reason for those who own the pipes to also own television programs, music, films and other ‘content’.  AT&T in the US and Vivendi in France showed the folly of this earlier this decade and in the late-1990s. Most of the US major telecom players no longer are tightly aligned with Hollywood, as they were in the mid-1990s, and haven’t been in the last 10 years.

Lastly, the Goldberg/Incumbent report claims to not be for anything one way or another when it comes to government intervention, but the thinness of that claim is readily transparent.  There is a sense of urgency underpinning the report regarding what it seems to see as darkening political clouds on the horizon.  It applauds the Government’s willingness to intervene to set back CRTC decisions that run opposite the incumbents (e.g. Globalive), but elsewhere cautions that the slightest of intervention in Canada’s telecom and Internet markets will deter investment, respond to problems that don’t really exist, and worse.

Chapter five in the Goldberg/Incumbent report seems to see the potential for extensive government intervention along the lines adopted in Australia, Korea, Japan, Sweden, Britain, NZ, and a whole lot of other places as a possible doomsday scenario if it ever took hold in Canada. Australia’s decision in 2009 to develop the National Broadband Network Company to bring ‘next generation networks’ to nearly 95% of Australian homes is seen as being born of conditions so different than those in Canada that it is not even worth discussing anything similar in Canada.

At separate places in the report, the Australian venture is stated as involving an investment of either $31 billion or $43 billion. The original announced amount was the latter. Either way, the amount is indeed significant — the biggest public works project in Australian history, actually. However, for a report that is holier than thou about numbers, small errors when it comes to basic figures raise questions about the analysis in the report as a whole.

While the Goldberg/Incumbent report tries to place Canada along side the US in terms of approaches to ‘stimulus spending’ on broadband Internet development, the current government’s pledge of $225 million over the next few years to bring broadband Internet development to rural communities pales alongside the US’s plan to spend $7.2 billion on such initiatives, or Korea’s $24.6 billion or Australia’s $43 billion.

If it is Canada’s low population density and sprawling landmass that is responsible for any lags in Canada’s network development, as this report so often claims, than we would expect that investments to overcome these obstacles might be higher by international standards, not lower. The fact that Britain, a country with twice the population but a fraction of the landmass, is spending $830 million, or more than 3 times Canada, suggests that the link drawn between population density and the cost of network development is overblown in the Goldberg/Incumbent report. In fact, this attempt to shift the debate onto the terrain of geography and demographics is a red-herring. This is because a huge proportion of us live in relatively small number of large metropolitan cities (Toronto, Vancouver, Montreal) and then along a thin band running parallel to the border.

Overall, the Goldberg/Incumbent report diverts attention from many of the key issues and suggests that, all things considered, we’ve got it pretty good in Canada. Competition between technologies is substituted for real competition in the market place. Weak data sources are made the equivalent of good ones. The time and source of this study itself are either missing or buried in a footnote.

Overall, the Goldberg/Incumbent Report is part of the oncoming onslaught to hold back the ‘populist’ and political tide that has once again risen to the fore and demanded a more open, competitive and free media system. The report applauds the Government for holding back that wave so far and avoiding the populist path (see page. 55). That says much about its own political stripes, despite its attempts to cloak those stripes behind a veil of neutered facts and sterile language.  We will see many more of these kinds of initiatives in the upcoming days, weeks and months ahead.

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