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Posts Tagged ‘Network Media Industries’

Media and Internet Concentration in Canada, 1984 – 2010

Last time we spoke, I said that over the next few posts I would be unravelling a mass of data that I’ve been assembling on the telecom-media-Internet (TMI) industries in Canada. The data has just been updated for 2010 with yeoman’s help from Adam Webb and now I’m putting it to use.

Last week I did so in a bid to illustrate the growth of the network media industries over time, paying attention to where this was greatest, which sectors have stagnated, and those that have declined. The purpose of this post is to address the question of whether the telecom-media-Internet (TMI) industries in Canada have grown more concentrated between 1984 and 2010, or less?

Of course, you are no doubt asking, why bother?

Repeating what I said last time, the most important reason to do this is because, as Prof. Philip Savage (2008) argues, “the media ownership debate occurs in a vacuum, lacking evidence to ground arguments or potential policy creation either way” (p. 295). I agree. One aim of my work here and as part of the International Media Concentration Research (IMCR) project is to help fill that gap.

I did a similar post on this topic last year, and now my aim is to annually update the account while broadening and improving the quality of the coverage along the way.

So why is there this void to begin with? I blame the lack of a systematic body of empirical data for the TMI industries mainly on three things:

(1) the issues at stake are highly politicized,

(2) gathering data on these industries is not easy and

(3) the CRTC’s minimalist approach to disclosing information.

Besides just trying to fix things, I think that assembling reams of data and peering deeply into it offers amazing insights into how all of the bits and parts and moving pieces of the TMI industries fit together, evolve, mutate, grow and become more differentiated and complex over time. I can think of few better ways to obtain detailed knowledge of our ‘subjects/objects of analysis’ than by pouring through data covering a span of roughly a dozen TMI sectors over more than a quarter-of-a-century.

Too often ideology and wishful thinking carry the day when it comes to issues of media ownership and concentration. There is no particular school or perspective that has a lock on this either, and when we look out across the writing on the topic, it is useful to look at four different ‘schools of thought’.

Some critics see media concentration as constantly going from bad to worse, robbing us of “democracy’s oxygen” or creating “Canada’s most dangerous media company”, as the subtitle to another book stats (Winter, 1997; Edge, 2007). Yet, such accounts work rather fast and loose with the evidence, in my opinion, and I’m not sure it’s the scholar’s task to revile or revere media companies without first having a really good handle on the issues involved.

A second group tries to tries to hug the middle ground, head-to-the-grindstone measuring how changes in media ownership affect media content. Their conclusion? Not much, and that the evidence is mostly “mixed and inconclusive” — as if “impact on content” is the main issue at stake or the absence of change might not be a significant problem in its own right (Gitlin, 1978)?

A third school group sees concern with media concentration as ridiculous. Millions of web pages, thousands of news sources, social networking sites galore, pro-am journalism, user-created content and a cacophony of blogs at our finger tips, 700 television channels licensed by the CRTC, and 94 newspapers supposedly publishing everyday. Smartphones in every pocket.

How could anyone believe that the media are still concentrated amidst all this choice? MIT media economics professor, Ben Compaine (2005), has a terse one-word retort for anyone who still sees a problem here: Internet.

Many journalists in Canada seem to have an innate affinity with this view, regularly invoking “ferocious competition”, “a crowded marketplace” and the “marketplace of ideas”, as I saw three times in just the last week, in reference to the state of television, online music, and professional journalism in Canada. But devoid of any data, I get the feeling that these are not so much meant to accurately describe the world, but rather to be taken as articles of faith and to assure us that the machinery of capitalism and democracy is in good working order.

Despite an absence of data, journalists are in good company with Compaine, who argues that while the democracy of the marketplace of ideas might be flawed, it’s getting better, not worse. The best exemplar of this work in Canada is probably that of economist and iconoclastic consultant to the commercial media players, Kenneth Goldstein (see MeasuringMedia).

Hard as it might be for some to fathom, however, there is a fourth school of thought that says that digital media and Internet are no more immune to consolidation than any other media in the past. For all those who guffaw at charges of media concentration, it is easy to point, for example, to the fact that only about a third of the 94 daily newspapers said to exist are actually still publishing original content on a daily basis. Of the 700 television channels listed in the CRTC’s books, less than 200 are up and running and more than half of them belong to just four companies — Bell (28), Shaw (52), Rogers (17) and QMI (13). Their share of the market, as we will see, is higher yet.

In The Master Switch, Tim Wu argues that there are strong and the recurring tendencies toward consolidation in the media industries, and that there is no reason to believe that core aspects of the Internet, say search engines (Google), Internet access (ISPs), online music (Apple), social media (Facebook), devices (Apple, Google, Nokia, RIM, Sony Ericsson), are any less susceptible to the pressures of consolidation than their predecessors.

Eli Noam (2009) similarly sees digitization as a double-edged sword: economies of scale are magnified as the costs of information production, transmission, storage and display fall. This furthers concentration within some markets. However, it also reduces barriers to entry, allowing some new competitors to emerge, too.

A two-tiered digital media system is taking shape as a consequence, Noam states, in which many specialist firms revolve around a few “large integrator firms”. This applies as much to “traditional” media conglomerates (e.g. Disney, News Corp., Time Warner) as it does to digital media giants (e.g. Apple, Google, Facebook, RIM, etc.) (pp. 33-39). Technology is important in this equation, but where capital is invested is king.

Andrew Odlyzko of the Digital Technology Centre, University of Minnesota, observes that all of these issues involve a centuries-old “conflict . . . between society’s drives for economic efficiency and for fairness” that “has never been resolved completely”. Policy issues like network neutrality will never go away until basic political choices like these are dealt with.

“Should something like net neutrality prevail, the conflict would likely move to a different level. That level might become search neutrality . . . .”, Odlyzko says (p. 3). Cloud neutrality might be next and so on and so forth.

Does this mean that a massive trust-busting effort on the digital media frontier is in order? Umm, maybe, but not so fast. More importantly, it means that we should pay close attention to assembling evidence and interpreting what it means. It also tells us that the answers to these issues will not turn on data alone, but politics.

Indeed, talk about media concentration is often code for a much bigger discussion of political philosophy and democracy, and it is on such matters that outcomes here will ultimately turn (Baker, 2006; Peters, 2004; McChesney, 2008; Curran & Seaton, 2010). No wonder things are so complicated and hotly contested.

On Method

To answer the question at hand, I began by defining the range of media to be studied as follows: wired & wireless telecoms; broadcast tv; pay & subscription tv; cable, satellite & IPTV distributors; newspapers; magazines; radio; Internet access; Search Engines; Social Network Sites; and Smartphone Operating Systems. I then collected data for each of these sectors over a twenty-six period, 1984 – 2010, again with yeoman’s help for the 2010 data from Adam Webb.

Data for each ownership group/firm in each sector was then assembled. I then group each of the sectors into three categories, assess the concentration level in each category, and then scaffold upward from there to a portrait of the network media industries as a whole: (1) network infrastructure; (2) content: (3) online media.

I typically drop wired and wireless telecoms from the whole of what I call the network media industries because the size of these sectors means that they tend to overshadow everything else. As you might imagine, keeping track of twenty-six years of data for 13 different segments, three categories, and one composite picture of the network media as a whole is not easy, and sometimes it all feels a bit like herding cats. Suggestions and constructive criticisms are always welcome.

Lastly, I use two common tools — Concentration Ratios (CR) as well as the Herfindhahl – Hirschman Index (HHI) – to depict levels of competition and concentration over time. The CR method adds the shares of each firm in a market and makes judgements based on widely accepted standards, with four firms (CR4) having more than 50 percent market share and 8 firms (CR8) more than 75 percent considered to be indicators of highly levels of concentration.

The HHI method squares and sums the market share of each firm to arrive at a total. If there are 100 firms each with a 1% market share, markets are highly competitive, while a monopoly prevails when one firm has 100% market share. The following thresholds are commonly used as guides:

HHI < 1000                                     Un-concentrated

HHI > 1000 but < 1,800             Moderately Concentrated

HHI > 1,800                                    Highly Concentrated

For those do-it-yourselfers, here’s a handy list of resources that you might find helpful so that you can gather and assemble your own information.

The Historical Record and Renewed Interest in Media Concentration in the 21st Century

Now of course, there’s no analysis without out a wee bit of historical context, as I always like to say. There has always been, even if episodically, keen interest in media ownership and concentration in Canada and the world since the late-19th and early-20th centuries.

In 1910, for example, the Board of Railway Commissioners (BRC) broke up the three-way alliance between the two biggest telegraph companies — Canadian Pacific Telegraph Co. and the Great Northwestern Telegraph Co. (the latter an arm of the New York-based goliath, Western Union) – and the American-based Associated Press news wire service. Why?

The BRC did this because, it argued in the face of much corporate bluster, letting the telegraph companies give away the AP news service for free to the top newspaper in cities across Canada in order to bolster their hold on the lucrative telegraph business would “put out of business every news-gathering agency that dared to enter the field of competition with them” (1910, p. 275).

In a conscious bid to use telecoms regulation to foster competition amongst newspapers, and to free up the flow of news on the wires, the BRC effectively dismantled the alliance. For upstarts such as Winnipeg-based Western Associated Press – which had initiated the case – it was a significant victory (Babe, 1990).

Media concentration issues arose episodically thereafter and came to a head again in the 1970s and beginning of the 1980s, when three inquiries were held: (1) the Special Senate Committee on Mass Media, The Uncertain Mirror (2 vols.)(Canada, 1970); (2) the Royal Commission on Corporate Concentration; and (3) the Royal Commission on Newspapers (Canada, 1981).

Things lay dormant for more than two decades, but sprung to life after a huge wave of consolidation in the late-1990s and turn-of-the-21st century thrust concern with media concentration back into the spotlight. Three inquiries were held between 2003 and 2007: (1) the Standing Committee on Canadian Heritage, Our Cultural Sovereignty (2003); (2) the Standing Senate Committee on Transport and Communications, Final Report on the Canadian News Media (2006);[i] as well as (3) the Canadian Radio-Television and Telecommunications Commission’s Diversity of Voices inquiry in 2008.

Structural Transformation: Two (three?) Waves of Consolidation and the Rise of TMI Conglomerates

The media economy in Canada grew immensely from $19.7 billion in 1984 to $56.1 billion in 2000 and to $68.7 billion in 2010 (‘real dollars’), as I noted last post. Between 1984 and 1996, new players meant more diversity in all sectors, except for newspapers as well as cable and satellite video distribution, where concentration climbed significantly.

Conventional as well as pay and subscription television channels were already expanding. In terms of ownership, incumbents and a few newcomers – e.g. Allarcom and Netstar –cultivated the field, their share of the market growing steadily in tandem with the number of services available, with minor shuffles along the way.

Concentration levels remained very high in wired line telecoms in the 1980s and early 1990s, too. Wireless was developed by two companies, Bell and Rogers. As had been the case in many countries, telecoms competition moved slowly from the ends of the network into services and then network infrastructure, with real competition emerging in the late-1990s before the trend was reversed and concentration levels again began to climb.

In the 1980s and early-1990s, consolidation took place mostly among players in single sectors. Conrad Black’s take-over of the Southam newspaper chain in 1996 symbolized the times. In broadcast television, amalgamation amongst local ownership groups created the large national companies that came to single-handedly own the leading commercial television networks – CTV, Global, TVA, CHUM, TQS – by the end of the 1990s.

While weighty in their own right, these amalgamations did not have a big impact across the media as a whole. There was still significant diversity within sectors and across the TMI sectors. The CBC remained prominent, but public television was being eclipsed by commercial television as the CBC’s share of all resources in the television ‘system’ slid from 46 percent in 1984 to half that amount by 2000 and about 18 percent today.

Gradual change defined the 1980s and early-1990s. Things shifted dramatically by the mid-1990s, however, as two (and maybe three) waves of consolidation swept across the TMI industries. A few highlights will help to illustrate the trend:

Wave 1 – 1994 to 2000: Rogers acquisition of Maclean-Hunter (1994). Peaks from 1998 to 2001: (1) BCE acquires CTV and the Globe & Mail ($2.3b); (2) Quebecor takes over Videotron, TVA and the Sun newspaper chain ($ 7.4b) (1997-2000); (3) Canwest buys Global TV ($800m) and Hollinger newspapers papers, including National Post ($3.2b).

Wave 2 – 2006-2007.  Bell Globe Media re-branded CTVglobemedia, as BCE exits media business. CTVglobemedia acquires CHUM assets (Much Music, City TV channels and A-Channel).  CRTC requires CTVglobemedia to sell City TV stations – acquired by Rogers (2007). Astral Media’s buys Standard Broadcasting. Quebecor acquires Osprey Media (mid-size newspaper chain)(2006). Canwest, with Goldman Sachs, buys Alliance Atlantis (2007) (Showcase, National Geographic, HGTV, BBC Canada, etc) – and biggest film distributor in Canada.

Wave 3 – 2010? Canwest bankrupt. Newspapers acquired by Post Media Group, TV assets by Shaw.  BCE makes a comeback, buys CTV.

The massive influx of capital investment drove consolidation across the telecom, media and Internet industries during these periods is illustrated in the Figure below.

Figure: Mergers and Acquisitions in Media and Telecoms, 1984 – 2010 (Millions$)

Sources: Thomson Financial, 2009; FPInformart, 2010; Bloomberg Professional.

We can see a clear trend towards increased investment in mergers and acquisitions beginning in 1994, mounting steadily to unheard of levels by 2000, a fall after the collapse of the TMT bubble, and significant rise again between 2003 and 2007, before falling off sharply after the onset of the Global Financial Crisis (2007ff).  The patterns closely parallel those in the US and globally.

Whether Shaw’s and Bell’s (and Post Media’s) acquisitions at the end of the decade constitutes yet a third wave, or just tidying up the wreckage of Canwest, it is still too early to tell.

Consolidation has yielded a fundamentally new type of media company: the media conglomerate. Extremely popular in the late-1990s everywhere, many media congloms have since collapsed or been dismantled in other countries (AOL Time Warner, AT&T, Vivendi, etc.).

In Canada, they are still all the range, where four such behemoths and a half-dozen other large but more specialized companies part their size, that now make-up the core ‘big 10’ companies in the network media economy: Bell (CTV), Shaw (Global), Rogers (CityTV), QMI (TVA), CBC, Post Media, Cogeco, Astral, Telus and Torstar. A detailed chart of each by ownership, capitalization, revenues, and sectors operated in is available here.

Looking at media concentration from the vantage point of the ‘big ten”, the media have become more concentrated than ever. Their share of all revenues (excluding telecoms services) between 2000 and 2010 hovered steadily around 71-75% — a substantial rise from 63% in 1996, and an increase further still from 56% in 1992. The levels are more than twice as high as those in the U.S., based on Noam’s analysis in Media Ownership and Concentration in America (2009).

Breaking the picture down into the following three categories and applying the CR and HHI tools provides an even better view of long-term trends:

  • ‘network infrastructure’ (wired and wireless telecom services, ISPs, cable, satellite and other OVDs);
  • ‘content’ (newspapers, tv, magazines, radio)
  • ‘online media’ (search, social, operating systems).

At the end, I combine these again in slightly different form to complete the analysis of the network media industries as whole.

Cont’d on Page 2 . . . . . . . .

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Telecom-Media-Internet Politics in Canada: Evidence, Theory & Ideology

We are at a fundamental turning point, a constitutive moment when decisions taken now will set the course of developments across the telecom-media-Internet ecology for years, maybe decades, to come. We’ve just finished one set of hearings, and two more are on the immediate horizon: the CRTC’s hearings on Usage-Based Billing that begin Monday, July 11 and its upcoming so-called ‘fact finding’ hearings on Over-the-Top/new media.

In an interesting and helpful post today, Peter Nowak argued for 7 fundamental guiding rules for telecom issues in Canada, by which he meant the full gamut of issues right across the TMI (telecom-media-internet) spectrum. They are very useful guides and starting points for discussion, and easy to remember to boot. They are:

  1. Ditch Usage-Based Billing
  2. Don’t regulate new media/over-the-top (OTT) services (e.g. Netflix)
  3. Strengthen Net Neutrality
  4. Turf Foreign Ownership Restrictions
  5. Spectrum Set Aside for New Players
  6. Don’t Regulate Cross-media market power (aka vertical integration)
  7. Plan ahead for ‘shared networks’.

I find these very useful starting points; perhaps because I agree with most of them wholeheartedly (1, 2, 3, 5). Others I’d endorse with some caveats (4). Some I would expand on greatly (7). Others I would reject completely because they lack any basis in evidence, history or theory (6).

In terms of foreign ownership, Nowak proposes to drop all of the current limits on ownership of telecoms industries in Canada. He suggests that doing this will increase ‘real competition’ in the market by adding new players. This is not an uncommon position and in my view, its goal of increasing competition is basically a good one. Michael Geist and Mark Goldberg, each in their own way, make much the same point.

There are at least three or four problems, some of which I’ve outlined in another recent post, however, with this notion of dropping foreign ownership, although I am, to repeat, not against the idea in principle. First, there’s a good chance that we could drop the rules and nobody would come. These times are not those of the high-tide of foreign investment, in case anybody has been sleeping under a rock for the past few years.

Second, even if new investment does occur, this doesn’t necessarily mean that new competitors will enter the market. It’s more likely that they’ll just take over one of the incumbents, thereby switching the ‘title’ to the underlying telecom property but not doing anything at all to increase the market, unless the new owners turn out to be better than the current ones.

This is exactly the point made by a recent report by the C.D. Howe Institute. Despite its exuberant support of the idea that all foreign ownership rules across the telecoms-media-Internet board should be dropped, the Howe report was forthright that this would probably not result in more competitors. Instead it would lead to something much woolier: “performance gains” (p. 3).

Good luck assessing that, I’d say. Like “beauty”, performance would mostly be subjective and in the eyes of the beholder. Besides, with all of the existing telecom and broadcast players clamouring for less information disclosure, less regulatory oversight and less transparency, as they did one after another during the vertical integration hearings, how could we possibly know whether this nebulous objective was achieved?

Third, Nowak’s piece is couched in the idea of being a “pragmatic” set of proposals, rather than one that dogmatically sticks to what he sees as the right or left of the political spectrum. Thus unlike the Howe Report’s suggestion to drop foreign ownership rules across the board, he argues that if an integrated telecom-media player wanted to sell to foreign investors, say a US telco like AT&T or Verizon or, just as likely, a private equity group, then Bell Media, for example, would have to sell off its television interests, e.g. CTV (and 28 specialty channels, 28 local television stations and 33 radio stations, although he doesn’t spell that out).

Quebecor would have to do the same with respect to TVA, for example, and its extensive holdings of newspapers and magazines. Rogers would do the same with CityTV, 17 specialty channels and stable of magazines, while Shaw would have to part with its assets in television (Global) and specialty channels (Corus). Fat chance that’ll happen, I’d say.

Moreover, because there is a much broader range of media involved than just telecoms and television due to the fact that the ‘big four’ vertically-integrated media companies (VIMCos) (Bell, Rogers, Shaw, Quebecor) also all have, in different combinations, extensive holdings in radio, newspapers and magazines, it’s not going to be so easy to simply hive of telecoms from television. Indeed, with newspapers and magazines swaddled in their own bundle of tax and investment incentives designed to shore up Canadian ownership, unravelling this stuff will be messy and complicated.

To my mind, this part of the proposal not might have been as fully thought through as it could have been. The C.D. Howe Institute report at least has the virtue of purity and clarity: drop the barriers on everything, telecom, broadcasting, media in general.

Fourth, a very significant problem and one that strikes deeply at whether we want to further allow our culture to be ‘securitized’ and ‘militarized’, US telecom-media-Internet companies and investment capital comes with a lot of national security baggage, particularly so in the telecoms-media-Internet space. Their operations are subject to the Patriot Act and US telecom providers and ISPs have shown a propensity to cooperate with national security agencies in a very murky zone outside the rule of law and without cover of authorized warrants in ways that subsequent courts have found illegal (here, here, here and here).

Microsoft’s acknowledgement in Britain this past week that all U.S. companies like it, whether they admit it or not, are subject to the Patriot Act, was the first real candid acknowledgement of the extra-territorial reach of U.S. national security policy when it comes to matters of the information infrastructure. As Gordon Frazer, managing director of Microsoft UK, admitted, data stored in the cloud was well within the reach of the PATRIOT Act.

The acknowledgement came in response to a question posed by ZdNet journalist, Zack Whittaker. Whittaker asked,

“Can Microsoft guarantee that EU-stored data, held in EU based datacenters, will not leave the European Economic Area under any circumstances — even under a request by the Patriot Act?”

No, Fraser explained, “Microsoft cannot provide those guarantees. Neither can any other company”.

Tying networks, servers, the Internet and everything else in Canada that runs through and on top of these facilities to US national security policy is to sell out fundamental principles regarding open media, transparency and a networked free press for the feint hope that we might achieve a modicum of more competition than we have now, and even then, not ‘real competition’, but rather the kind of newfangled Schumpeterian ‘innovation economics’ pushed by the C.D. Howe report.

But let’s move beyond the issue of foreign ownership to Nowak’s sanguine approach to vertical integration, an approach that I also find problematic. Why? Because he offers no evidence, lessons from history, or theory to support his case.

This is problematic because current evidence shows that concentration across the spectrum of telecom-media-Internet services in Canada is high, in absolute terms, and relative to comparable international standards. I offered a snapshot of this evidence in an easy-to-digest form in my Globe and Mail column last week.

I’ll repeat that here for convenience. In Canada, the ‘big 4 VIMcos’ — Bell, Shaw, Rogers, Quebecor (QMI) — account for:

  • 86 per cent of cable and satellite distribution market
  • 70 per cent of wireless revenues
  • 63 per cent of the wired telephone market
  • 54 per cent of Internet Service Provider revenues
  • 42 per cent of radio
  • 40 per cent of the television universe
  • 19 per cent of the newspaper and magazine markets
  • 61 per cent of total revenues from all of the above media sectors combined.

These numbers are not trumped up in the slightest, and in fact on the matter of the Internet and television services they are actually lower than those offered by the CRTC because of the different methodologies we use. Nowak doesn’t refute these numbers; he just doesn’t deal with them.

Theory tells us that media concentration, for which vertical integration is just one manifestation, embeds a bias for trouble in the ‘structure of the media’. Tim Wu, in the Master Switch, gets things right when he sets up the simple premise that it is important for regulators to curb the potential for companies to leverage power and resources across the three main layers of the telecom-media-Internet system: networks, content/applications and devices.

In theory, I think he is right and, based on the current and historical record, strong measures are needed to prevent companies from leveraging control over any one of these three layers — networks, content, devices — to curb competition and diversity in any other layer.

Nowak is clearly aware of the connection in this regard and he hopes that his first and second principles — ditching UBB and leaving ‘new media’/OTT untouched by regulators — will take care of vertical integration problems by removing the ability of Bell, QMI, Rogers and Shaw from using bandwidth caps and the pay-per Internet model to basically undermine the viability of rival online video distribution services (AppleTV, GoogleTV, Netflix, etc.) that they see as a threat to their own broadcast services. I think that these are important steps, but insufficient to deal with the full range of ways in which leverage across the three layers of the telecom-media-Internet system can be used to hogtie competitors and stifle the fullest range of voices and expression possible.

This is not just hypothetical potential, either, but rather documented by case after case of examples where either access to content or to networks is deployed in the strategic rivalry between less than a handful of players in oligopolistic markets. And when highly capitalized Netcos such as Bell own much smaller content companies like CTV, they have every incentive to use the latter to shore up the position of the former.

The recently completed vertical integration hearings at the CRTC were replete with example after example of this, from network companies such as Telus, SaskTel, MTS Allstream and Public Mobile as well as media content companies, whether the CBC or smaller production companies like Stornoway Productions.

These examples are not just limited to Canada either, but global in scope. They are behind the recent detailed regulatory framework put into place in the US by the FCC and Department of Justice that blessed the merger between Comcast and NBC-Universal, but not before taking comparatively stern steps, especially by Canadian standards, to ensure that NBC-Universal content could not be locked up or used by Comcast to the disadvantage of rivals in the broadcasting business. Furthermore, Comcast was also required to make its television and film content available to Internet competitors and ‘online video distributors’ (OVDs), a new category designed to cover services such as Netflix, Hulu, AppleTV, and so on, and to adhere to open Internet requirements generally.

Other countries such as Australia, Belgium, Britain and New Zealand have dealt with their own experience of networks being used to trample competition and diminish the range of voices and expression possible by going even further to set up rival ‘unbundled’ open networks (Australia) or by mandating ‘structural separation’ between incumbents’ networks (layer 1) and other layers (services, content, devices) in the system. In an important post yesterday, Bill St. Arnaud also talks about the development of networks that are essentially based on pick and choose access to capabilities and functionalities that respond flexibly and recursively to  user generated communication and information needs

The problem, thus, is one that is buttressed by evidence, by theory and by global experience. In light of this, robust measures rather than a sanguine approach to vertical integration is most definitely needed.

And to bring this to a close, the issues raised by vertical integration are not the consequence of innovative, new industrial arrangements or newfangled theory, but rather deeply entrenched historically and indeed endemic to situations where those who control the medium (networks) are also in a position to control the messages (content) flowing through those networks.

Thus, in the first decade of the 20th century in Canada, the Canadian Pacific Telegraph Co. and Great North Western Telegraph Co (the latter under ownership control of Western Union) had exclusive distribution rights for the Associated Press news services in Canada. As part and parcel of the telegraph companies’ bid to buttress their dominance in the highly lucrative telegraph business against a couple of smaller rival upstarts (the Dominion Telegraph Co in Canada and Postal Telegraph Co. in the US), the Canadian Pacific Tel. Co. and Western Union-backed Great North Western Tel. Co. offered one of their premier set of clients — newspapers across the country — access to the AP news service at a very cheap rate. In fact, they gave it away “free”. Sound familiar? (observant readers might also note the persistent recurrence of ‘network infrastructure duopolies’, too)

The AP news service was so cheap because instead of paying the cost for both the news service and the telegraph charges for delivering it from one place to another, Canadian Pacific Tel. Co. and Great North Western Tel Co only charged newspaper subscribers the ‘transmission costs’ for the AP service. The content, under such arrangements, was ‘free’. Of course, this was a real boon to established members of the press and to AP, while it also helped to stitch up the companies’ lock on the telegraph business.  It was a menace to rival news services and a competitive press or telegraph system, however.

The fly-in-the-ointment was that any competitor news service was at a huge disadvantage because its subscribers had to pay the ‘transmission costs’ plus the cost of the news service. Thus, when Winnipeg-based upstart, the Western Associated Press, tried to set up a rival Canadian news service to that of the Associated Press in 1907, it found it’s opportunities blocked at every step of the way because there was simply no way its subscribers could pay two costs — transmission and for the news service — while the AP service was essentially given away free after subscribing newspapers paid the telegraph companies their fees for distribution.

As one muckraking journalist W. F. Maclean wrote in the Toronto World,

“attempts on the part of public service companies [the telegraph companies] to muzzle free expression of opinion by whitholding privileges that are of general right cannot be too strongly condemned.”

The matter found its way before one of the long-lost predecessors to today’s CRTC, and one of the first regulatory bodies in the country, the Board of Railway Commissioners. Canadian Pacific Tel. Co. came out swinging, arguing that the BRC simply had no authority over the news services or to compel it to separate the costs of the news services from transmission costs.

Times were different then, it seems, and the BRC didn’t wilt one bit amidst the hot-heated rhetoric but blasted back that it was compelled by  law to insure that rates were “just and reasonable” and that unless transmission rates were separate, explicit and equitable “telegraph companies could put out of business every newsgathering agency that dared to enter the field of competition with them” (BRC, 1910, p. 275).

The upshot was separation of control over the wires from control over the news business. The regulator had all the authority in the world it needed to break up the ‘double headed news monopoly’.  It is a lesson that the CRTC and everybody else interested in ensuring that we oversee the creation of the most open media with the maximum range of voices and creative expression possible should pay close attention to.

Of course, the modalities of communication have changed tremendously and we now live in age of information abundance rather than scarcity, but as Tim Wu’s Master Switch and the mounting evidence before our very eyes attests, the basic logic of leveraging content and networks to confer advantages on one’s own operations whilst driving others into submission, if not out of business altogether, is alive and well.

This is a basic and easy-to-grasp point, and until we firmly implant it at the heart of the structure and regulation of the telecom-media-Internet system, we will continue to forgo the economic, political, cultural and personal benefits of the most open network media system possible and which further the goals and values that define a free and democratic society.

On that score, Nowak is right, these are not ‘left’ and ‘right’ issues. They are issues, principles and values of concern to all who take the precepts of liberal capitalist democracy seriously and who see in the status quo a condition that is badly lacking by even that non-ideological/utopian standard.

Source:

Board of Railway Commissioners (BRC). (1910). The Western Associated Press v. The Canadian Pacific Railway Company’s Telegraph and the Great Northwestern Telegraph Company of Canada. In Sessional papers of the Parliament of Canada. Ottawa: J. De Labroquerie Tache, Printers to the King’s Most Excellent Majesty.

Down the Rabbit Hole at the CRTC: Regulator and Big 4 Make Molehill Out of Mountain on Telecom-Media-Internet Concentration Issues

As per my usual practice, this post is a slightly altered version of my column in the Globe and Mail today. It is a a wee bit longer and, as is my standard practice, comes more fully-equipped with citations and sources that you can turn to to follow up on, assess my take on things, and so forth.

In the first of two column’s last week I offered evidence and argument as to why the CRTC’s current vertical integration hearings are not likely to deal effectively with the question of telecom-media-Internet concentration in Canada. Sitting in on three full days of hearings last week has convinced me that the prospects may be even dimmer than I thought.

If you know how to say “voluntary code”, “case-by-case dispute resolution”, “skinny basic”, and status quo, you’re in luck because that’s probably what the outcome will be. Some consumers will benefit with slimmed down and more affordable basic cable and satellite packages and there’s a fifty-fifty chance that a hands-off-Netflix approach is in store, if I am right. The pay-per Internet model and less than a handful of telecom-media-Internet behemoths, however, will be still stand astride a set of highly concentrated industries, and we will be the poorer for this.

The hearings had an Alice-in-Wonderland feel, mainly because the evidence offered by all sides was remarkably poor. Consequently, discussion meandered between speculative worries and rose-tinted visions brought to us courtesy of the great media corporations of Canada.

The CRTC’s refusal to do much original research of its own compounds this problem, and compares badly with research conducted by, for example, the FCC and Ofcom, respectively. Like the mythical beaver that castrates itself in self-defense, the CRTC seems to worry that conducting original research might bias its decisions. Strange.

All of the top brass from Bell, Shaw, Quebecor Media Inc. (QMI) and Rogers attended, sometimes with as many as ten to a delegation. With few exceptions (see below), the Big Four stood as one against almost everyone else, but nonetheless they seem to have set the parameters of discussion around less than a handful of touchstone themes:

  • That we should rely on market forces to the maximum extent possible.
  • Canadian markets are competitive, small by global standards and need big media companies to compete.
  • problems that do arise should be settled one by one after they occur rather than establishing clear regulatory rules before hand.
  • concerns about the anti-competitive potential of vertical integration are mostly speculative rather than real.

Rogers allowed a crack of light to peak through when it broke ranks with Bell, QMI and Shaw to table a “code of conduct” that would require vertically-integrated media firms to sell programming rights to traditional broadcasters, such as the five CityTV stations that it owns. While the others tried to belittle or ignore Rogers’ stand on this point, the CRTC seemed to like the voluntary code of conduct idea very much. I suspect we’ll have some version of it.

Otherwise, Rogers, Bell, Shaw and QMI united behind the view that smaller rivals should not be entitled to a regulated guarantee of fair and reasonable access to their networks or the content rights associated with TSN, Rogers SportsNet, the History Channel or any of the other 100-plus television channels they own between them.

QMI’s CEO and majority owner, Pierre Karl Péladeau, scoffed at the idea that exclusive content agreements were a problem. Bell’s chief regulatory front man, Mirko Bibic called the idea that audiences should be able to access content on any device from any provider, anytime, “preposterous”.

Brad Shaw, the CEO and part of the family that controls Shaw Media, bristled when I intervened in a journalistic softball scrum to ask him to respond to the possibility that concerns with vertical integration and media concentration are not based on speculation and fear mongering but current evidence and recurring historical patterns. After shrinking back into my shoes, he returned to typical patter about how vital it is for Shaw to be “consumer centric”.

Over the course of the three days, Netflix was set up as a formidable threat to the Canadian broadcasting system. This may be a shock to some, but I got the sense that the CRTC is not all that eager to assume this role, despite enormous pressure from Bell, Shaw, QMI and (less so) Rogers, the Over-the-Top Working Group, media unions, arts and culture groups, the Senate Committee on Canadian Heritage as well as a pending Supreme Court case.

When I spoke with Michael Hennessy, Telus’s Senior Vice-President, Regulatory and Government Affairs, he came across as a thoughtful man and seemed to better understand the idea that just because a company owns the medium does mean that it should control the messages flowing through them. Telus’ primary focus is on connectivity, he told me, not content.

Telus’ periodic work with Google, amongst other things has taught the company, he also said, that it is better to grant as much access to outside content sources as possible and push control out to the edges of the network and into the hands of Internet users. One doesn’t have to be a dyed-in-the-wool Telus fan to accept everything that he claimed, but in my view Telus is on the side of angels on this question – even if this has not always been the case.

Telus’ launch of IPTV services over the past few years has been a success by Canadian standards, but obtaining content rights for its IPTV and mobile video services has been a real obstacle, with Bell standing out in this respect since its acquisition of CTV earlier this year. According to a recent OECD study, Canada ranks 19th out of 27 in terms of the percentage of subscribers to IPTV, while rates in Sweden, Belgium and France are four- to ten-times higher (p. 223). One wonders if this low ranking is related to the problems just described and regulatory rules not up to the task of curbing market power across a number of telecom, media and Internet industries?

Commercial broadcasters have been slow to develop online video services, doing so only around the end of 2007, early 2008. It was the CBC, instead, that blazed the way, only to find one of its early attempts to use BitTorrent to distribute an episode of Canada’s Next Great Prime Minister thwarted by Bell’s ‘network throttling’ practices. The big four have accelerated their efforts in the past year, mainly as Bell, Shaw, Rogers, and QMI import the “tv everywhere” from the US so that existing subscribers can access the companies’ own content anywhere, anytime.

Reflecting the fact that commercial broadcasters have been slow on the uptake, Konrad von Finckenstein asked Péladeau why QMI hadn’t launched an online video downloading service to compete with Netflix? The activities of the “state broadcaster” (the CBC), he responded, excessive regulation, and nervous investors were holding it back. The head of the CRTC also asked for evidence that Netflix was a threat to the television system, but was told by Péladeau that he had none.

Smaller players, in sharp contrast, piled anecdote upon anecdote to show that vertical integration is, in fact, a significant problem. Telus, MTS, SaskTel and Cogeco submitted a “joint proposal” as well that sets out a handful of principles that they want enshrined in a sturdy regulatory framework:

  • Access to content by television program distributors and carriers should be on fair and reasonable terms.
  • Subscribers should be able to access the content they want from the device they want anywhere, anytime.
  • Block booking — tying the rights to purchase one television channel to buying several others, among other things – should not be allowed (a stance consistent with CRTC’s favourable view of “skinny basic”, i.e. a minimalist basic cable tv service).
  • A tough regulatory regime is needed before-hand and not after the fact, as the big four would like.
  • The regulator must assume a tough stance toward vertically-integrated telecom-media-Internet conglomerates that possess substantial market power.

Most independent broadcasters more or less agree with these ideas, with some minor tweaks. Despite their merit, however, the evidence to support these principles, was not convincingly demonstrated by anyone.

The fact that evidence was probably never going to carry the day anyway, however, struck me hard on Day Three when von Finckenstein called Telus’s proposal “over the top”. Newly-appointed Vice Chair of the CRTC, Tom Pentefountas, added to this sense when he asked Michael Hennessy if Telus’ “proposals essentially take the ‘free’ out of the ‘free market’?”

Across the aisle from me, Bibic, the regulatory pitbull from Bell who had made more than one CRTC commissioner wince and waiver during his presentation a day earlier, smiled broadly like The Cheshire Cat. Day 3, and the endgame was coming clearly into view.

Day 3 and the endgame was coming clearly into view.

Big, Brash & Bold: Drop all Telecom-Media Foreign Ownership Limits

A new report by the CD Howe Institute came out today. It’s not big, just 3 pages and seemingly informed by a bunch of guys sitting around a table at the Howe’s ‘inaugural meeting’ last week (June 17).

It is brash, and some might dress it up as bold: drop all limits on ownership of telecoms and media industries in Canada, it says. Full stop.

No phase out. No ‘newcomer advantages’, full stop again. No attempt to separate the ‘medium’ (wires, spectrum, sewer access) and the message (broadcasting, integrated suite of ‘content’ from mags to blogs) from one another. A digital free for all, you might say.

Perhaps the gentlemen, and they were with the exception of only a single woman, thought this might be a good idea while they sat around and chatted last Friday afternoon. Apparently, there were not so many women ‘law & economics’ types available to join them, given that all but out of the 16 places apparently went to the guys and boys from Bell (see below). I guess ‘law and economics’ types like Sheridan Scott, a hard liner in these matters, and Monica Auer, who generally takes the opposite tack by speaking eloquently and passionately on the telecom and media workers’ behalf, weren’t available, or any of the other smart dames roaming these circles as I saw, in the minority, at the CRTC’s hearings this week.

I looked at the composition of ‘the deciders’ not just because their gender was so obviously skewed, but because I recognized the names of most of the guys. One in particular leapt out, Jeffrey Church, a University of Calgary economics professor. By all accounts, he’s an excellent teacher. Professor Church caught my eye because, in addition to advising the ‘big 3Ps’ in Canada as I’ll call them — Petroleum, Alberta Beef Producers, Pharma — Professor Church just wrote an economic analysis for Bell as part of the very, very important vertically-integrated telecom-media-Internet hearings now being held by the CRTC.

According to Church in his voluminous 93 page submission on Bell’s behalf, vertical integration is good for consumers and for Canada (p.5). I disagree, strongly, for reasons set out regularly in this blog (e.g. here) and my column for the Globe and Mail on Monday.

It’s not just Church that is so closely tied to Bell, but also Marcel Boyer, Bell Canada Professor Emeritus of Industrial Economics, Université de Montréal, as the CD Howe report indicates on the back of this slim 3 page ‘report’. 2 out of 16 does not a majority make, obviously, but their presence does stand out.

The rest of the lot in this ‘law and economics’ crowd does not seem very adventuresome, either. I know one professor occupying a BCE endowed chair that won’t be called upon, Professor Robert E. Babe at the University of Western Ontario, for he has traced the propensity of telecoms historically to go from limited competition to ‘total consolidation’ on a regular basis.  Let us say that the fact that Howe ‘report’ has zero to say about such notions is not all that surprising.

The 3 page ‘report’ is candid that dropping the foreign ownership limits on everything – telecom, media, internet — will not increase the number of competitors in the market. As it states, “given the small size of the Canadian market, the consensus view saw no major change in the number of national competitors”.

Translation, the big three companies in wireless telecoms — Bell, Rogers, Telus — for instance will still account for about 94% of the market (according to CWTA 2010), but they might be owned by yet a larger foreign based telco (Vertizon, the ‘new’ AT&T, Deutsche Telekom, etc.) or may private equity funds. Me, I have doubts many foreign investors — telcos, priv equity funds, banks — will even come if permitted to do so (or if we want ‘em to on such ‘carte blanche’ terms). I’m not alone on this, and hardly radical, given that even the World Bank states that the keys to effective foreign ownership is a ‘strong state’ able to regulate and competition.

Instead, the Council of 15 wise men and 1 smart woman says, drawing on newfangled theory about ‘competitive innovation’ drawn from the right-wing side of Schumpeterian ‘innovation economics’, that “the gains from liberalization would likely result . . . from better performance by telecommunications market participants”. Umm, I hope so, especially because its this same crowd breying for the withdrawal of any meaningful conception of regulation or state intervention. The CRTC’s horizons have been blinkered and public ventures like CANARIE have had their wings clipped. How foreign capital will ‘improve’ performance standards in Canada is not clear to me/self-evident.

The report advocates this ‘regulatory shock and awe’ to be developed in one swell swoop, with no distinctions kept between telecoms and broadcasting, between networks and content, between incumbents and newcomers. The telecom-media-Internet sectors are now so entangled on account of digitization and how people use media that they must be treated together as a whole. Partial agreement there about treating things ‘holistically’.

More targetted measures are suggested as alternative to foreign ownership for whatever “cultural policies” might be left over. Some of these ‘targetted measures’ I believe in — securing financing for content production, shelf space, strong CBC — and they have been promoted by at least two of the same writers involved in today’s 3 page missive (e.g. see Hunter and Iacobucci, with a third author Michael J. Trebilcock).

There are several problems with this “report”, however, that make it’s contribution to public discussion dubious, despite the fact that it will gain much attention.

1. Three pages is not a report and should not be pitched as one.

2. The Council of the Wise is skewed along lines suggested above, ie. by Bell and by Gender. Bell has always had a visible hand in the telecom, broadcasting and media industries, indeed, since it began broadcasting speeches, songs and sermons in the 1880s and took-over the Chairmanship of the 1905 Mulock Commission which had originally been convened to look into the underdevelopment of the telephone system in Canada in the early days of the 20th century.

So, that Bell continues to be front and centre 100 years later, at the dawn of the 21st century, is both a marker of continuity and somewhat unsurprising, but equally suspect/problematic in each of these occasions. The presence of Bell’s hired gun (Church), a Bell sponsored ‘academic chair’ (emeritus, Boyer), and BCE CEO George Cope’s speech at the C.D. Howe two months ago all so bunched up in time and common stance has a whiff of something not quite right about it.

3. While I don’t actually have many problems with increasing competition and dissolving lines between the medium and the message, or the network infrastructure and content, we also need to be upfront about the fact that the former (media infrastructure) are generally scarce and the latter (messages) abundant. In today’s OECD Communication Outlook 2011, it is clear that, generally speaking, the top 2 ‘netcos’ in each of the OECD countries account for between two-thirds and three quarters of fixed and mobile telecom network markets in each of the OECD countries (pp. 56-59). This means:

  • that Netcos generally should be regulated for market power, ‘messagcos’ generally not.
  • ties between Netcos and Messagcos are congenitally fraught with problems and propensity for anti-competitive behaviour.
  • Free speech standards and the values of a ‘networked free press‘ are also at play (and here). As the United Nation’s Human Rights Council recently stated, those standards apply to the Internet and people should have, as Article 19 of the Universal Declaration of the Rights stated before it in 1948, the freedom to receive and impart any information, through any media regardless of frontiers. At the CRTC Hearings on vertical integration the other day, Bell’s Mirko Bibic and Shaw’s brass called the idea that people should have access to any content on any device “preposterous”. The C.D. Howe ‘report’ is oblivious to these considerations.

4. The C.D. Howe report misses reality and the ‘big picture’. Perhaps this is because there is not a whiff of heterodox thinking among the ‘law & economics’ experts who wrote it. Not one ‘ecclectic’ economists, not one wild eyed, crazy lawyer, not a communication and media scholars or a historian in sight.

This is too bad because as long as it continues to be the case, people will continue to talk past one another. And it also means that ‘reports’ like this one, and the policies and approaches that actually do follow close in tow in the ‘real world’, will lack legitimacy.

5. Without being able to expand their horizon, the authors of the C.D. Howe ‘report’ blithely countenance “North American integration”. Economically, as I said above, I don’t have a particular problem with that, although I doubt that things will pan out as they expect, and even that what the Howe folks do expect ain’t much (“better performance” from same number of players).

Politically and culturally, however, there is a problem, not with Cancon and ‘traditionalist/romanticist’ conceptions of culture, but ‘network culture’. Netcos and search engines are now closely allied with state security, military strategy and defense contractors.  It’s probably best to keep some clear blue water between these domains. The authors give no hint that they have even thought of this.

Netcos, ISPs, search engines, etc. are also constantly being badgered by lobbyists as well as politicians in Canada and the U.S. to play a greater role on behalf of  media and entertainment industries (for most recent and strong opposition to this from within just the mainstream’, see here). The approaches have differed, with the last government in Canada wisely turning down lobbyists push to have ISPs play the role of ‘copyright cop’, disconnecting people who repeatedly are identified as ‘copyright bandits’.

The International Federation of Phonographic Industries (IFPI) launched it’s efforts to lean hard on ISPs and search engines, and less on Digital Rights Management (DRM), in 2008. It has been picking off ‘wins’ for this agenda around the world, but not so much yet in Canada.

Yesterday, CNet journalist Greg Sandoval reported that AT&T, Comcast, and Verizon “are closer than ever to striking a deal with media and entertainment companies that would call for them to establish new and tougher punishments for customers who refuse to stop using their networks to pirate films, music and other intellectual property”.  That turn-of-heart, in turn, he reports, was eased by coaxing from the Obama Administration and the National Cable TV Association.

The pressure is already strong in Canada, but so far government and regulators have refused to make ISPs the deputies of the media and entertainment industries or to regulate the Internet as a broadcast distribution medium. On law and order, however, the push is for a stronger state and more compliant Netcos and Searchcos.

While there’s lots of dots to connect between all of these latter points, the key idea is that integration at the network and market levels is going to increase pressure to harmonize tougher matters that impinge greatly on network media, and thus network culture. That the blokes and one women from C.D. Howe have nary a word about this and don’t dare let the phrases ‘network neutrality’ and ‘open media’ cross their lips is a problem of the first order because those concerns, as sure as night follows day, are at the heart of the emergent network media culture. How can foreign ownership be reconciled with these concerns should be the question, rather than if it if good or bad altogether.

In sum, until we can start speaking one another’s language and stop passing off economic and policy platitudes backed by those with big stakes in the game, the nominal ideas presented in this “report” should be shelved and other big questions — vertical integration, for example — put on hold.

Ultimately, Pork, Petroleum and Pharma are not the same as telecoms and media. We need some new thinking for ‘new media’.

Until we recognize this, we’re not going to get very far, at least in a a way that takes into account the full range of issues at hand, rather than the economists narrow measuring rod of value.

Rubber Stamp or Real Questions?: CRTC Addresses Vertically Integrated Media for Next 2 Weeks

As I normally do, this post largely replicates my column for the Globe & Mail today with the addition of a few more links so that you can follow up on things that I refer to. I was at the opening of the hearings today and plan to be there a few more times this week and next. I’ll have more to report in a few days.

Altogether, seventy-eight different parties filed interventions with the CRTC. There are 50 scheduled to give presentations over the next two weeks. You can find all of the links to the briefs and studies filed with the CRTC by the companies and other intervenors here.

The CRTC’s hearings on vertical integration began Monday. For the next two weeks this means that the four major vertically-integrated media companies in Canada – Bell, Shaw, Rogers and Quebecor – could face tough questions about whether they have the clout to dominate telecom, media and Internet services across the country and, if so, what should be done to curb that potential?

The hearings were scheduled last November after the CRTC approved cable giant Shaw’s $2 billion take-over of bankrupt Canwest Media’s television assets (27 television stations, the Global network, 30 specialty cable and satellite channels). It was given added impetus after Bell’s $3.2 billion deal to acquire CTV and the A-channels was given the green light in March.

There is every reason to be skeptical about these hearings given that they are a classic case of “bolting the barn door after the horse has already left the stable”. It is also CRTC approvals all down the line that have allowed integrated media conglomerates to become the norm to begin with.

In the U.S., media conglomerates have become the exception (Comcast/NBC-Universal) after the disastrous AOL Time Warner merger, the collapse of the ‘old’ AT&T, break-up of Viacom-CBC, and so on. Indeed, vertical integration is in retreat in almost every other developed capitalist democracy.

We should also remember that Bell attempted – and failed– to extend its reach from the medium to the message from 2000 to 2006 by taking-over CTV, CHUM, and the Globe & Mail. The fate of Canwest was worse. Yet, we seem to be stuck in a time warp, with CEOs, Cabinet Ministers and the CRTC singing in unison that media conglomerates are all the rage, for much the same reason that they did back in the 1990s.

Be that as it may, Bell, Shaw, Rogers and Quebecor Media Inc. (QMI) do exemplify the trend in Canada. They are the ‘big four’ and the hearings are all about them. They stand at the apex of a set of telecom, media and Internet markets that have grown greatly from $42 billion in revenue in 1998 to $73 billion today (in constant 2010$).

The real issues, however, are not about the sheer size of the ‘big four’, but their market power. Between them, Bell, Shaw, Rogers and QMI control:

  • 86 percent of cable and satellite distribution
  • 70 percent of wireless revenues
  • 63 percent of the wired telephone market
  • 54 percent of Internet Service Provider revenues
  • 42 percent of radio
  • 40 percent of the television universe
  • 19 percent of the newspaper and magazine markets
  • 61 percent of total revenues from all of the above media sectors combined.

That, by any standard measure of concentration, constitutes a highly concentrated market.

The fact that Bell, Shaw, Rogers and Quebecor stand as gateways to so much raises concerns that they will give undue preference to their own services rather than serve as open gateways to the maximum range of entertainment, communication, knowledge and news possible. In this regard, more is a stake than anti-competitive behaviour, because the range of expression available in a society is a barometer of the quality of freedom of expression and democracy in it. None of the ‘big four’ waxes much about this, however, insisting as they do that the laws of normal economics should be the only measuring rod of value.

To be sure, the ‘big four’ are hardly the only players in town. There is also an important second tier of a dozen or so smaller players that have stuck to their knitting in just one or two media: Telus, MTS, SaskTel, Cogeco, Bragg/Eastlink, the CBC, Astral, Postmedia, Transcontinental, Power Corp, Thomson/Globe & Mail, Torstar and Brunswick News. Then there is a third tier made up of the thousands who fill in the nooks and crannies of the media universe: Wikipedia, the Mark, media workers, star journalists, opinion leaders, blogs, your best friend, personal websites and so on.

The position of all these parties turns on where they sit. To the ‘big four’, to the extent that there’s ever been a ‘golden age’ of media, the picture just presented is it. Thousands upon thousands of actors, big and small, making it nearly impossible for any single entity to exert excess influence over it all.

According to Bell’s hired-gun, University of Alberta economics professor, Jeffrey Church, “vertical integration is beneficial for consumers”. According to him and other briefs filed by the big four, consolidation is good for consumers and Canada because:

  • it reflects efficiencies, spurs competitive innovation and is a global trend.
  • telecom, media and Internet markets in Canada are “highly competitive”.
  • our ‘small media economy’ needs a few deep-pocketed ‘national champions’ to compete globally and invest heavily in innovation at home.
  • instances of harm are mostly imaginary and few and far between.
  • it helps keep “consumers . . . within the regulated system” (Shaw, p. 4)

The collapse of media conglomerates elsewhere, the evidence of market power above, and the fact that Canada has the eight largest media economy in the world, after France and Italy, and just before South Korea and Spain, should raise an eyebrow or two about claims one through three. Claim four is false (see below), and the last one repugnant.

Many in the second tier and ‘nooks and crannies’ of the media also challenge these claims. Telus, for instance, argues that the harms are real, not prospective. Buying program rights, for example, from CTV, the Comedy Network, TSN and two-dozen other channels, it argues, became a whole lot harder, and more expensive, after Bell Media took them over.

Access, a cooperatively run cable-system-cum-Internet provider in Saskatchewan raises similar concerns. Those that have content, but not distribution networks – Astral, CBC, media workers – make a similar case, but point to how control over networks rather than programming rights can cause real world harm.

Periodic squabbles between Quebecor and Bell highlight much the same point, with Quebecor’s SunTV hobbled in equal measure by self-inflicted wounds and its inability to sign an acceptable ‘contract for carriage’ with Bell. Just last week, the CRTC declared that Bell’s decision to move Shaw’s ‘Cave TV’ service into the upper stratosphere of its offerings conferred an undue preference on channels Bell owned, and ordered the change to be reversed. If these pitched Goliath versus Goliath battles are regular occurrences, we can only imagine the problems that David – the little guy – is having.

While Bell, Shaw, Rogers and QMI operate their own online video services, they assert that congestion problems require them to manage traffic through usage-based billing and bandwidth caps, although such measures cripple rival online video distributors such as Netflix, Apple TV, GoogleTV, and so on. Netflix, for instance, downgrades its services relative to standards elsewhere, and bitterly complains about having to do so, all the time. Smart and savvy telecom guys like Jean-Francois Mezei and rabble-rousing groups like Open Media are convinced that such practices are a deadweight on creativity, innovation, freedom of expression and an open internet.

For the public, the practices just listed and networks that are under-developed and over-priced by global standards constitute subtle yet pervasive constraints on how we use and experience the emerging networked digital media. Stubbornly, Canadians lean against the wind and remain heavy Internet users, downloading and uploading to and from Youtube, virtuously contributing to Wikipedia, and watching porn at rates that rank at the very top by global standards.

All this, too, despite the fact that, as Shaw’s brief repeatedly states, the industry and regulators are one when it comes to the goal of keeping “consumers in the existing broadcasting system”. We can only imagine what things might be like if they strove for the maximum freedom of expression possible, rather than only “as much diversity as practicable”, as the CRTC put it in its 2008 Diversity of Voices decision.

Ultimately, the problems of fully-integrated media conglomerates are congenital, not imaginary. They run hand-in-hand with media history the world over and until we accept that, we’ll have to continue settling for scraps off the table as regulators let the ‘big four’, I mean, the market rip.

Will Bill C-51 turn ISPS into Internet Gatekeepers?

My most recent column for the online technology section of Globe &Mail came out Tuesday. It is available here.

The article builds on some recent posts that I have done considering the mounting pressures being put on Internet Service Providers to act more like gatekeepers rather than gateways to the Internet. Four such forces, I suggest, are pushing in this direction:

  • a strong push from the ‘copryight’ industries, especially the music industries, to make ISPs and search engines extensions of the copyright enforcement regime. This has become especially strong since 2008, when the International Federation of Phonographic Industries (IFPI) and the Recording Industry Association of America (RIAA) turned to such measures more forcefully, while backing off somewhat from Digital Rights Management (DRM) (see page 3 of the IFPI’s Digital Music Report, 2008);
  • the near universal adoption of usage based billing and bandwidth caps by Canada’s ‘big six’ ISPs — Bell, Rogers, Shaw, Quebecor, Telus and Cogeco — and now the mid-sized Atlantic region player, Bragg/Eastlink (although with some recent significant developments from Shaw).
  • the fact that all of the major ISPs, except Telus, are vertically integrated and appear to be using usage based billing and bandwidth caps as a kind of ‘television business protection plan’ for their interests in the television industry.
  • and finally, the focus of yesterday’s column in the Globe and Mail, the push from national security and law enforcement agencies to build in increasing monitoring and surveillance capacities into their networks, and to conduct ‘warrantless searches’ if proposed new legislation is passed.
A fuller treatment of the issues covered in Tuesday’s column can be found in my earlier post here, and another that places things in a larger, global context here.

Could CANARIE fly on its own?

While writing the last post on the potential termination of funding for CANARIE, I got in touch with someone who I have recently come to know and have a great deal of respect for, Bill St. Arnaud. Bill’s important to the CANARIE story because he was Chief Research Officer with it for fifteen years before starting off on new adventures in early 2010.

After reading CANARIE’s annual reports for the last decade and the Government’s budget for 2011-12 tabled last week in Parliament that signals the end of CANARIE as a government funded initiative, I got in touch with Bill to see if I was understanding things correctly. Here’s a brief reprisal of the email conversation we had:

DW:

Dear Bill, I was wondering if you could please help me make some sense of some numbers related to Canarie that I’ve recently come across in the Governments Budget for the upcoming year? I see that they refer to the ‘sunset’ of $31m in funding to Canarie last year, and zero allocated for the upcoming year. Surely that doesn’t mean that Canarie’s entire budget has been eliminated, does it?

BSA: CANARIE receives only block grants approximately every 5 years.  The last block grant was for $120m in 2007 . . . .  So currently CANARIE’s funding sunsets next March. . . . CANARIE has virtually no other sources of income.

Over its 15 years existence CANARIE has received almost half billion dollars in funding made from a multitude of block grants.  After the receipt of each block grant many times the government has told CANARIE that it should be self sustainable from that point on.  Finally I think this government actually means it this time.  But CANARIE’s board and management is actively lobbying government for another block grant when the current one expires next March.

However I have been arguing for some time that CANARIE should be self sustainable, at least on a day to day operational basis. Many of CANARIE’s counterpart research networks around the world are operationally sustainable like those in Australia, US, Nordic countries, Netherlands, etc.

Although some of these networks, from time to time do receive capital funding to invest in new infrastructure or build community networks. Being operationally sustainable, has its challenges (especially at this late hour), but it  has a number of advantages:

(a)    It would give CANARIE the freedom and independence to pursue more aggressive broadband strategies without fear of reprisals from incumbents lobbying government to prohibit such activities.  Internet 2, in the US for example, when it was created deliberately eschewed  government funding for this reason

(b)   CANARIE can do much better long term planning instead of having to stare at a 5 year horizon. The last block grant literally came at the midnight hour – and we had to start to give layoff notices to many staff just prior to receiving the funding

(c)    CANARIE can be a much greater force for innovation if it is self sustainable by offering innovative new services such as national wireless, zero carbon Internet, community networking etc

————————————————————————————————————

So, if Bill is right, then the end of government funding doesn’t necessarily mean the end of CANARIE.

But will it continue to operate as a semi-independent actor capable of experimenting with advanced versions of the Internet that will only become widely available years from now?  Will it continue to push the envelope when it comes to open network and interoperability principles that define the original, non-commercial Internet?

In other words, will it continue to set an independent, alternative high-bar standard against which the incumbent telecom providers — Bell, Shaw, Rogers, Telus, Quebecor, Cogeco, etc. — can be critically assessed?

While I struggled to get my head around the idea that it could be okay to cut CANARIE off of government funds cold-turkey, it also took a while to fully realize Bill’s first point: that CANARIE has been put under incredible constraints already by incumbents constantly badgering the government to keep it on a short leash. In other words,the incumbents have pushed to keep CANARIE from actually competing with them in ‘the market’. It’s done what its done, so to speak, with one arm tied behind its back.

So getting CANARIE off the government trough seems to be Bill’s way of hoping that doing so might give it greater room for manouver outside the constraints imposed on it by governments acting at the behest of incumbent lobbyist. This is an incredibly important point, but one might wonder if government ought not steel its spine and actually stand down the lobbyists?

My feeling is that it would be better, in short, to have continued public funding and proper shielding from undue commercial influence. In a perfect world, we could have both, but I now understand why Bill doesn’t see cutting funds for CANARIE as the death blow I originally anticipated.

Maybe this can all be made a bit clearer by drawing parallels to television and hockey. It is commonplace in Canada and all countries with any kind of public service media for commercial broadcasters to whine about the CBC ‘unfairly’ competing with them for the rights to air NHL hockey games and anything else that draws eyeballs and attention. And so too for CANARIE, because the comparisons drawn with the private sector might not prove so favourable, better to cordone it off in areas the private sector is willing to leave behind to begin with. Seeing things from Bill’s perspective we can only imagine what CANARIE might it do if set loose after being held on a short leash for all these years?

In all of this is a vital demonstration in the political economy of communication, and it is as old as the first telegraphs, submarine cables and so forth in the 19th Century, and that is that governments shall never compete with private capital for markets. In ‘normal economics’ it’s called crowding out, while a more radical perspective sees this as the subordination of democratically elected governments to the interests of capital, or business to put it more simply. Today, it’s putting things like CANARIE and the CBC on short leashes, so that they can be ‘remedial public’ programs, not hardcore alternative providers in ‘the market’.

We can also see this kind of thing in  familiar terms when we look across the Atlantic to the UK, where the BBC — a core public service media provider — is constantly under pressure from the likes of James Murdoch of News Corp. and the Newspaper Publishers Association, for instance, to trim its sales. The Newspaper Publishers Association, for instance, argues that the BBC’s online news ambitions “threaten to strangle an important new market for news and information”.

Translation? The BBC should be tied to the mast of a sinking ship: television broadcasting, with rabbit ears preferably, while the rest of the explosive digital and commercial media market is handed off exclusively to ‘market forces’. This is a point that has also been driven home to me by my friend and NZ communication scholar, Peter Thompson, who recounts how Canwest Media used its ownership of television and radio interests to similarly argue against anything other than the most minimal role for TVNZ. It is also the basis of our own Conservative Government’s Directive to the CRTC to ‘rely on market forces to the maximum extent possible’ (for another post on this with respect to UBB and bandwidth caps, see here).

But back to CANARIE, some economic independence from government coffers could lead to greater autonomy and fewer shackles. Yet, CANARIE could also simply be sold to the highest bidder, likely those who previously fought tooth and nail to constrain it? In that sense, it would be grafted onto the operations of one or other of the existing incumbents and constitute yet another moment when government policy serves a primary purpose: to expand markets and open new sources of revenue for the private telecoms carriers.

These are some critical questions and with nothing more than a line item buried in the budget alerting us to any of this, we should start thinking about these questions now before CANARIE really does come to the end of the line in March 2012.

** With thanks to Bill St. Arnaud for his help and agreeing to let me use our correspondence for this post. Bill’s blog can be seen here.

Silly Season: Cellphone Charges, OECD Comparisons and is Canada a Wireless Leader or Laggard?

It’s silly season again. The OECD just released another study showing that, on the telecom front, Canada is not doing so well, and continues to slide. This time, the OECD looked at the cost of “international roaming charges” for wireless data plans used abroad for the two largest cellphone companies in each of the 34 member OECD countries.

The headlines cascading across the ‘news media chain’ — daily newspapers, television, Internet and so on down the line — yesterday were dramatic. I used the story too. For a 1MB download on wireless data plans from Bell and Rogers, Canadian’s pay around $25 in roaming charges when outside the country versus under $5 for Greeks, and $10 for the OECD on average.

This is bad news indeed, and one more that ranks Canada at the very back of the pack in ‘global telecoms lemming race’: 34 out of 34 amongst OECD countries.

Financial Post editorial writer Terrance Corcoran today had a fit. The International Roaming Charges report, he snorted, “is another mangled OECD statistical mess in the agency’s ongoing production of screwball international telecom reports.”

Corcoran is right that news media glommed on to headlines, and so too did I at first, before digging deeper and linking directly to the OECD. Change the lens, he says, and things look a whole lot different.

Instead of looking at the cost of a one time downloading fee, he wants us to look at the cost of downloads of 1, 5 and 20MB in wireless data plans offered to the cheapest destination and the place where we are most likely to visit — the United States. And we should measure ‘roaming charges’ to the US (versus the rest of the world) for over a period of several days or even a month, not just a one shot splurge. Do this, he says, and a wholly different picture emerges.

Indeed it does. For example, it only costs $12 to download 5MB of data over the course of five days versus an OECD average of $21.  In Japan and Chile, at the opposite end of the spectrum, charges are really silly at $58 and $70, respectively.

The roaming charges for Bell and Rogers – since the study looks at the two biggest cellphone companies in each country, for a total of 68 in all – on this measure rank 13th out of 34 countries. It’s not exactly first prize, but it is substantially better than the ‘bottom of the barrel’ story that flooded the headlines.

Things look better yet when going to 20MB, with Canada ranking 7th, with an average price of about $25 versus $60 plus for OECD countries on average, although the Slovak Republic (USD 14.50) and Slovenia (USD 18.14) came in at the low end of the scale.

Corcoran argues that it is just this kind of nonsense that rubbishes the study as a whole. He shakes his head in disbelief that Industry Canada continues to support and stand by such idiocy while the likes of Bell, Rogers and Telus take an unnecessary beating, not least by those he ridicules as the ‘telecoms bashers’.

He finds other studies to mention or show, that like his own examples, that Canadian cellphone companies fare closer to the top than the bottom of the heap. Besides, he claims, the studies have already been dated by the speed of events because Bell, Rogers, Telus, Public Mobile and Wind’s new plans make the ‘old concerns’ obsolete.

But hold on here a minute. The point is that there is not just one study, but one after another by diverse sources that point in the same direction. In addition, not Industry Canada, but Statistics Canada takes the lead in these kinds of studies. We must get beyond the idea that OECD stats are rubbish, too. The data is provided by Canadian carriers and the OECD’s methods have been developed under the leadership of folks from Statistics Canada.  The data and methods are admittedly imperfect, according to those I know who have been directly involved in these processes, but they are among the best we have and highly credible.

Corcoran already knows this in a way because his own ‘contra’ evidence is drawn from the same study, just a few different measures. And yes, new plans come and go (part of the problem actually, intentionally sowing confusion as it does), but when a snapshot is taken and of the two biggest players for each of 34 countries broader patterns emerge.

And that’s really the nub of it. Corcoran is amiss in his critique of the overall quality of OECD data and reports, and insofar that his own portrait cherry picks the bits that support the kind of argument that he wants to make, while ignoring the rest.

In between the headlines and his picked cherries, however, is a broader range of measures that help fill in the picture. Looking at them, unfortunately, restores the dominant image of a country whose quality of telecom services has steadily slipped over the past decade.

When it comes to roaming charges to use our wireless data devices in the big wide world outside the United States, it costs more to download 1, 5 or 20MB of data for Canadians regardless of whether we download once, or spread it out over five days or even a month.

Looking at those measures, Canadian carriers again fall consistently in the bottom 5 or 6 of the pack when it comes to international wireless roaming charges. We must remember that this is an ‘international’ study, not a Canada-US centred one.

When we think in terms of the flows of people – mobility, migration and jet-setters – and beyond the horizons of the U.S., it is the world out there rather than just the neighbour nextdoor that we need to look to and make our judgements. Corcoran’s analysis is, in this regard, selective and myopic. This is a study of international roaming charges, remember, not just roaming charges for Canadians in the U.S., as he would like to have it.

The table below presents a fuller, although not complete range of relevant comparisons.

Service Type Canada’s Rank out of 34 Canadian Cost (US$ PPP) OECD Avg. Cost (US$ PPP) Cheapest (US$ PPP)
1MB/1 Session 34 25 10 4.90 (Greece)
5 MB/1 Session 31 60 32 11 (France)
5MB/5 Days 31 60 40 11 (France)
20MB/30 Days 29 180 140 48 (France)
20MB/One Session 28 180 120 20 (Ireland)
 
‘Cheapest Dest.’
1 MB/1 Session 13 10 5.80 1.80 (Ireland)
5MB/5 5 Days 13 12 25 5 (Luxemb)
20MB/30 Days 7 25 60 15

Shaw’s ‘New New’ Internet Pricing Regime — Raising the Bar?

Whew, I’m just coming back from blogosphere, and sheesh can things sometimes get tough out there. I’ve been thinking the last few days about an idea based on these forays into blogs, columns for newspapers, and stuff like that: Blogoslama, or what happens when the trolls of cyberspace get nasty.

That’s the title I have for people like Know Your Facts, RightTruth, TheFactCorrector, TheCorrectOpinion, SeektheTruth and, well, you get the picture, that run around blustering and puffing up their chest in umbrage over something or other that you’ve wrote.

Now don’t get me wrong, and sometimes these strange combinations yield fruit. I enjoy the to and fro of online conversations and generally think highly of them, for reasons that I’ve attributed in previous posts to scholars like Yochai Benkler, Nancy Baym, and others who see these activities of valuable forms of ‘sociality’ and public communication.

I also like the interesting characters like Strunk&White and UseYourSpellCheck who politely remind people how important a tidy sentence is to a civil conversation. And there’s others like Grumpy Scientist, TvWorker, and Old Green who speak wisely, although maybe somewhat slower than others in these sometimes rough and tumble places do. Amidst these different voices are some that really make you think, and sometimes to do a rethink.

Sometimes, though, I must admit, I can feel my skin growing thicker. In some wierd way, the old ‘blender theory of truth’ espoused by great liberals is alive and well. This is the theory that if we throw enough ideas into the mix, the truth, or at least the possibility of understanding, will rise to the top. Some say the Internet, and the blogosphere in particular, functions as a giant ‘echo chamber’, hardening opinions and throwing a monkey-wrench in the ‘blender theory of understanding’. In broad brush terms, I disagree.

So there I was just checking in on my recent contribution to The Mark, a piece that takes a blog entry I did on May 27th about cable media conglomerate Shaw’s new Internet pricing polices. A reworked, shorter and much polished version of that appeared this week as “We”ll Lift Your Internet Cap — If you Buy Our Cable TV” on The Mark. Between now and then, little did I know, Shaw had replaced its first new plan with a new, new one — each a ‘better response’ to ‘public consultation’ than the one before.

The story was a response to Shaw’s announcement last month that it would be doubling the bandwidth of its High Speed Internet services, while maintaining the same price and speeds for these services. Even more importantly, it announced that it would be offering two new tiers of High Speed Internet Services that offered even higher speeds and more voluminous bandwidth caps, up to 1TB in some cases and in others no caps at all. Shaw made a big deal of this, splashing about the news that it had made these ‘radical’ changes in light of recently held consultations with its subscribers.

This is and was a pretty big deal, especially in Canada where the user-centric and open Internet has been transformed step by step into a pay model where bandwidth caps are nearly universal and costs out of line with relevant global comparative standards. We have been drifting steadily toward the pay per Internet model, with Usage Based Billing and Bandwidth Caps leading the way.  I am opposed generally and strongly to the direction of events.

One fly in the ointment, however, with the big splashy announcement was that the you can only get the high end Internet capabilities by purchasing one of two of Shaw’s television services . . . as they become available over the next 16 months.
As a quote from Shaw’s official site stated: “These broadband packages will come bundled with TV and will roll out in two phases.”

In other words, this was ‘tied selling’, which is a big problem with vertically integrated media conglomerates. It also looked like a Business Protection Plan for Shaws vast television interests, from cables, to DTH satellite service, the Global network and a vast stable of television and radio broadcast stations.  And in this regard, Shaw is symptomatic of a broader problem in Canada: the extent that such integrated media conglomerates continue to roam the earth. Elsewhere, such beasts are generally on the wane, although Comcast’s acquisition of NBC earlier this year is an important exception.

Otherwise, in the US, media behemoths such as AOL Time Warner and ATT fell apart (although Comcast NBC is making a comeback), Vivendi in Europe exploded, and the story is similar from one country to the next. The main point for here, though, is that Shaw appeared to be merely tinkering generously with the ‘pay-per Internet’ model and then using it to defend other elements of its media stable. I was also circumspect of its claims about all of this coming from the good graces of the company after a series of consultations with subscribers. I think it had more to do with the intent politics of the Internet that have been at a steady and high boil for at least the past six months — a kind of late realization of the gravity of the stakes at hand, after years of slumber.

Anyway, to make a long story short, as soon as you start talking about concentrations of corporate power and the Internet being bent to private interests, people get their backs up, and in cyberspace, where anonymity is the lubricant of choice, they let you have it

Know Your Facts, who I introduced to you above, blasted me, stating that I should, umm, in his very own words, “No your facts before you write a objective review”. I don’t think that I ever claimed to be objective, but I do claim to be thorough and honest and good with the evidence at hand and that I produce, interpret and put in context. But before I could talk to KYF about the production and interpretation of facts, and how that renders notions of ‘objectivity’ problematic, he wound up and smacked me, FULL CAPS ON.

High Speed Internet services from Shaw are available from Shaw. He sent me a link that went to a Shaw page that required me to tell them where I lived so that Emma, or whatever their silly ‘agent’ is called, could tell me what’s on offer. It was a dead-end.

But I was wondering, had I made a mistake, lost the plot? Was it true, as WordUp said (slinking into the saloon), that by just referring to the ‘big 5′ other media behemoths alongside Shaw that I had blinded myself to reality?

Umm, no. I checked again. And again. The document I was relying on was still there. It clearly said everything I said above. Here it is again for your reference.

But then Craig arrived. Craig, you see, is from Shaw. He seems like a nice guy. He posted something to The Mark, in the comments section under my article. Everything now makes sense.

Shaw changed its pricing again on June 6th. The source I had been relying on had been superceded. The new page is here.

The improvements are considerable and I am glad that Shaw has seen fit to go further than the initial scheme announced to much fanfare.  There are still some quibbles that one might gnaw on, but the broad principle that access to the highest end Internet capabilities should not be tied to a subscription to any of Shaw’s television services.

To be sure, Shaw has raised the bar and it is to be applauded for doing so.  If it can just get rid of the bandwidth caps altogether and make sure pricing is in line with relevant global comparisons, then, at least when it comes to Shaw, we will be able to rest at ease.

Yet, one thing that also is crucial to this is that the bar set by Shaw should also become the minimum baseline standard adopted by the rest of the ‘big 5′: Bell, Rogers, Quebecor, Telus and Cogeco. Moreover, and to repeat from an earlier post, these must not be seen as a diversion from the central issues that remain core to the upcoming CRTC hearings on vertical integration and UBB.

Ooops, I did it again. Did that screw it all up for you?

Global Internet Regulation: Tightening the Screws?

Last week in the run-up to the G8 leaders meeting in France, French President Nicolas Sarkozy convened a conference among prominent media and Internet types. The goal: how to ‘civilize’ the Internet.

As Sarkozy said,

The internet is the new frontier, a territory to conquer. But it cannot be a Wild West. It cannot be a lawless place, where people are allowed to pillage artistic works with no limits.

And you know what, he’s right. The Internet should not be a lawless frontier disconnected from the real world, and it is not. It is already deeply shaped by the same legal, political, economic and social forces that govern our actions daily.

That said, the crux of the approach being advocated by Sarkozy, and perhaps to come out in a communique at the end of the G8 meetings, is that Internet Service Providers, search engines and others are being ‘deputized’ to act on behalf of law enforcement officials and vested interests in the entertainment and ‘copyright industries’ (see the New York Times story as well). That is, they are being turned into adjuncts of both the state and vested interests to deal with matters that are, some more than others, sordid ones indeed: child pornography, money laundering, counterfeit goods and software and, of course (and in some instances) large-scale enabling of copyright infringement.

Of course, I’m the last to stand in support of child porn, money laundering, industrial scale piracy, and so forth. However, I am opposed to the full-court press that is now coming from three directions that aim to turn ISPs and search engines from being ‘gateways’ to the Internet to ‘gatekeepers’.

First, and largely since 2008, ISPs have come under a full-court press by the Recording Industry Association of America and the International Federation of Phonographic Industries (IFPI) to adopt a notice and take-down procedure. In this situation, once notified of allegations of copyright infringements, ISPs would block Internet users access to such content and, in some cases, cut off repeat offenders. Search engines would essentially make such content disappear by turning up a blank when suspect sites were queried.

The problem with this is already well-known: the gap between what is allegedly an infringement and what the law in each country actually determines to be so is big indeed. What typically happens is that private contractors using automated ‘notice and take-down’ systems take a shotgun approach, capturing much that is on the side of right in the process.

People caught in the cross-hairs have a steep hill to climb to prove their innocence. That is wrong because it turns presumptions of innocence on their head. Here’s a link to the Electronic Frontier Foundations “Takedown Hall of Shame” to get a sense of how overly-broad notices also curtail freedom of expression.

Second, Digital Rights Management (DRM) technologies began to go out of favour in the last few years, but as they were being abandoned, after 2008 the RIAA and its international counterparts were signing new memoranda of understanding with ISPs that enrolled the latter in the effort to combat piracy. The RIAA and IFPI have also pushed hard for national laws to accomplish the same ends. In other words, the RIAA is using technology, States and Markets to accomplish its goal of clamping down on content.

Sarkozy and the French Government were early and enthusiastic endorsers of such efforts and the three strikes law in France is considered by most to be particularly draconian. The IFPI has also chalked up several wins for such measures in other countries as well, including Sweden, South Korea, Taiwan and the UK, among a few others (see pp. 25-27).

Now, however, and at least in Britain such measures are under severe challenge in the courts by way of initiatives launched by two of Britain’s biggest ISPs, BT and TalkTalk, and in the court of public opinion, where they are losing badly. Yet, just as such measures come under severe criticism and challenge in some countries, they are being expanded in others.
Cont’d on Page 2 . . . . . . . .

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Shaws’ New High Speed Internet Regime: Iron Fist vs the Velvet Glove

Shaw announced plans to implement a new regime for its Internet Access services this week. There is much in the announcement to be commended, and much still to rail against.

First, the much welcomed headline news is that Shaw’s new plans basically double the bandwidth caps for its Lite and High Speed services, while the caps for the Extreme service will be increased from a 100 GB cap to 250. The prices and the speed for each service will remain the same. Nice start!

Second, Shaw is promising much needed investment in broadband networks over the next year and a half and to convert all of its television channels to digital. As the company notes,

In making this move we will triple the capacity of our network, freeing up space for more Internet, HD and On Demand programming.

Third, the new pricing regime makes available some of the fastest and most generous high-speed Internet services in North America. It will most certainly, as Michael Geist, Peter Novak and others have noted, put pressure on the rest of the ‘big 5 ISPs’ – Bell, Rogers, Quebecor, Telus and Cogeco – to fall in line.

Shaw’s new bandwidth caps will be between two (vs Rogers) and five (Bell) times as great as those of the other dominant ISPs, as the following table illustrates.

The commitment to invest heavily in a “major upgrade of our network”, and to convert all its channels to digital, in order triple the capabilities of its networks is good news.  It would seem to bring Shaw closer into line with global trends (and ahead of standards in most of the United States).

The emphasis on network upgrades dovetails with ‘hierarchy of priorities’ set by the CRTC in its Network Neutrality decision too, or as it prefers to call it, the Internet Traffic Management Practices decision. Regardless of terminology, the basic idea is that Network Investment is the preferred method to deal with any congestion that exists. Shaw’s proposal appears to be in line with that idea.

If it acts as a spur for greater investment by the other major telecom and ISP providers, all the better, but we should not hold our breath. Their feet will have to be held to the fire.

Iron Fist Replaced by the Velvet Glove?

But now for the odious bits of Shaw’s intended course of action.

First, the highest speed services with the most generous bandwidth caps, or no caps at all, are only available bundled with either of Shaw’s Legacy TV or its Personal TV model. And these services will also only become available over the next 18 months as its networks are upgraded.

The bundled, highest performance Internet offerings offer speeds of between 50 and 250 Mbps and genereous bandwidth caps of between 250 GB per month and a voluminous 1 Terrabit (TB), as well. The caps are removed altogether in some cases. This is a good thing and appears to bring Shaw’s offerings closer into line with ‘global best practices’.

But tying the highest-performance Internet service to its ‘legacy’ television services is a blatantly protectionist bid — a first line of defense for Shaw’s Global television network, massive cable and satellite distribution system, and big suite of cable and satellite television channels. Enrolling you in its Internet services enrolls you unwittingly into the Shaw Business Projection Plan for all these other services. Your tail wagging its corporate dog.

The fact that Shaw is able to leverage control over its networks to influence the channels of communication flowing through them is not surprising. It is a problem as old as Roman Roads and Venetian Canals. It is a problem of the first order, for all that, and to be resisted now as much as in the past.

In 1910, the long lost precursor to the CRTC, the Board of Railway Commissioners came to a conclusion that would be startling if it happened today. As the BRC found in the ‘double-headed telegraph news monopoly’ case, Cdn Pacific Telegraph Co. and Great North Western Telegraph Co (the latter under ownership control of Western Union) had exclusive distribution rights for Associated Press news services in Canada. Cdn Pacific Telegraph was charging its

. . . subscribers for the commodity, viz., the news, delivered at a flat rate; . . . while in the case of rivals [Western Asssociated Press] the payment . . . was for the transmission, and not the commodity. . . . [T]elegraph companies could put out of business every newsgathering agency that dared to enter the field of competition with them” (BRC, 1910, pp. 274-275).

The bundling of ‘connectivity’ and ‘content’, as Shaw does in its new plans under one corporate umbrella is one of the biggest problems with vertical integration. Always has been, always will be.

Theoretically, the CRTC can do something about this after its upcoming vertical integration hearings next month. It can be taken for granted, however, that Hell will freeze over before anyone seriously considers divestiture of Canada’s big 5 integrated telecom-media behemoths — Shaw/Global (Corus), Bell/CTV, Rogers/CityTv, Quebecor (TVA), Cogeco (Radio).

The government could set up a competitor entity, the Canadian National Broadband Co (CNBC), just like the Australians. That’s not likely to happen either, the price tag of $40 plus billion being only one among many economic and ideological deterrents.

The CRTC should give serious consideration to imposing ‘functional separation’ requirements on the big 5; it would be a good compromise. Not to hot, not too cold — the Goldilocks solution to vexed Internet policy issues.

Just to be churlish, we can also note that Shaw’s plan to convert analog tv channels to digital ones is not a bright, new idea. It is long overdue and coincides with the mandatory switch over to digital broadcasting for the rest of the broadcasting system in August 2011. Shaw’s acceptable use policies are also just as abhorent as they have always been, setting out

  • restrictions on what people can and cannot do with their Internet connections.
  • broad assertions of its authority to act on behalf of copyright claims a
  • its right to make ‘editorial judgments’ about all kinds of content hosted on and moving through its pipes.
  • and to own user created content.

Shaw has moved the ball forward and we should not only hope, but push to have at least the minimum bar it has set met by the remaining ‘big five’ ISPs in Canada that control access to roughly 95 percent of Canadian subscribers: Bell, Rogers, Quebecor, Telus and Cogeco.

The advances so far did not come from the good graces of Shaw. They came from an extraordinary confluence of pressure that has been put on Shaw and all of Canada’s ISPs with greater and greater intensity over the past four to five years.

The three most significant pressures shaping the flow of events are probably:

  • Open Media and the massive public that it helped to mobilize;
  • the ‘tweet’ in the night by then Industry Minister Tony Clement scolding the CRTC for its UBB decision in January of this year and the upcoming hearings to be held by the CRTC this July into the matter which have ensued partially as a result;
  • and crucially, the pressure from investment bankers, who saw mounting public anger and the threat of regulation as a potential danger to Shaw and the others’ bottom line and their ability to raise capital.

Ultimately, while we should appreciate what Shaw’s announcement has put on the table, this should not divert our attention from the fact that much remains. Nor should it give Shaw a free pass when it comes to the CRTC’s upcoming hearings on vertical integration.

LobbyNomics: Kings, Queens, Copyright and Canada — Lessons to and from the UK

A new, independent report commissioned by the British Prime Minister has just come out. It’s observations are astute and damning: mostly with respect to the claims used to rush the Digital Economy Act of last year into law after only 2 hours of Parliamentary debate and for the exceedingly poor quality of the evidence upon which that questionable law, and the debate over copyright/intellectual property generally, takes place.

The report was penned by respected journalism Professor Ian Hargreaves, Digital Opportunities: A Review of Intellectual Property and Growth, and based on a team of highly regarded scholars, including the amazingly talented story teller and legal scholar, James Boyle (his 1996 Shamans, Software and Spleens is one of the most splendid books on knowledge and copyright in the ‘digital age’ that I’ve ever read).  The people behind the report are impressive; the range of sources consulted even more so.

The tone is set clearly in the Foreword. On page 1, it asks whether the U.K approach to copyright and intellectual property stifles innovation?  Yes, Hargreaves states without hesitating. Google, for instance, is on record stating that it couldn’t set up shop in the country

Are piracy and copyright infringement real problems. Absolutely, he states. “No one doubts that a great deal of copyright piracy is taking place” (p. 6).

However, the report tempers that with two key provisos — the equivalent of a double-knuckled blow against the central props of the ‘copyright industry’.

First, “sales and profitability levels in most creative business sectors appear to be holding up reasonably well.  We conclude that many creative businesses are experiencing turbulence from digital copyright infringement, but that at the level of the whole economy, measurable impacts are not as stark as is sometimes suggested (p. 6). This is pretty much the conclusion I reached in my column for the Globe and Mail this past Tuesday.

Second, “reliable data about scale and trends is surprisingly scarce” (p. 6). Since I’ve dealt with issues surrounding the economic state of the music and other media industries in other posts, including yesterday’s column, I will focus on the ‘quality of the evidence’ issue here.

Hargreave and colleagues are crystal clear that bad evidence is central to the whole issue of copyright law and adequately determining the vitality of the copyright industries as a whole, from music, to books, television, radio and animation — the whole gamut, including patents. A few examples help to illustrate the point:

  • “A detailed survey of UK and international data finds that very little of it is supported by transparent research criteria” (p. 6);
  • “There is . . . next to no evidence on copyright policy (p. 17);
  • “[R]eliable data is surprisingly thin on the ground” (p. 69).
  • “[W]e have failed to find a single UK survey that is demonstrably statistically robust” (p. 69).

The estimated scale of music piracy in the U.K. in the many studies they reviewed ranged wildly from 13 to 65 per cent (pp. 70-72). Studies globally are much the same, although a single study by Industry Canada and another by the Government Accountability Office (2010) in the U.S. (equivalent to the Auditor General in Canada) are singled out as exceptions to this rule, i.e. they’re good and follow valid analytical methods.

Based on the extremely poor quality of the evidence, the report states, “we should be wary of expecting tougher enforcement alone to solve the problem of copyright infringement” (p. 6).

Worse, not only have lobbyists been remarkably successful at driving an agenda on the basis of poor evidence, they have made “stronger Government action against online infringement . . .  their top priority” without the evidence needed to support such priorities (p. 67).

And the root of the problem?  The authors hold no punches there, either. “Lobbynomics”, they call it, a set of unfortunate circumstances whereby:

“Much of the data needed to develop empirical evidence on copyright and designs is privately held.  It enters the public domain chiefly in the form of “evidence” supporting the arguments of lobbyists (“lobbynomics”) rather than as independently verified research conclusions” (p. 18).

As Lord Puttnam, a leading light in the UK film industries and now MP, stated in regard to the rush job on the Digital Economy Act, “We have been subjected to an extraordinary degree of lobbying… The lobbying process . . . has done none of us very much help at all” (p. 6).

Worse, other MPs have apparently been star-struck by songstresses, celebrities and cinema stars: “there is no doubt that the persuasive powers of celebrities and important UK creative companies have distorted policy outcomes. (p. 92)
Cont’d on Page 2 . . . . . . . .

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“The Death of the Music Industry” in Canada and other Copyright Myths

The following is my column for the Globe and Mail today, with the addition of a few links here and there. I am fully alert to the fact that this is a very, very touchy subject, not least because musicians and artists are at the centre of the debate, but have been, other than a few megastars, the least to benefit financially from either conditions in the past, or those that prevail today.

Those interested in the topic might find my previous two posts of interests in this regard: the first one looks at the ‘methods’ involved in assessing the state of the music industry. It ends with the crucial proviso that we can collect “all the evidence in the world but still be morally stupid because you’ve thrown the artists and musicians amongst us under the bus”. In other words, this is not just about fun and games, but real people trying to make a real living.

That said, however, I am skeptical of the claims typically made on behalf the ‘music industry’, and equally circumspect that the interests of musicians are interchangeable with those of ‘the suits’ in the business. For those who want to hear something similar from somebody ‘inside the biz’, and who really knows his stuff, look at Bob Lefsetz’s newsletter.

Thanks to Bob, I’m listening to two great bands right now: Fleet Foxes and Mumford & Sons. It’s all about the music, being good, nay great, at what you do, and crucially the fans, those who adore your stuff and rave about you to others.

The second of these two posts sets out the idea that the music industry was in many fundamental ways the offspring of rivalry between the telegraph giant Western Union and then snarly upstart Bell Telephone Company in the late-1870s and 1880s. If rivalry between ‘network technologies’ gave birth to the music industry in the late-19th century, I think it is unlikely that ‘network technologies’ like the Internet and P2P are going to lead to their demise in the 21st century. History, in short, may be a useful and sturdy guide for thinking through the issues now in front of us.

Now, I’ll turn to the slightly revised/extended version of my column from today.

For more than a decade, the music industry in Canada, and globally, has been cast as being in dire straits — a portent of things to come for all media in the ‘digital age’, unless copyright laws are updated soon to combat illegal downloading.

The notoriety of file-sharing networks from Napster in the late-1990s, to Pirate Bay and the meting out of stiff punishment to Limewire is legendary. New sites emerge as swiftly as old ones are prosecuted out of business, fueling perceptions that the music industry is under siege.

Many claim this will only get worse as broadband Internet becomes a taken-for-granted fixture of everyday life. Copyright legislation has been proposed three times since 2005 by Conservative and Liberal governments alike.

Last year’s effort, The Copyright Modernization Act (Bill C-32), died when the election was called. It’ll be back. The Conservative’s election manifesto said it would be.

The Canadian Recording Industry Association (CRIA), backed by the Recording Industry Association of America (RIAA) and International Federation of Phonographic Industries (IFPI), argues that legislation delayed is justice denied. While Parliament dithers, they say, musicians and the music industry are getting slaughtered.

According to the IFPI, “overall music sales fell by around 30 per cent between 2004 and 2009” worldwide. The trend in Canada appears even worse, with “recorded music sales” plunging to a third of what they were in 2004, as the following figure shows.

‘Recorded Music Industry’ Revenues in Canada, 1998 – 2010

Source: Statistics Canada; PriceWaterhouseCooper.

But stop the music. What if this image of a beleaguered music industry is badly flawed?

Cont’d on Page 2 . . . . . . . .

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Back to the Future: From the “Death” to the “Birth” of the Music Industries

Not only should we be circumspect of claims that the Internet, P2P networks and rampant piracy are leading to the demise of the music industry, we must remember that the music industry itself is the child of the ‘network infrastructure’ industries going back to the late-19th century.

As I noted in my last post, the “death of the music industries” only makes sense if we focus on just the ‘recorded music sales’ segment of the business rather than the “total music industry”: 1) recorded music sales; 2) online digital music sales (Internet, ringtones, etc.); 3) concerts and 4) publishing. I have provided the details for this argument in a previous post; my column for the Globe and Mail this week (May 17) will consider the specific case of Canada.

Here I want to make a different case: namely, that claims about the impending demise of the music industry is especially strange once we consider that network technologies gave rise to the music industry to begin with.  In fact, the music industry was the direct offspring of  ‘network infrastructure’ competition between the Western Union Telegraph Company and the Bell Telephone Company in the U.S. and Canada in the late-1870s and 1880s.

To be sure, there is more to this than just corporate rivalry over new technologies and markets. For instance, innovations in architecture — the use of iron girders, in particular — allowed music concerts halls to be built much bigger and on smaller tracts of land in crowded metropolitan cities such as London and New York in the latter part of the 19th century. More seats in bigger halls meant economies of scale. That meant cheaper tickets and bigger audiences. The expansion of the concert side of the business was, according to the historian Gerben Bakker, a key component in the ‘industrialization of entertainment”, and these processes were replicated throughout the world.

The ‘recorded music’ side of the business was ushered into being as an unintended outcome of “network infrastructure competition” between Western Union and the Bell Telephone Company in the United States. As Richard John notes in Network Nation, as part of this competitive rivalry, Western Union and the Bell Telephone Company threw vast sums of money at the leading technological geniuses of their time – Thomas Edison, Elisha Gray, Alexander Graham Bell and Emile Berliner.

The results produced several cutting-edge innovations that shaped the communication and entertainment industries into the 20th century: (1) quadraplex technology that doubled the speed of telegraphs, (2) the telephone, and (3) the phonograph.

Thus, in addition to their key role in the development of and competition between the telegraph and telephone, all of these figures, Bell, Edison and Berliner, except Gray, also became primary early movers behind the development of the phonograph and ‘recorded music’ industries as a direct result of unintended discoveries stemming from their role in the corporate rivalry between Western Union and the Bell Telephone Company between, roughly, 1876 and 1881.

Edison set up his Speaking Phonograph Company in 1877. Bell and the Bell Telephone Company patented their innovations for the graphophone and commercialized it through the creation of the Volta Graphaphone Co. in 1886, a company that, through mergers and acquisitions, would be transformed into Columbia Records over time.

Berlinger’s work at the Bell Telephone Company until 1883 led directly to his own patents for the gramaphone machine in 1887. He created the Gramaphone Company two years later, and set up international branches in London (the Gramaphone Company), Hanover, Germany (Deutsche Grammophon) and Montreal (Berliner Gram-o-Phone Company) over the next decade.

Not suprisingly, these three companies came to dominate the music industries that Edison, Bell, and Berliner had played such a primary role in creating. Remnants of Berliner’s Gramaphone companies are still with us today, having been progressively absorbed in one way or another into the operations of Universal, EMI and Sony over time.

In short, network infrastructure competition drove the development of the music industries.

There are several other important dimensions in these developments that need to be unpacked and discussed.

Cont’d on Page 2 . . . . . . . .

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Building Bridges: Music, Methods and Madness

Hmmm, I’ve been beavering away on my next column for the Globe and Mail. Sheesh, it wasn’t suppose to be this way; the ideas are just supposed to flow.

But I digress. And the article is on a touchy and touchy-feely topic, music, the music business and copyright.

Everybody loves a song and deep down fashions themselves a singer of at least something. At least I do. While the love and art of music may be alive and well, maybe even flourishing, by most lights the business side of things is, well, a bit of a trainwreck.

‘Record sales’, they say, are in a death spiral. Indeed, Google the phrase “death of music industry”  and you get 14,600,000 hits. Based on ‘Google Hits’, the “death of music industry” mantra is about one third as popular as Lady Gaga, who clocked in today with 42,700,000 ‘Google Hits’ (GH, here on out).

Some of the big 4 major labels — Warner, EMI, Universal and Sony — have roots going back to the very early days of the 20th century, and to the mid-19th if we count bible publisher-come-music and media conglomerate Bertelsmann. Today they appear to be tearing themselves to pieces.

Bertelsmann ditched its half stake in Sony BMG in 2008, but kept its ‘music publishing rights’ line (a point whose significance will become apparent below). EMI is locked in a nasty turf war between scrubby private equity firm Terra Firma Capital (it appears it is anything but ‘firm soil’) and one of the planet’s big four bankers, the Citigroup (see here).

Music and money seems to be a constant theme here. Citigroup has also put the venerable Warner Music up for auction, after its former parent company, Time Warner, cast off the company in 2005. Universal remains part of Vivendi, the French industrial-media conglomerate that has its own fair share of trouble in many quarters (i.e. a lot of fraud convictions), if not so evidently in the music business.

Big global concert and merchandising promoters like Live Nation and AEG are having their own share of woes as well, it would seem. The concert and live entertainment/merchandising side of the industry has gone boffo, but the two biggest players have blown up their balance sheets through a wave of consolidation. If anyone ever wants to see what happens when the money guys and marketers get a full grip on culture, or music, than have a good luck at the last half dozen Annual Reports from Live Nation, for example. It’s a disaster.

Even Google seems unable to find a steady place amongst the turbulent waters that constitute the music industry.

All of which is to say that the evidence seems overwhelming that the music industry is in crisis. Umm, I’m not so sure, but I’ll leave the particulars to that for early next week in my Globe column.

Here, I want to focus on two other things that I think are helpful.

Cont’d on Page 2 . . . . . . . .

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