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.