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Methodenstreit: A Reply to a Question from Greg O’Brien @ Cartt.ca about Media Concentration Research Methods

I have changed this post since putting it up last Wednesday (May 23, 2013). I have not done so substantively. Indeed, I have left all the data and main claims as they were.

What I have done, however, is remove some of the snark at the top and the bottom that I directed at Greg O’Brien at the outset. It’s unnecessary, and as a few colleagues, friends and others with my interests close to heart have kindly suggested, we need more civility in the internets, not less (see Blayne Haggard’s thoughts here).

Btw, the picture in Blayne’s post of a guy pounding away at a keyboard struck a chord; Kristina, my wife, will nod disapprovingly for sure; and its effect would be even greater still if you put five more words at the end of the word bubble: “about telecom, media, internet concentration”. I’ll think about that.

The revised version follows. A link to the original is here.

Last Friday afternoon, just as I was settling in for the first long holiday weekend, Greg O’Brien, sent me an email asking about media concentration research methods. Greg is the founding publisher and lead writer over at Cartt.ca — an industry trade paper that serves the telecom, media and internet industries here in Canada. The question is an important one and so I began to sketch out a reply.

I was advised, however, that it would be best to wait. The final replies to the Bell Astral hearings had yet to be submitted and, thus, addressing questions of methodology directly bearing on the hearings in public was out of bounds until the proceedings closed. No need to tip your hat to others about what you’re thinking. It was another in a long string of moments when my ‘academic’ persona tugged hard to break free of the short leash imposed on experts appearing before the CRTC.

The advice I got was superb. My advisors were dead right and I was wrong. While my inclination is always to just reply immediately and as fulsomely as I can, that is not always the smartest thing to do. Ask any journalists who knows me, or anybody for that matter, and they will tell you that I always freely share my ideas and don’t play coy.[1]

The advice I received was right. Bell was poking around in the same spot that O’Brien was and raised the same question that O’Brien does about the HHI thresholds used by “consumer groups” (they don’t refer to me or the consumer groups by name, nor do they speak of public interest groups) (See Bell Final Reply, page 2).

The core of his original email is below. My reply follows.

Date:       Fri, 17 May 2013 12:11:23 -0400

From:    “Greg O’Brien” <greg.obrien@cartt.ca>   Block Address

To:          “Dwayne Winseck'” <dwayne_winseck@carleton.ca>

Subject:   Research question

Hi Dwayne,

I just wanted to point out an issue I came across about the research on media concentration that is part of PIAC’s presentation to the Commission on Bell/Astral and a big part of the CMCRP, too. I did a little digging into Herfindahl-Hirschman Index (HHI), to figure out what it was and came across some info below that it looks like, from the links, the HHI index itself was changed or updated back in 2010 by the Federal Trade Commission and US Department of Justice.

Your research paper says the HHI and the thresholds of media concentration fall into three levels:

HHI < 1000 = Un-concentrated

HHI > 1000 but < 1,800 = Moderately Concentrated

HHI > 1,800 = Highly Concentrated

However, these links here, here and here seem to show that back in 2010, those HHI thresholds were altered so that:

HHI < 1500 = Unconcentrated

HHI > 1500 but < 2,500 = Moderately Concentrated

HHI > 2,500 = Highly Concentrated

That puts the HHI scores for many of the media mentioned in your report in the moderate or low range, I think.

To be honest with you, this is a bit too deep in the regulatory research weeds for a story in Cartt.ca. But I was wondering if you could explain the difference to me? Am I missing something? If not, does the research need to be altered/updated? Please let me know if I am wrong, or if we use different numbers for Canada.

Thanks,

Greg

My Response

Hi Greg,

Thanks for your inquiry.

Before I begin, please let me ask you to address specific questions about methodology or data to me since it was me that was hired to prepare evidence and write a brief in support of the public interest and consumer advocacy groups’ intervention opposing Bell’s revised bid to take-over Astral. My response is done solely in my capacity as a scholar and director of the Canadian Media Concentration Research (CMCR) project.

I wanted to send you my response earlier but was advised that it best to wait until the Bell Astral proceedings closed. Turns out, Bell was poking around in the same spot you were (see Bell Final Reply, page 2).

Let me also say, though, too, I was a bit hesitant about replying to you on account of the fact that the only other time you’ve spoken about my data, method or research at all was when you tweeted one of Bell’s allegations about my CBC revenue data at the very end of the reply phase for Bell Astral 1.0. That you tweeted about it then without asking me first about my views, and that your question now falls again at the very end of the reply phase, feels funny to me and I don’t quite like it. 

However, let me put that aside and try to answer your question because it is a good question.

I am aware of the new U.S. Department of Justice and Federal Trade Commission’s guidelines. David Ellis, who you also know, sent them to me earlier in the year. Please ask him about that.

Guidelines do change from time to time. While the U.S. replaced the revised 1997 version guidelines in 2010, there are a couple of reasons why they have not seeped into the scholarly literature and my research methodology specifically.

For one, when guidelines change academics will always take time to decide if the changes adopted are suitable to the field we’ve been working in. There has been a long-standing argument amongst scholars that the DOJ’s existing guidelines were already inappropriate for communication and that a ‘weightier’ test was required because of the freight communications media carry with respect to free speech, the free press, privacy, democracy, their role as public spaces vital to citizenship, many non-market attributes and other such concerns. I share such concerns (also see Eli Noam and C. Edwin Baker on this point; or Compaine and Goldstein for opposing points of view).

Second, the International Media Concentration Research (IMCR), of which I am a part, and which is, as you know, led by one of the world’s foremost experts in this area, Professor of Finance and Economics, Eli Noam at Columbia University (New York), set sail in 2008. Changing course midstream and with the larger debates just referred to still hanging in the air would have been unwise. The fact that the project has forty or so scholars studying long-term media concentration trends in as many countries around the world also suggests that you don’t change things just because things in the U.S. change. 

Of course, we must take heed of what the U.S. does, but it does not determine things everywhere else. Historical and international comparative references, amongst other things, are crucial too. You might also ask Professor Noam as well why the project stuck with the existing standards rather than change to the new ones midstream?

In short, one doesn’t jump from a set of standards over which there is already a lot of debate to looser ones without a great deal of thought. That said, one should not cling to outmoded ways of thinking either, and so I have been looking carefully at the new guidelines with an open mind.

Indeed, I brought the new DOJ/FTC guidelines with me to Montreal two weeks ago and was reading them in the run-up to and during Bell Astral 2.0.  As you will see on page 19, the guidelines not only set the thresholds at the higher levels you recite, but tell us what constitutes significant consolidation by pointing to the degree of change, i.e. transactions that move the dial 100 or more points in markets that are already modestly to highly concentrated.

Here’s what the new guidelines say with respect to transactions in:

Moderately Concentrated Markets: Mergers resulting in moderately concentrated markets that involve an increase in the HHI of more than 100 points potentially raise significant competitive concerns and often warrant scrutiny.

Highly Concentrated Markets: Mergers resulting in highly concentrated markets that involve an increase in the HHI of between 100 points and 200 points potentially raise significant competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance market power (emphasis added, p. 19).

The chart below created on the basis of 2012 revenue data shows that, contrary to what you say in your email, none of the sectors implicated by the Bell Astral deal are at the low end of the new guidelines, except radio – as I never fail to mention.

More importantly, the Bell Astral transaction will move several sectors from moderately to highly concentrated status even by the looser standards of the new guidelines, i.e. an HHI score above 2,500, as the chart below illustrates. These sectors are:

  • English-language Specialty and Pay TV (2525.2);
  • French-language Specialty and Pay TV (4085.1);
  • total Specialty and Pay TV (2512);
  • the total French TV sector is already above 2,500 but would be pushed further to 2801.7.

It is also important to point out that the Competition Bureau in Canada does not use the HHI to set fixed benchmarks but rather to help it “to observe the relative change in concentration before and after a merger” (emphasis added, p. 19, fn 31). The Bureau does, however, state that when the four-firm concentration ratio (CR4) passes 65% it may step in to examine whether a merger “would likely . . . enhance market power, and thereby . . . lessen competition substantially” (p. 19, fn 31). You can look at the data in the chart below and reach your own conclusions on this point.

In addition, in terms of relative change, as the DOJ guidelines quoted above state, a transaction that moves the dial in moderately or highly concentrated markets by more than 100 – 200 points will “potentially raise significant competitive concerns and . . . be presumed to be likely to enhance market power” (emphasis added, p. 19). Based on the 2012 data shown in the chart that follows immediately below, here is a list of sectors implicated by Bell’s proposed take-over of Astral that would move the dial between 200 and 1200 points (change in HHI noted in parentheses):

  • English-language Specialty and Pay TV (+416 points);
  • French-language Specialty and Pay TV (+1215.1 points);
  • total Specialty and Pay TV (+608.5 points);
  • English-language Total TV (+236 points);
  • French-language TV (+207.5 points);
  • Total TV (+298 points);
  • French language vertical integration between BDUs and broadcasters (+361 points).

Changes in Concentration Levels: Before and After Bell Astral, 2012 Revenues 

2012 Revenues

Bell Mrkt Share Before

After

CR4 Before

CR4 After

HHI Before

HHI After

CR4 2008

HHI 2008

Conv TV        
ENG

30.7

30.9

90.7

90.9

2337.2

2347.2

96.1

2724.9

FR

0

0

95.1

95.1

4403.4

4403.4

94.5

4005.7

ENG + FR

22.6

22.8

82.9

83

2287.9

2293.5

86

2367.4

Spec & Pay TV

 

 

 

ENG

28

33.8

83.1

84.5

2109.2

2525.2

73.2

1543

FR

27.1

59.2

97.9

97.7

2870

4085.1

87

2755.1

ENG + FR

27.9

38

81.5

83.8

1925.7

2534.2

71.9

1451.7

Total TV

 

 

 

 

ENG

29.2

32.5

81.9

86.2

1891.2

2127.2

77

1762.2

FR

11.1

24.4

91.7

92.9

2594.2

2801.7

85.2

2389

ENG + FR

25.4

30.8

76.8

83.3

1691.5

1989.5

70.9

1486.7

Radio

 

 

 

 

ENG

9.8

21.9

51.6

59.6

822.6

1014.4

56.5

970.8

FR

0

27

84.1

84.1

2406.6

2406.6

90.1

2704.9

ENG + FR

7.9

23.2

53.4

62

825.3

1127.3

60

1047.2

VI & Network Media (2011)

 

 

 

 

ENG

31.3

31.8

83.2

84.2

1984.4

2014.9

N/A

N/A

FR

35.2

40.1

71.8

76.7

1872.1

2233.1

N/A

N/A

Also take note of the big changes not just by the standards of regulatory authorities but those of the recent historical past as well, i.e. since 2008, and notably for pay and specialty tv, total tv and radio.

As you can see, Greg, if this was purely an issue of methods and numbers, the CRTC should be very busy. And it is. This is why the Bell Astral 2.0 deal has received the critical attention it deserves, by the Commission and by people such as myself.

Finally, as I am sure you will have noted, I have updated and made the CMCR’s analysis of the 2012 data available on our website. I have the French- and English-language market 2012 data that corresponds to each of the sectors that we released the other day (radio, broadcast TV, specialty and pay TV, total TV), and for vertical integration between BDUs and broadcasting in both English- and French-language markets as well as for Canada

I really would be delighted to share all of our data sets with you under appropriate circumstances once the CRTC completes its deliberations on the current transaction. Doing this kind of research is not easy. There is much judgment involved and reams of data to be managed. I would like to trust that your question comes from a good place but I’m also acutely sensitive to the fact that there are many who toss barbs at researchers and, especially, critical ones, all the time. It really needs to stop, and if a full prof with tenure and a good salary can’t stand up to such attacks, who will? 

Ultimately, I always aim to improve my work and what I put out under the auspices of the CMCR. If you ever see anything in need of improvement, correction, qualification, etc., please let me know and I will, as is our standard practice, fix things while publicly acknowledging any errors we have made and your role in setting things aright.

Best wishes,

Dwayne

[1] To put a more scholarly spin on it, questions about research methods are difficult and often boring, but they can be really helpful when they clarify how we know what we know. They tend to be open ended (and wordy, too) which leads in many unforseen directions. German philosophers originally called such activities “methodenstreit”, or “methods dispute”, hence the title to this post. The notion of methods disputes is now common across philosophy and the social sciences and yes, that includes economics (see here and here).

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CMCR Project 2012 Data Release: Concentration Trends in the Telecom-Media-Internet Industries in Canada, Part 1

Highlights (original posted to Canadian Media Concentration Research Project website)

The CMCR analyzed the financial results for Canada’s biggest TV providersradio broadcastersspecialty, pay and video-on-demand services as well as cable, satellite TV and IPTV providers released by the CRTC in early April. Our analysis shows that concentration levels in 2012 remained high in all areas, except radio.

Using two standard research tools to assess media concentration – concentration ratios and the Herfindahl-Hirschman Index (HHI) — our analysis shows that:

  1. Concentration levels for all of the industry segments for which the CRTC released data, except radio, remained high in 2012;
  2. However, such levels eased slightly in all segments addressed relative to 2011, except for specialty and pay TV services.

You can access all of our raw data not just for 2012, but from 1984 onwards here.

Discussion

Coupled with the annual reports of publicly-traded companies, the CRTC’s 2012 data allows us to construct a fairly comprehensive portrait of the current state of telecom, media and internet concentration in Canada.[1]

While concentration levels remain at the high end of the spectrum according to both the CR and HHI measures, and by international standards, there was a slight uptick in competition in four out of the five areas covered by the CRTC’s data for 2012:

  • In the $3.5 billion conventional TV sector, the CR4 declined from 87% to 83%, while the HHI score dipped slightly from 1966 to 1943. The decline is likely due to the fact that Bell and Shaw saw small declines in their revenues and market share, while two mid-size TV stations that were formerly a part of Canwest have continued to carve out a spot for themselves: the employee-owned CHEK TV in Victoria and Channel Zero’s CHCH in Hamilton.
  • A small dip could also be seen in the $7.5 billion total TV segment (an amalgam of conventional TV with specialty and pay TV), where the market share held by the big four — Bell, Shaw (Corus), Rogers and Quebecor — declined from 79% to 77%, with a corresponding decline in the HHI score as well.
  • Trends for the $8.7 billion cable, DTH and IPTV pointed in a similar direction, with the big four’s share declining modestly from 83 percent to 81 percent, largely due to the growth of Telus, MTS and Sasktel’s IPTV services in western Canada and Bell’s IPTV offering in Ontario and Atlantic provinces.
  • Finally, the $2 billion radio industry continued its long-term downward drift, with the CR4 sliding from 55.5% to 53.4%.

Concentration levels in the $4 billion Pay and Specialty TV services – the fastest growing and most lucrative segment of the TV industry – stayed steady at the high end of the CR4 (81.6%) and HHI (1905) scales. This is likely due to the fact that the growth of newcomers such as Blue Ant and Channel Zero was offset by a rise in Bell’s share of pay and specialty TV services, largely because of the substantial increase in revenue at its English and French-language sports channels, TSN and RDS, respectively.

The preliminary analysis offered thus far is important because the CRTC released the 2012 data in early April, just days after its deadline for submissions regarding BCE’s renewed bid to acquire Astral Media. As a result, none of the interveners was able to include it in their formal, written submissions to the public hearings that took place last week, except for Bell.

Bell filed an updated analysis based on the 2012 data with the CRTC in its Reply to interveners on April 16. In doing so, it used the new data to repeat and buttress its rejection of critics’ claims that the deal gives Bell too much market power:

. . . close review and analysis of the post-divestiture Bell-Astral in each of the English and French television markets – regardless of the metric employed – proves otherwise (Bell Reply, para 46).

Consequently, Bell asserted, there are no barriers from the standpoint of media concentration that should stand in the way of the CRTC approving the deal (Bell Reply, 2013, pp. 4, 11 – 20; also see the report Bell submitted from its consultant, CMI here, Appendix 3, or here). With today’s release of the CMCR data, readers can examine the evidence for themselves and draw their own conclusions.

Regardless of whether you agree with Bell’s view of the world or not, the fact that Bell and nobody else could update the public record for the Bell-Astral hearings using 2012 evidence is deeply troubling. I will have more to say about these issues in a series of upcoming posts. However, as the Commission settles in to make its decision on the Bell-Astral transaction, the public should have as much access as possible to the evidence upon which key elements of the decision will turn.

The CMCR project does not just present the relevant data company by company, or on the basis of ‘before’ and ‘after’ snapshots to gauge, for instance, the one-off impact of the Bell-Astral transaction on Bell’s stand-alone share of the TV market. Instead, our analysis of the 2012 data relies on two fundamental tenets of good scholarship on media concentration:

(1)  a long-term focus on concentration trends over a 28-year span from 1984 to 2012;

(2)  using two standard research tools to examine the structure of media markets rather than changes in the stand-alone market shares of individual media firms: Concentration Ratios and the Herfindahl-Hirschman Index (HHI).

These research methods are essential because snapshots of just one or two media sectors or firms are often selectively used to make unwarranted generalizations about the larger media ecology. Moreover, ‘before’ and ‘after’ snapshots fail to capture dynamic trends over time. These are precisely the kinds of commonly used techniques that serve to muddy the waters, and that sound methodology in media concentration research is explicitly designed to counteract (Noam, 2009, chs. 1-3IMCR, ndCMCR, 2012).

Analysis of the 2012 data also reconfirms the existence of a fundamental problem in the CRTC’s data for pay and specialty TV: key aspects of it cannot be reconciled with the results found in the audited annual reports of several companies covered by the Commission’s data sets. Tallying up the CRTC’s data for Astral, for example, yields a figure of $540.9 million, while the company’s Annual Information Form indicates a figure of $562 million, after the revenues from its two conventional TV stations, in-house advertising and online segments are excluded (see p. 8 and PWC, 2012, pp. 45, 52 and PWC, 2013, p. 60).

Nor is the Astral example an anomaly, as I will show in a subsequent post. This is not a view that we reached lightly but only after lengthy discussions with a Commission analyst well acquainted with the Individual Pay, Pay-per view, Video-on-Demand and Specialty Services Financial Summaries being referred to.

We hope readers will find our analysis of the 2012 data helpful in relation to other matters, as well. In the next week we will also release our analysis of the 2012 data for vertical integration between cable, satellite and IPTV distributors (BDUs) and TV and radio broadcasters in English- and French-language markets, and for Canada as a whole.

Our analysis will also be updated as new data becomes available for the remaining telecom, media and internet industries covered by the CMCR project: wireless and wired telecoms, Internet access, search engines, music, newspapers and magazines.


[1] The CRTC released total revenue figures for pay and specialty TV and broadcast distribution services; it did not do so for conventional TV or radio. To estimate revenues for these two sectors, we used last year’s cumulative annual growth rates cited in the Communications Monitoring Report, while checking that figure against other quality sources such as PriceWaterhouseCoopers’ (2012) Global Entertainment and Media Outlook, 2012 – 2016 to help ensure the reliability of our estimate.

Netflix and Canadian TV: Menace or Messiah?

We hear a lot about Netflix, and we hear it often, by both those who love and loathe it. It has become a fixture on the Canadian media scene in a very short time.

Indeed, there has been much gnashing of teeth since Netflix’s inception in this country in 2010, including the tightening up of bandwidth caps, inquiries by the CRTC, as well as the constant invocation of the streaming video on demand service (SVOD) in regulatory proceedings, from the CRTC’s 91h hearings just last week and no doubt in the one that it is set to start next week for Bell and Astral’s proposed amalgamation.

With roughly 1.6 million subscribers at the end of last year (IHS Screen Digest), it’s revenues can be estimated to have been about $134.3 million in 2012. This is a sizeable amount for sure, but where does it fit within the existing $7.5 billion industry (not counting the carriage and distribution side of the biz)?

So, the question for our post today: Netflix, menace or Messiah?

Netflix’s estimated 1.6 million subcribers, no doubt lean toward the latter view, even if they have to endure deliberately downgraded quality (i.e. no HD) to ensure they don’t blow their monthly bandwith caps and a slimmer catalogue to choose from. Even those in the TV biz regularly tell investors that they don’t expect any short- to mid-term harm, while the long-run is still anybody’s guess. 

However, look further and read the pages of leading newspapers in this country (take this piece by Andrew Coyne from the National Post just two days ago for starters), and Netflix is often cast as ushering in the death of “old TV” and as the spearhead of a much bigger ‘video revolution’ that is poised to bring Canada’s big four vertically integrated media goliaths to their knees: Quebecor, Rogers, Bell and Shaw.

The long list of new content acquisition deals, and charts showing internet traffic attributable to Netflix going through the roof (here and here), all seem to have a point, and who knows, maybe all of the kerfuffle is on the mark. I don’t want to offer anything definitive on the point other than to say that, me, I’m skeptical.

However, what I do want to know is something a bit more systematic about where things stand. And so as I’m won’t to do, I’ve encouraged my students to have a look at things and recently, one of them, Patrick Foley, did a real bang up job putting together the following chart showing Netflix’s content acquisition and development.

I’ve added to the table here and there and then developed some commentary of my own afterwards, but I think it’s good to, first, take a deep breadth and take stock of what kinds of content deals that Netflix has and hasn’t done. Otherwise, I’m afraid that a compendium of disparate press releases will add up to the impression that there are barbarians at the gate and unless we do something fast, they’re gonna tear the place apart – that “place” being the “Canadian television system” as we know it.

So here we go, a selection of Netflix’s content acquisition and development deals over the past few years.

Netflix’s Content Acquisition and Development Deals

Year Library Content
Starz 2008 2008  5 yr. deal. $30 million per year. Access to 2,500 titles, including “classic films” such as “Scarface” and “Beetlejuice”
NBC Universal 2010 Renewed contract for 5 additional years, worth $1 billion. Rights to titles from Paramount, MGM, and Lionsgate studios. Also acquires rights to old and new episodes of ”SNL,” “30 Rock”, “The Office,” and other popular shows. Can offer SVOD (streaming video on demand) 90 days after airing on Pay TV.
CBS Corp. 2011 4 yr. “Pay- as-you-go” deal with The CW Network (jointly owned by CBS and Time Warner) 700 hours of old CW programming and rights to new episodes. Older shows like “Cheers” can now be streamed. So too for newer ones, e.g. “Gossip Girl” and “Vampire Diaries”
Time Warner 2013 “Pay-as-you-go” deal between Netflix Turner Broadcasting & Warner Bros (TW subsidiaries) ($100s millions). New and old Warner Bros content produced for TV (i.e. shows already aired on ABC, NBC, FOX, HBO, Cartoon Network, TNT, etc.), including “666 Park Avenue” “Revolution”
Disney 2012 $200-$300 Annually Classic Disney titles and access to newly released Disney movies for 3 years (7 months after theatre release). Latter came its way after Disney’s contract with Starz ended. Classics like ”Pocahontas”, ”Alice in Wonderland” and LucasFilms productions available for internet streaming.Beginning in 2016 Netflix can exclusively stream films from Pixar, Marvel, DisneyNature, and Disney Animation Studios.
Starz 2013 Netflix did not renew contract Netflix loses rights to 2,500 “classic films” such as “Scarface” and “Beetlejuice”
2012 Arrested Development Former Fox TV series revived. May be prequel to movie.
Media Rights Capital 2011/12 – 2013 House of Cards Adaptation of previous BBC miniseries of same name. First TV series to premier on Netflix, beginning Feb. 1, 2013.
Viacom / Dreamworks 2013 Turbo F.A.S.T. (Kids animation series)  Original animated series based on forthcoming Dreamworks’ movie, Turbo.

Sources: Edwards (2012). Bloomberg; PR Newswire 2012; Kang (201). Washington Post. Villarrea. (2013). LATimes. Gruenwedel (2013). Home Media Magazine.

There’s much to be said about the above list of activities. Instead of writing another of my trademark long, long posts, however, let me distill a few points that I think are the most important.

Characteristics of Netflix deals:

  1. Acquire old, classic, established libraries of content.
  2. Acquire rights to air new episodes from ongoing TV series, and newly produced movies, after time delay.
  3. Youth/kid/teen oriented content is really important.
  4. ‘Old TV’ is the main ingredient of ‘new TV’, with established TV series revived and remade into new ones (Arrested Development; House of Cards) and forthcoming movies become TV series before they even hit the box office (Turbo F.A.S.T).  In other words, original content is derivative of existing content.

Make Peace Not War: or how the Traditional US (but not Canadian) TV and Film companies learned to live with Netflix

  1. Netflix breathes new life into classic/old content.
  2. It opens a new distribution window: ‘streaming video on demand’: SVOD, slotted into the pre-existing, window-based Hollywood model that staggers the release of movies between regions and across time.  Hollywood always learns to, at least eventually, embrace these new windows, even if late in the game, as my professor Janet Wasko taught us many years ago. Why? Because they are new markets, sources of revenue, that’s why (see here for latest evidence of growth of new windows relative to box office.).
  3. Netflix is complementary because Netflix subscribers tend to watch more TV rather than less, as the MediaTechnologyMonitor studies have repeatedly shown. As the most recent MTM study says, for instance, “Netflix customers are not so-called cord cutters. . . . In fact, Netflix users were found to be more likely than other consumers to shell out for a premium TV package, even while paying $8 a month for the streaming service”. UK communication and media regulator, Ofcom (see p. 3), has come to similar conclusions (also see here with respect to UK).
  4. Netflix may increase “packaged-media sales” (DVDs, DVD box sets, etc.) and cable VOD by sizeable amounts (15-30%), some Time Warner execs have claimed, although some of the scholarly literature I have read seems less convinced.
  5. Adds foreign films that lack North American theatrical release (thanks Patrick).
  6. Enables time-shifting and space-shifting via Microsoft’s Xbox 360, the Nintendo Wii, Sony’s PS3, Blu-ray disc players, and internet-based video players like Apple devices (again, thanks Patrick).
  7. And some stalwarts of the ‘traditional mediacos’ have a position on Netflix’s Board of Directors alongside internet and tech companies and that affords them at least a small lever of influence and control: e.g. Ann Mather (Walt Disney, Pixar, Google, MGM, Village Roadshow Pictures), Leslie Kilgore (Amazon, LinkedIn), Jay Hoak (Technology Crossover Ventures) A. G. Battle (Ask Jeeves, Expedia), Reed Hastings (Netflix, Facebook, Microsoft) (Netflix, 2012).

Why Canada’s Vertically-Integrated Players Continue to Hate Netflix:

  1. Must compete with Netflix over rights to new distribution window vs. treating them as an inexpensive bolt on to the existing suite of rights they acquire.
  2. They don’t have much original content of their own so must compete even more with Netflix.
  3. Netflix seems to give media workers more creative autonomy in their work and a bigger slice of the pie and more say afterwards.
  4. The creation of a new window – SVOD – increases pressure to compress ‘old windows’, especially VOD – a lucrative cash cow for existing BDUs’ specialty and pay TV services that continue to rake in operating profits in the mid- to high-20% range (see p. 1).
  5. Netflix enables time-shifting and space-shifting on other company’s devices —  Microsoft’s Xbox 360, the Nintendo Wii, Sony’s PS3, Blu-ray disc players, Apple, etc. – rather than their own.
  6. Finally, Canadian media execs seem to loathe Netflix because they have no position of influence or control at Netflix, or anything like it.

Does this mean that nothing’s changing? Absolutely not! Television and how it is made, circulated, controlled and consumed is changing dramatically.

Fast disappearing is the old scheduled model of tv programming punched out by vertically-integrated tv cos modelled on the Fordist approach to car production (ownership of everything from inputs to manufacturing and dealerships), with highly unionized workforces and subsidized consumption brought to you courtesy of advertisers and government funding.

And what’s coming online? Hold your breath, folks, but it just may be the the centuries’ old  ‘publishing model’. In this model, TV execs function as commissioning editors signing contracts and royalty cheques with creative talent. Most media work becomes more and more precarious, less unionized and less well paid. Disappearing are the “old days” when union bosses negotiated long-term contracts for media workers with durable media jobs and clear roles and back are the really old old days when everybody had to fend for themselves.

In addition, in the publishing model, as with books, people pay for what they get while the ratio of advertising and government subsidies to public service media steadily declines. Audiences’ preferences become more closely aligned with what they pay for as a result, but the gap between the media rich and media poor expands.

Think catalogues of movie and TV program titles, not a linear scheduled flow of appointment viewing. Long live TV, while everything changes.

So, Netflix, Menace or Messiah? You be the judge.

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