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Shattered Mirror, Stunted Vision and Squandered Opportunities

Two weeks ago, the Public Policy Forum published its report on the state of the news media in Canada: The Shattered Mirror: News, Democracy and Trust in the Digital Age. It’s an important report, and needs to be taken seriously.

The report’s portrait of the state of journalism in Canada is grim: advertising revenue has plunged in the past decade – due, it claims, to the internet, and to Facebook and Google especially; daily newspapers have been closed, merged or pared back during the same period; many local TV stations face a similar fate; well over 12,000 journalism jobs have vanished; fake news is pouring in to fill the void; and the social ties that bind us together are fraying. All of this adds up not just to a crisis of journalism but a potential catastrophe for democracy writ large, the report intones.

In the report’s view, throughout the 20th Century advertisers, audiences and news organizations shared a mutually beneficial three-way relationship: advertisers got cheap access to large audiences, journalists got paid, and we got our news for next to free because advertisers footed the bill. This literally was the “free press”, and by lucky happenstance, democracy was the better for it.

That’s all coming undone now, though, say the wise counsel of mostly senior journalists and journalism professors huddled around the Public Policy Forum’s new CEO, Edward Greenspon (and former Globe and Mail and Bloomberg News senior editor) who led the development of this report. They conclude with a dozen recommendations designed to turn back the tide. The cornerstones of their policy proposals aim to redirect advertising revenue that is currently flowing into the coffers of Silicon Valley-based internet giants like Google and Facebook back to Canada. Another group of policy recommendations aims to use a proposed new Future of Journalism and Democracy Fund to boost the capacity of professional journalism taking root in emerging digital news ventures and First Nations journalism organizations.

I think that the exercise is potentially useful, and that there’s no need to shy away from the idea that the federal government can adopt supportive policies to bolster journalism and help a democratic culture to thrive. However, this report is badly flawed. All along the way it cherry-picks evidence and gooses the numbers that it does use to make its case. There is also an acute sense of threat inflation that hangs about it. The extent to which Google, Facebook, Silicon Valley and “the Internet” are made the villains of the piece is both symptomatic of how the report tries to harness such threats to preordained policy ends and a framing that undermines the report’s credibility.

The Shattered Mirror also dodges four fundamental issues that hobble both its analysis and policy recommendations:

  1. Media concentration and the unique structure of the communication and media industries in Canada;
  2. The impact of the financial crisis of 2008 which, even though its epicentre lay elsewhere, has resulted in a lacklustre Canadian economy ever since. This resulted in a sharp drop in advertising that slammed ad-funded news media and from which they have never recovered, and likely won’t;
  3. Advertising is no longer the centre of the media economy, and receding ever further from that role by the day, so hinging a policy rescue on recovering so-called lost advertising is out of step with reality and likely to fail;
  4. The general public has never paid full freight for a general news service and likely never will. Thus, it has always been subsidized, and as the bottom on advertising revenue falls out that source of subsidy will have to be replaced by another if we really are concerned about getting the news we deserve – trying to wrestle money out of Google and Facebook (the report’s central policy proposal) won’t cut it. The proposal to apply the GST/HST to them, with some tweaks, so as to make it apply to all forms of advertising and to earmark these newfound tax revenues to original Canadian content, could help and is, thus, one I support.

Finally, I am skeptical about the “real news versus fake news” frame that girds the report. The language about “vampire economics” is overwrought. Such things give a tinge of moral panic to the report, and taints the analysis and policy proposals. Unless otherwise cited or linked to, the data sets underlying the discussion can be downloaded under Creative Commons principles from the Canadian Media Concentration Research Project’s Media Industries Database. A PDF version of this post is available here.

Chronicling the Crisis: the Public Policy Forum Makes its Case

As the Public Policy Forum documents, advertising revenue has plunged for daily newspapers, and is beginning to fall for television. Addressing “classified advertising” specifically the report states that “three-quarters of a billion dollars a year in reliable revenue vaporized in a decade” (i.e. 2005-2015). Daily newspaper display advertising revenue totaled $1.8 billion in 2006; a decade later it had been cut in half. Altogether, total daily newspaper advertising revenue has plunged by 40% — from $3.3 billion in 2006 to an estimated $2 billion this year. Community newspaper revenue has fallen by $407 million since 2012 (pp. 17-19). Will the last journalist please turn out the lights?

According to The Shattered Mirror, a similar fate is beginning to beset TV. Profits have plunged from 11% for “private stations” in 2011 to -8% last year, for instance (p. 24). Another study by Peter Miller and the Friends of Canadian Broadcasting that hangs about The Shattered Mirror report but which is not cited, worries that, economic trends, and what it sees as a series of wrong-headed decisions by the CRTC, could lead to another 30 local TV stations going dark by 2020.

Newspaper circulation has also been cut four-fold from just over 100 newspapers per 100 households to half that amount in the mid-1990s, to just eighteen last year. The paid daily newspaper as we have known it for the past century could be extinct in five years, the Public Policy Forum report warns (p. 15). And as those implications come to pass, fake news is pouring in to fill the void, desiccating the social bonds that tie us together as a nation, as a people, and as a democracy.

Figure 1 below illustrates the point with respect to declining circulation.

Figure 1: The Vanishing Newspaper: Newspapers sold per 100 households in Canada, 1950-2015, projected to 2025

figure-1-vanishing-newspaper

Source: Public Policy Forum (2017), The Shattered Mirror, p. 15.

In addition, twelve thousand journalists and editorial positions have been lost in recent decades, according to figures cited from the Canadian Media Guild. Unifor and the Communications Workers of America also report another 2000 or so positions lost as the massive shift in advertising revenue to the internet guts Canada’s news rooms.

The lost revenue at the root of this carnage, however, the report argues, has not vanished but migrated to the internet. In fact, internet advertising has sky-rocketed from half-a-billion dollars a decade ago to $5.6 billion last year, states the report. This ‘shift’ has benefitted a small number of internet giants based in Silicon Valley, while depriving Canadian news media of the money they need to survive.

The report is emphatic that the free-wheeling early days of the internet have been eclipsed by the rise of a few foreign digital media giants and a process of “vampire economics” whereby those giants, and Facebook and Google in particular, are sucking the lifeblood out of “real news”. As the report states, the internet giants are getting an incredibly “sweet deal”: “leverage the news others finance and grab the advertising that used to finance that news” (p. 31). But as Facebook and Google get rich, journalists, news organizations and, yes, us and democracy are being robbed blind. The report is explicit that only once this lost advertising revenue is brought home, will all be well: the so-called crisis of journalism will be solved and democracy saved.

Some of that money flowing south needs to be clawed back and the two behemoths need to learn to show more respect for the news content that they have used to build their empires, the report stresses. Not only do we need to do this, we can do it if policy-makers gather up the political will needed to change the Income Tax Act to make advertising on Canadian internet news sites tax deductible but not foreign websites (as has been done for newspapers and broadcasting since 1965 and 1971, respectively). GST/HST should also be applied to foreign internet companies that sell advertising and subscriptions in Canada, e.g. Google, Facebook and Netflix. These measures would cost little and raise $300-400 million that could be used to fund public policy initiatives to strengthen professional journalism (p. 84). In addition, Facebook and Google must be made to play an active role in stemming the tide of “fake news” flooding into our country while giving priority to Canadian news sources. In other words, they must be made to act more like responsible publishers (p. 97).

Tunnel Vision, Goosing the Numbers, and “Off Limits”

Advertising-supported journalism is not the ‘natural order of things’.

The case that the authors of The Shattered Mirror make about the severity of the crisis of journalism is impressive at first blush. Ultimately, however, it is neither convincing nor credible.

Its fixation on advertising revenue, for instance, assumes that it has always been an integral part of the natural journalistic order of things. It has not. Advertising revenue soared from being less than half of all revenue to account for between two-thirds and 90% of revenue at big city newspapers in the US and parts of Europe between 1880 and 1910, and in Canada two decades after that (Sotiron, 1997, pp. 4-7). While the advertising-supported model of journalism carried the day during the ‘industrial media age’ for much of the 20th Century thereafter, there is little reason to believe that it will or even should have an eternal lock on being the economic base of the media forever into the future – the Public Policy Forum report’s wishful thinking notwithstanding.

Moreover, while advertisers tied their fortunes to the commercial media model for close to a century, they had no special love for the media or the journalistic functions they perform, per se. Instead, they did so because it was the most cost-effective way to meet their needs. New and better means to deliver up audiences to advertisers at a much lower price have been developed since and, unsurprisingly, businesses have reached for the newest tool in their toolbox: the internet. This is an uncomfortable truth that the report refuses to acknowledge, and thus to engage with. Not even King Canute could turn back that tide, and nor should we want him to even if it was possible. We have to find a better way to pay for the news for just this reason and also because, for the most part, Nasreen Q Public never has been willing to pay for a general news service.

Advertising is being eclipsed by “Pay-per” media.

Advertising is also becoming a smaller and smaller part of a bigger and bigger media economy. It has long been eclipsed by the “pay-per model”, or subscriber fees, where people pay directly for the communications and media they use. Subscriber revenue outstripped advertising by a 5:1 margin for the ‘network media economy’ in 2015 (see here for a definition of the ‘network media economy”, p. 1). “Pay-per media” are now the economic engine of the media economy. The Shattered Mirror, however, does not seem to recognize this and thus examines the problems facing journalism through the wrong end of the telescope, e.g. advertising.

Take TV specifically. The report states that “TV revenue is start[ing] to drop”. The statement is true for advertising-supported broadcast TV, but not for TV as a whole. Subscription revenue for specialty and pay channels, OTT services like Crave TV and Netflix as well as and cable TV now account for three-quarters of all revenue, and for the most part continue to grow. Annual funding for the CBC makes up the rest, i.e. just over 5%. The Shattered Mirror draws general conclusions about the supposedly sorry state-of-affairs for TV writ large based on a small as well as diminishing part of a larger vista. The advertising-supported part of TV accounted for less than half of all revenue in 2015 (e.g. 42.6%). It is in trouble, but again this is a fraction of the whole picture.

In addition, blaming “the internet” ignores other potential explanations for the problems that do exist. Why, for example, is broadcast TV not in dire straits, and in some cases making a bit of a comeback in the US and some other countries (see FCC and Ofcom, for example)? The report does not bother to ask, let alone explore such realities, for reasons that will become clear in a moment (hint, it has to do with media concentration and the unique structure of the media and communication industries in Canada, issues that the report explicitly eschews).

Having left out the fastest growing and biggest segments of the media economy – the ‘pay-per’ segments – and painted a picture of rapacious foreign internet giants stealing away advertising revenue from Canadian news media organizations, the report ignores another fundamental fact that does not fit the story it wants to tell: advertising revenue across the entire economy has stagnated for close to a decade. Moreover, per capita advertising spending dropped from $371 per person in 2008 to $354 in 2015 – the last year for which a complete set of data is available. TV advertising specifically has stayed flat in absolute terms while falling from $102 per person in 2008 to $94 last year (see here). That said, however, and unlike the report’s claim to the contrary, total TV revenue continues to grow, and indeed revenues for specialty and pay TV as well as OTT services have soared over the years based on subscriber revenues, albeit with slow growth in some aspects of some of these services in the last year or two.

In addition, the report’s claims regarding the steep decline in “private station” profits from 7.3% to -8% between 2011 and 2015 is misleading (p. 16). The statement implies that it applies to TV in general but in fact refers only to the smallest and shrinking part of the TV landscape: commercial broadcast TV. Operating profits for pay and specialty TV — the biggest and still growing segment of the TV landscape — were 20.8% in 2015, however. For cable TV and radio, they were 19% (see CRTC here, here and here). Meanwhile, operating profits at Bell Canada Enterprises’ media arm were 25% in 2015 and an eye-popping 40% for the company as a whole – four times the average for Canadian industry (Statistics Canada). Figure 2 below illustrates the point.

Figure 2: Bell Media Operating Profits, 2015

fig-2-bell-profitsSource: BCE, 2015 Annual Report, p. 130.

Parenthetically, it is also important to note that Bell is the biggest, vertically-integrated TV operator in Canada by far, accounting for roughly 30% of all TV revenues and 28% of total revenue across the network media economy. Ignoring conditions at a company with this clout across the media economy is negligent, but also part of a tendency in this report to selectively invoke a small part of the picture to fill in a portrait of catastrophe of a larger kind. In terms of the rules of rational argument, this pattern is a type of spurious reasoning called an “indexical error”. The report is chock-a-block full of such examples, which lends to the impression that the report’s authors are goosing the numbers.

Let’s consider a few other claims made about collapsing circulation and the “vanishing newspaper” and the scale of journalistic job losses, before turning to its willful refusal to deal with fundamental considerations about how the unique structure of communication and media industries in Canada directly bear on its topic but which are wholly ignored.

The Vanishing Newspaper?

These examples are not innocent. They are part of a process of “threat inflation” with the aim of buttressing the case for the policy recommendations on offer. Much the same pattern can be seen in the report’s depiction of circulation trends for daily newspapers. Now, make no mistake about it, the picture cannot be spun as a good news story. That is not my point. Looking at the issues from different angles and a more measured and nuanced view reveals that that things are far from rosy, but they are not the catastrophe that The Shattered Mirror makes them out to be. The reasons why things are as bad as they are also demands a richer and more multidimensional explanation than the ‘single-bullet’ explanation the report offers: blame the internet (and Facebook and Google). To illustrate the point, let’s return to Figure 1 above, which is repeated below to make the job easier.

Figure 3: The Vanishing Newspaper: Newspapers sold per 100 households in Canada, 1950-2015, projected to 2025

figure-1-vanishing-newspaper

The message of the Figure 3 is clear: newspapers have undergone a precipitous decline, and could vanish altogether soon. Indeed, already by 2015, the number of newspapers sold per 100 households was one-quarter of what it was in 1975. By this measure, the relentless decline and seemingly inevitable outcome look really, really bad – catastrophic even.

Now, let’s expand our measures to look at things from four additional angles: (1) total number of newspapers sold per week per person; (2) total number of newspapers sold per week per household; (3) total circulation; and (4) by revenue – shown for both total revenue and just advertising revenue. My numbers start in 1971 because that is the earliest date for which I could gather data fit for the task, but as far as I can tell that has no impact on the main point. And just to make my main point clear, it is that the Public Policy Forum’s Shattered Mirror report has selectively chosen a measure that paints the worst-case scenario rather than a nuanced, multidimensional picture of a situation that is bad enough that it doesn’t need to be exaggerated. In other words, I am depicting a strategy of policy argumentation that I call “threat inflation”.

Figure 4, presents two sets of data, one for the number of newspapers sold per week per person and another for the number of newspapers sold per week per household – both for the period from 1971 to 2015 (the latest year for which figures are available).

Figure 4: Per Household and Per Capita Decline of Daily Newspapers Circulation in Canada, 1971-2015

fig-4-circulation-decline-per-hhld-capita

Sources: Newspaper Canada; Statistics Canada.

Figure 4 confirms that newspaper circulation has been in long-term decline and there appears to be nothing on the horizon to turn that around. If we care about newspapers because they are one of the main sources of original journalism – as I emphatically do – this is a ‘bad news’ story. Yet, while the decline shown in Figure 4 is obvious – indeed, circulation was cut in half over the period covered on the basis of total copies per week per household – that is half the rate depicted by The Shattered Mirror. The difference is likely due to the fact that the number of people per household has declined over time, so fewer people per household means fewer newspapers in each house even before we take declining circulation into account — versus the “vanishing newspaper” scenario.

Now, let’s look again from the vantage point of circulation per capita shown in Figure 4 above. It also shows that circulation levels have declined steadily since 1971, but by only about 35% versus the four-fold collapse The Shattered Mirror depicts. This is what I mean by threat inflation: choosing methods and numbers that inexorably lead to the worst-case conclusion.

Now let’s look at things from the vantage point of total newspaper circulation because if you’re in the journalism business, a key consideration has got to be not how many daily newspapers you can sell per person or per household but in total. Figure 5 depicts the trend over time.

Figure 5: The Rise and Fall of Newspapers Circulation in Canada, 1971-2015

fig-5-rise-fall-of-newspaper-circ

Sources: Newspaper Canada; Statistics Canada.

Figure 5 shows that, in terms of sheer volume, newspaper circulation continued to rise until 1990 (versus falling steadily from 1950). It has fallen since, albeit in fits and starts. And obviously, against a population that has swelled from 22 million to nearly 36 million over the timeframe covered, circulation is shrinking in relative terms, which is the point of the earlier figures. Yet, the point is once again that this is a ‘bad news’ story but not a catastrophic one, and the fact that circulation peaks in 1990 and then goes down in fits and starts thereafter also raises interesting questions about timing that are ignored by the Public Policy Forum report, again likely because they don’t fit the tale of doom and gloom that it is mobilizing, but which I will return to below.

Now let’s turn from circulation to revenue data to see what things look like from this vantage point. Figure 6 does that based on stand-alone advertising revenue and all sources of revenue (advertising, subscription and other, including digital/internet).

Figure 6: The Rise and Fall of Newspapers Revenue in Canada, 2000-2015

fig-6-rise-fall-of-newspaper

Sources: Newspaper Canada; Statistics Canada.

As Figure 6 shows, advertising as well as subscription and other sources of revenue continued to rise for newspapers into the 21st Century. Indeed, while circulation was in decline regardless of the measure used, revenue continued to climb. Revenue peaked in 2008 at $3.9 billion and $4.7 billion, respectively, for advertising and ‘total’ revenue measures — a crucial point in time for reasons that will emerge in a moment. Revenue has plunged since, with newspaper advertising revenue falling to $2.3 billion (a drop of 40%) and total revenue to $3.2 billion (a drop of 32%) in 2015. This is bad.

Thus far, none of the measures reviewed leads to a ‘good news story’, but each of them in their own way change the magnitude, timing and potential causes of the problem. Of utmost importance is that there is no downward spike in the fortunes of the press on any of these measures that coincides with when the internet takes off, either in its dial-up phase in the mid- to late-1990s or when broadband internet took centre stage in the early-2000s. Given this, the internet – and Facebook and Google – cannot be the villain of the piece that The Shattered Mirror (and so many lobbying the government from the “creator” and “cultural policy” groups) makes it out to be.

In fact, this is not news. While such claims are common, that they are wide of the mark is well known. One of the world’s top media economists, Robert Picard of the Reuters Institute of Journalism at Oxford University, for instance, has made this point for much of the last decade. I have too with respect to Canada and across the world. That neither circulation nor revenue dives downward with the arrival of the internet cuts to the heart of the central claim in The Shattered Mirror. Yet, like so much of the evidence that does not fit its “sky-is-falling-because-foreign-internet-giants-ate-Canadian-news-media’s-lunch” rhetoric, this evidence doesn’t make the cut. If all of this is correct, we must also change our diagnosis and policy proposals accordingly.

Alternative Explanations: Stagnating Advertising Revenue and Vanishing Jobs

Not only does newspaper revenue not spike downwards with the advent of the internet, the onset of economic woes for advertising supported media do not coincide with the time frames that the Public Policy Forum report identifies, typically 2005 or 2006 for newspapers and ‘recently’ for TV. The upshot of its misdiagnosis is to effectively carry on with the ill-fated case its authors want to make while avoiding another possible – and I believe far better — explanation for the woes they describe: the impact of the financial crisis in 2008 and economic instability that has followed ever since.

Figure 7 below illustrates the point by showing a sharp downward kink in revenue for nearly all the media sectors it covers since 2008. This reflects the impact of the global financial crisis on the media economy. At this point in time, advertising revenue falls for total TV advertising revenue, broadcast TV, newspapers, radio, out-of-home advertising and magazines. The impact even hits internet advertising and pay TV services, as their revenue growth flattens temporarily before rising again a year or two later.

Figure 7: The Impact of the Financial Crisis and Economic Stability on Media Revenue (millions$), 2004-2015

fig-impact-of-financial-crisis-on-ad

Sources: IAB.canada 2015 Actual + 2016 Estimated Internet Ad Revenue; TVB (2016). Net Advertising Volume, CRTC Communications Monitoring Report.

Total advertising revenue fell by 7% from $11.6 billion to $10.8 billion. It rose again the next year to recover the lost ground but unevenly. Tellingly, however, advertising revenue has fallen from $371 per person in 2008 to $354 on a per capita basis in 2015, and from $102 per Canadian to around $94 for TV– as indicated earlier.

The recovery that has occurred has taken place in fits and starts and has been very uneven across different media sectors. The long-term effects of that appear to be three-fold. First, it has gutted newspaper advertising revenue. Second, it has propelled the shift of the economic base of TV from advertising to subscriber fees. Third, amidst the upheaval, the internet has consolidated its place at the centre of advertising revenue. It now accounts for more than a third of all advertising revenue (36.2%) in a stagnating pool of advertising money.

Again, none of this is a mystery, except to those who work the policy apparatus here in Canada, and there is no mention of it in The Shattered Mirror or indeed in any of the policy reports being wheeled into action by the myriad of groups vying to shape the outcomes of Heritage Minister Melanie Joly’s Canadian Content in a Digital Age review. Beyond this cloistered community, however, the fact that the fate of advertising-based media turns tightly on the state of the economy – and indeed, is something of a canary in the coal shaft for it – is reasonably well known and discussed by media economists from across the political spectrum. This has been the case for many, many years (see, for example PicardGarnhamMiegeVogel but also any media economics text). That the subject is not even broached by the Public Policy Forum’s report is a measure of the extent to which it ignores evidence and ideas that don’t fit the story it wants to tell, and of a piece with its methodological tactics throughout the report.

In sum, it is a mistake to focus on a ‘silver bullet’ explanation of complex issues like the one before us. The fixation on the negative impact of the internet and the two villains of the piece, i.e. Google and Facebook, is misplaced. In short, advertising revenue has taken a nose dive because the economy has been shattered not because Tyrannosaurus Digital Media Rex Google and Facebook ate the news media’s lunch.

A Catastrophic Loss of Journalists?

Just as the data with respect to declining circulation and lost revenues in The Shattered Report is circumspect, so too are the figures that it cites for the number of journalist and editorial positions lost over the years partial and incomplete. The report says that between 12,000 and 14,000 such positions have been lost over an indefinite period that sometimes stretches back to the 1990s but with a stress on recent events. The figures cited are based on a tally of headlines announcing such cuts and more systematic record-keeping by the Canadian Media Guild, Unifor and the Communications Workers of America. I have no doubt that the human impact of the losses they document are real and severe.

However, there are two short-comings of the data presented. For one, it is based on headlines and record keeping that do a great job chronicling jobs lost but a poor one at keeping track of those gained. Second, Statistics Canada data depicts a wholly different picture. The report needs to at least explain why the Statistics Canada data offers a less satisfying account of the conditions than the sources it relies on. It does no such thing. In fact, and once again consistent with a pattern, the authors ignore this data completely.

According to Statistics Canada data the number of full-time journalists in Canada has not plummeted. In fact, it has crawled (stumbled?) upwards from 10,000 in 1987 to 11,631 in 2015. Figure 8 below illustrates the point.

Figure 8: Journalists vs the PR, Advertising and Marketing Professions,
1987-2015

fig-8-of-journos-vs-pr

SourcesStatistics Canada (2016) Employment by occupation: 1123 Professional occupations in advertising, marketing and public relations and Statistics Canada (2016). Employment in Journalism occupation, by province. Custom LFS tabulation. File on record with author.

While this is a small increase, it is an increase all the same, and counter-intuitive as well. Things that are counterintuitive beg you to explore why they are so. Also consider that after years of a sluggish economy in the early-1990s, and extensive consolidation and cut backs in the latter part of the decade, the number of working journalists fell to a little over 6,000 (1998). If we take that as our base, the number of working journalists has nearly doubled since and, consequently, the period looks more like one of modest growth rather than a catastrophe.

Of course, this small increase should not be over-played. It has occurred against the backdrop of a media economy that has quadrupled in size. Even if the number of journalists has stayed relatively steady rather than collapsed, this still means that their numbers have shrunk relative to the size of the media economy. In other words, similar amounts of journalistic resources in a much bigger media pie constitutes a relative decline. This is cause enough for concern without the hyperbolic rhetoric that The Shattered Mirror leans on.

In addition, whatever modest growth has taken place has been vastly out-paced by the number of people working in the PR, advertising and marketing professions. Whereas there were four people of the latter type for every journalist in 1987, by last year, the imbalance had swelled to 10:1 — a triumph of the persuasion professions over journalism, which again is cause enough for commentary and concern. Yet again, the Public Policy Forum’s report is silent on the point.

My point, once again, is not to assert that the Statistics Canada data is definitive on the matter of journalistic and editorial job losses. Instead, it is to highlight how selective The Shattered Mirror report is. The pattern is one where evidence that fits its grim vision of the current state of journalism in Canada is highlighted while that which cuts across the grain is either downplayed or ignored completely.

Blindspot: the Media Concentration Problem

The Shattered Mirror also gives short shrift to the idea that media concentration and the structure of the communication and media industries might be a significant factor giving rise to the woes besetting the news media, except for the highly concentrated nature of internet advertising. As Greenspon told J-Source, media concentration is just not “the existential risk to media that it was for a number of years”. However, the report is more than willing to turn the screws on Facebook and Google’s dominance in the one market — online advertising – where they undoubtedly and overwhelmingly do dominate, while simultaneously turning a blind eye to high levels of concentration in several media markets and in terms of vertical- and diagonal-integration across the telecoms-internet and media landscape in Canada.

By The Shattered Mirror estimation Facebook and Google account for two-thirds of all internet advertising spending in Canada. It also shows that internet advertising has become more concentrated over time, not less: the top ten companies took 77% of all internet and mobile advertising revenue in 2009, but by 2015 that number was 86%. The top twenty companies accounted for 90% (pp. 31-32). There is evidence that these levels are growing. I agree with this part of the report’s analysis, not surprisingly since it draws heavily on data and estimates from the Canadian Media Concentration Research Project that I direct.

The same claims have been circulated by those who have advised or influenced the direction of The Shattered Mirror. Ian Morrison, the head of the Friends of Canadian Broadcasting, summarized the key claims being made as follows, for example:

Based on data from the Canadian Media Concentration Project [sic] at Carleton University we estimate $5 billion of Canadian advertising goes to foreign-owned internet companies such as Google and Facebook . . . . With the Interactive advertising Bureau projecting $5.55 billion in overall internet advertising revenue . . . for 2016, we estimate that almost 90 percent of what Canadian advertisers spend on digital ads will leave the country.

In an interview with the Globe and Mail’s Simon Houpt, Greenspon asserted that Google and Facebook alone “take in about 85% of digital ad dollars” – although that number conflicts with others elsewhere in the report. However, the numbers do seem to regularly get mixed up, so that it is not quite clear if we are talking about just Facebook and Google or some ‘other’ foreign internet giants as well.

My main concern is that claims that foreign-owned internet companies will take $5 billion in projected internet advertising revenue for 2016 – or 90%, and that Google and Facebook alone account for up to 85% of the total — out of Canada are stretching the available data beyond what can be reasonably supported. They build estimate upon estimate, jump through hoops, and draw questionable inferences to come up with these figures (see pp. 30-31).

The CMCR Project data estimates with reasonable confidence that, combined, Google and Facebook accounted for about $3.1 billion, or two-thirds, of a total of $4.6 billion in internet advertising revenue in 2015 – the last year for which final figures are available. There’s some room for adjustment either way. Based on what we do know the figures touted in The Shattered Report and elsewhere do not seem credible, even if repeating them in one venue after another seems to have given them an aura of holy writ.

This is especially troubling because the estimates offered not only extrapolate from the limited base of what we do know but serve as a springboard to The Shattered Mirror’s #1 Policy Recommendation:

Policy Recommendation 1: Change the Income Tax Act to make advertising on Canadian internet news sites tax deductible (as has been the case for newspapers and broadcasting since 1965 and 1971, respectively) while applying a ten percent withholding tax for advertising on foreign websites. The key aim is to open a new “revenue stream of $300 to $400 million that would be used to finance a special fund” much along the same lines as the existing levy on cable TV companies is used to fund Canadian content (pp. 83-84).

At a bare minimum, if their numbers are off, so too are these estimates.

Overall, the path to this policy recommendation and the proposal itself is flawed for a handful of reasons. For one, as just indicated, the available evidence is insufficient to support the report’s #1 policy proposal. Second, even if the numbers were right (or close), both the analysis and the policy proposal ignore the structural shift in the economic base of the media from advertising to the pay-per model described earlier, while assuming advertising has and should forever form an integral part of the natural order of the news media. Third, it appears to swap the bad idea of an ISP tax levied against wireline- and mobile wireless internet access providers (which, not coincidentally, are Canadian) for a “platform levy” applied against ‘foreign digital platforms’, e.g. Google and Facebook. If this is correct, the bait and switch on nationalistic grounds is objectionable on its own.

The bigger problem, however, is that the recommendation seeks to take an approach that has been applied to limited (single) purpose broadcasting distribution systems for the past half-century and apply it to general purpose internet platforms that host, store and facilitate a dizzying and ever expanding array of content, applications, services and uses. And it does so in the name of supporting a narrow range of content – “real news”, as the report calls it – that constitutes a tiny sliver of what people use and enjoy these platforms for. Whether applied to ISPs or digital platforms, the idea that the multitude of uses that people make of the internet should be harnessed to promoting journalism (or Canadian content generally) – no matter how important – is objectionable. In terms of a common test applied to free speech cases, while the goal being sought is legitimate, the means being promoted to achieve it is akin to a sledge hammer when what we need is a scalpel.

Finally, while the report does a good job of documenting the extent of the internet giants’ dominance of the online advertising market, both the analysis and proposal exaggerate the extent to which Google, Facebook and other ‘foreign internet giants’ influence reaches across the media landscape in Canada. By ignoring the latter, the effect is to minimize the extent to which media concentration and the uniquely high levels of vertical and diagonal integration between telecoms-internet service providers and other key areas of the media, especially television, have given rise to homegrown problems rather than the debilitating “vampire economics” imported from afar (the following paragraphs draws heavily from a series of CMCR Project reports: see here, here and here for more details and elaboration).

How to Look at Media Concentration

Using what I have learned as the “scaffolding method”, it is essential to look at the state of competition and/or concentration in one media sector at a time, group the different sectors together into reasonable clusters such as “content media” (e.g. newspapers, TV, radio, magazines, etc.), “connectivity media” (e.g. internet access, mobile wireless, etc.) and “internet media” (e.g. search, internet advertising, social media, browsers, etc), and then group everything together so as  to get a view of the network media economy in its entirety. One must also look at trends over time, and in comparison to other parts of the world.

The Shattered Mirror report does nothing of the sort, and so it paints a picture sloppily with a broad brush, declaring that media concentration is not a problem when it feels fit to do so, but a worrying concern where that suits its purposes, i.e. in the areas that Google and Facebook dominate. Ultimately, there is no overarching sense of how everything fits together, and so the image drawn is arbitrary, and wholly dependent on the whims of the observer.

So, let’s try to get things straight in a minimal amount of space in what is already a long post. Google and Facebook do dominate internet advertising and the general trend with respect to concentration in this specific media market is up – as stated above. However, once we scaffold upwards from there to get a sense of how internet advertising fits into the whole media economy, we can see that it accounts for just 5.9% of a total $78 billion in revenue in 2015. Google and Facebook were the 6th and 14th biggest media operators in Canada in 2015, and had estimated Canadian revenues of $2.3 billion and $757.5 million, respectively. They accounted for 3% and 1% of all revenue across the media economy.

By comparison, the biggest player, Bell Canada, had $21 billion in revenue from its telecoms and TV operations in 2015. This was 28% of all revenue across the whole media economy, and nearly twice the size of its largest rivals: Rogers and Telus. It ten times that of Google and more than 25 times the revenue of Facebook. Thus, while certainly impressive, Google and Facebook don’t quite cut the imposing figure that The Shattered Mirror makes them out to be once placed in context.

When we look at specific media sectors and across the media economy as a whole, four observations about concentration levels in Canada stand out:

  1. They are generally high (with the exception of radio and magazines);
  2. They have gone up since the turn-of-the-21st Century (except modest dips from still high levels in the past five years for mobile wireless and cable/IPTV TV);
  3. They are not unusually high by comparative international standards but that’s mostly because, as one of the most authoritative sources on the subject states, media concentration around the world is “astonishingly high” (Noam, 2016, p. 25 and especially chapter 38, pp. 1307-1316);
  4. Canada is unique, however, in its high levels of vertical and diagonal integration.

In terms of vertical integration, Canada stands unique amongst countries insofar that telecoms operators own all the main television services, except the CBC. The scale of vertical integration more than doubled between 2008 and 2015, as the “big 4” – Bell, Rogers, Shaw (Corus) and QMI – expanded their stakes into mobile wireless, internet access, television distribution and more traditional areas of the media such as TV and radio. The “big 5” television groups – Bell, Shaw (Corus), Rogers, Quebecor and the CBC – collectively owned 217 television services in 2015. They accounted for 86.2% of total television revenue, up from three-quarters in 2008. Their TV operations include Canada’s major TV news outlets, from broadcast TV networks like CTV, Global, CityTV and TVA, as well as cable news outlets such as CTV, BNN, the Canadian franchise for the BBC, CablePulse 24, and so forth. The big four vertically-integrated telecoms giants are central to the news ecology in Canada. The Shattered Mirror gives no sense of this.

Beyond this, there are three other reasons why the unique structure of the media and communications industries in Canada are not peripheral, or anachronistic, but central to the study of news.

Lush Profits, Thin Journalistic Gruel

First, similar to the conditions at Bell that we saw earlier, Shaw, Rogers and Quebecor had operating profits of 42%, 38% and 37%, respectively in 2015 — roughly four times the average for Canadian industry. Shaw’s operating profits for its media division (including Corus, which is jointly-owned and controlled by the Shaw family) of 33% — even higher than those of Bell (25%). Operating profits at Rogers and Quebecor’s media divisions were a more modest 8.3% and 7.3%, respectively – a little lower than the average for Canadian industry. These observations are at odds with the story of doom and gloom that permeates The Shattered Mirror. The situation ranges from ho-hum at the media divisions of Rogers and Quebecor to fantastic at Bell and Shaw. While there is a difference between their focus on television news versus newspapers, which are increasingly ‘sticking to their knitting’, the fact that they are among the top news sources for Canadians furthers the point that they should be at the heart of the matters before us rather than pretty much excluded altogether.

Journalism and Data Caps: Reducing Dependence on the ‘Vampire Squids’ (i.e. Google and Facebook)

Second, these vertically-integrated companies also own all the main distribution networks (e.g. mobile wireless, wireline, ISPs and BDUs). Consequently, instead of wireline cable and telephone companies competing with wireless companies for control of customers’ access to the internet, TV and beyond, they have dominant stake on both sides: e.g. wireline and wireless. This is known as diagonal integration.

The last stand-alone mobile wireless company in Canada – Wind Mobile – was acquired by Shaw in 2016. By contrast, in many countries there are stand-alone, ‘maverick’ mobile network operators such as T-Mobile or Sprint in the US, or 3 in the UK.

Diagonal integration is important because it dampens competition between rival networks. Where it looms large, subscription prices for internet access and mobile phones tend to be a lot higher, data caps much lower, the application of zero-rating to some content and services but not others is more extensive, and ‘excess use’ charges very steep. Recent studies show that the cost of mobile wireless data plans is very high and data caps low in Canada relative to the EU28 and OECD countries (see Tefficient, 2016, p. 12; Rewheel, 2016, The state of 4G pricing – 1st half 2016 DFMonitor 5th Release).

These structures of ownership and the practices they engender can also transform carriers into editors, or gatekeepers. In doing so, it makes them more like broadcasters and publishers rather than common carriers (an idea that is similar to but not the same as what is now commonly referred to as Net Neutrality). The heavy reliance on relatively low data caps and expensive overage fees by all the telecoms-internet and media giants – Bell, Rogers, Shaw and Quebecor — in Canada constrains what and how people consume the news, watch TV, listen to music, communicate with one another over the internet and mobile devices, buy stuff, consult online health and education resources, and work.

As an integral part of human experience, and the critical infrastructure of the economy, society and journalism, this is an enormous issue. Many of those pushing for a renewed sense of cultural policy have called on the government to leverage these conditions by zero-rating Canadian content (i.e. exempting it from data caps) while applying data caps to everything else. Doing so is an explicit call to gerrymander control over the pipes to tilt the field against ‘foreign content’ in favour of Canadian content. Imagine, however, if data caps were far more generous and prices more affordable. Then, Canadians could freely access content of their choice, including news which, as The Shattered Mirror shows they value greatly (even if unwilling to pay for it), without worrying about going over their restrictive monthly data caps and paying a punishing price because of that.

This would have great value for news organizations as well. They would benefit in two ways. First, news organizations would enjoy a less obstructed pathway to where their audiences increasingly get their news from: their smartphones. Second, they would avoid the non-negligible costs of designing their online news offerings for platforms such as Google’s AMP and Facebook Pages.

Google AMP and the news sites that use it are explicitly designed for mobile wireless access, for example, where the cost of data is high and the use of data caps by mobile wireless operators prevalent and a lot lower than the desktop Internet. Based on this, Google’s AMP strips down webpages and services so that results load nearly ten times as fast, thereby saving on data charges.

The costs of designing for Google AMP, however, are considerable and a whole new sub-industry of designers with specialized technical and journalistic skills is being called into existence to service the need, and charging accordingly. The roster of the ‘big brand’ news organizations that have signed up to these efforts speaks volumes about who can afford the additional burdens, financial, technical, human or otherwise: eg. the CBC, Postmedia, New York Times, Wall Street Journal, the Guardian, Financial Times, Vox, Atlantic.com, to name the most prominent.

At the end of the day, the central question remains: does any of this work? Nobody knows.

Nonetheless, these platforms are fast becoming an integral part of the news ecology, and they are also part of the problem of news providers having to give up control of their content and operations to internet companies. By dealing with the high-levels of vertical and diagonal integration in Canada that are at the root of restrictively low data caps that magnify the cost of uniting audiences with journalism to begin with, the happy upshot could be to lessen journalism’s excessive dependence on the ‘vampire squid’ internet giants like Facebook and Google that the Public Policy report rails against.

Blowing up the Bottom Line: The High (Social) Cost of Media Concentration

Perhaps one of the most important reasons that it is folly to willingly turn a blind eye to high levels of media concentration and the peculiar structure of the media industries in Canada is because the costs of bulking up have had devastating impacts. The cost of bulking up that have led to where we are have not been negligible and were built atop dreamy-eyed visions of convergence from the late-1990s until the turn of the century. At the time, the valuations of media assets soared but such visions of the future failed while saddling media enterprises with unsustainable debt levels that were payable at interest rates that sometimes ran as high as 18% in the case of Canwest, for example. This took place precisely when all-hands-on-deck were needed to deal with the rise of the internet and changing audiences’ behaviour. Many of these ventures failed and wiped out billions in capital. A few highlights will help to illustrate the point.

Sun Media, for example, was acquired by Paul Godfrey at a total value of just under $400 million in 1996, with a few small papers added in exchange for the Financial Post the next year, and then flipped to Quebecor in 1998 for $983 million – double the original value in two years. Quebecor then acquired regional newspaper publisher Osprey for $517 million in 2007. All-in-all, the combined value of Sun and Osprey was nearly $1.5 billion. They were sold back to Godfrey and Postmedia in 2015 for $316 million — $1.2 billion in the value of the capital behind the newspapers wiped out, while onerous debt payments continue to hang like an albatross around the biggest chain of newspapers in the country until the present day.

So, too, with the Southam newspaper chain. Conrad Black consolidated ownership over the chain in 1996 for around $1.2 billion, then sold them to Canwest four years later for $3.2 billion. However, Canwest went bankrupt and the papers were sold to Postmedia in 2010 in a highly leveraged deal for $1.1 billion — the same as when Black gained control decade-and-a-half earlier. Last year, Postmedia was worth $56 million — a loss of a billion dollars in market capitalization in five years (also see Bruce Livesey’s National Observer article and Marc Edge’s new book on the meltdown of journalism within the Postmedia empire, and more broadly).

At the height of the turn-of-the-21st Century convergence craze, Bell acquired CTV and the Globe and Mail. Together with the Thomson family it created Bell Globemedia, with Bell holding a 70% ownership stake in the entity and the Thomson family the rest. The capitalization of the new company was $4 billion. Bell Globemedia floundered from the beginning, however, and Bell exited the business in 2006. The venture was renamed CTV Globemedia and recapitalized at a value of $1.2 billion – a loss of nearly $3 billion (BCE AR 2006, p. 84). Of course, Bell reacquiring CTV in 2011 for $1.3 billion.

Collectively, roughly $6 billion in market capitalization was destroyed and precisely when the country’s biggest media companies should have been focusing attention, investment and whatever other resources they could muster on dealing with the rise of the internet and, somewhat later, the smartphone, and changes in how people were using the media. This is to say nothing of the extraordinary wave of lay-offs and job cuts at these outlets, and the labour strife that accompanied such processes. The Public Policy Forum’s report gives us a whiff of the costs in terms of journalistic and editorial jobs lost, but nowhere does it connect the dots. Of course, having ruled these issues “off-limits”, what should we expect?

Inner Circles, Cloistered Views and Missed Opportunities

That The Shattered Mirror, as it’s lead author’s post release comments indicate, willingly walked away from these issues is stunning, and naïve. In doing so, it walks away from an impressive body of research from around the world that says that these issues are important, extraordinarily complex, and foundational to understanding the emerging digital media environment.

While I am happy that the authors plucked from some of our flagship reports (see here and here), I am disappointed that they only picked the juicy parts that fit into their vilification of Facebook and Google and the “vampire economics” that they say rules the highly concentrated internet advertising market in Canada while turning a blind-eye to all the other data and discussion in our report. Interested readers will also find much value in the work Eli Noam, a Professor of Finance and Economics at Columbia University and editor, most recently, of Who Owns the World’s Media, a thirty-country survey done by as many research teams covering three decades that looks at the issues in front of us with an open mind, and some stunningly important conclusions – many of which are counter-intuitive and at times seems to run at cross-purposes to one another. Robert Picard of the Reuters Institute of Journalism at Oxford University is another excellent media economist who looks at these issues with an open mind, as is Gillian Doyle, among many others.

That the report refuses to engage with media concentration and the peculiar structure of the media is not surprising given that many of those surrounding its lead author, Edward Greenspon, in the development of this report have not just sat back and taken arm chair academic views on these matters but have been leading cheerleaders for the processes of consolidation in Canada that have got us to where we are. So why look in the mirror? The industrious reader can consult the list of acknowledgements to sort out who is who and draw their own conclusions.

Given all this, that media concentration wasn’t on the agenda is not surprising. It’s still a pity, though, because the issues are serious. By taking the course that it has, the report has also squandered an opportunity to build on the momentum that has been building in regulatory circles at the CRTC, Industry Canada and even the Competition Bureau. For the past several years, each of them have been using many of the policy levers at their disposal to address media concentration and counter some of the abuses of dominant market power present in several media markets – abuses that are no longer mere allegations but established legal facts. That the Public Policy Forum has taken the stance it has is a missed opportunity, not just in terms of building on the momentum that already exists amongst regulators and policy makers, but also the incredible amount of research and writing that many scholars, public interest and consumer groups, citizens and others have poured into these activities.

Final Thoughts and a Few Policy Proposals

The effort fails in terms of the analysis conducted for all the reasons set out above, and because the prescriptions counselled draw from the past and will be a drag on the future. Its analysis fixates on a dwindling part of the media, namely media that are subsidized by advertising, as if they are a part of the natural order of things and should be so forever. As both an empirical and a normative matter, this is simply not the case.

In the real world, however and as we have seen, the media economy is increasingly internet- and mobile wireless centric. For better or worse, subscriber fees and the “pay-per model” have become the driving force. The report fails to deal squarely with the idea that the underlying subsidy that has been provided by advertising for a good part of the 20th Century is stagnating, and by some measures in decline (per capita), and that the part of the advertising revenue that does remain is going to Facebook and Google not because they are venal but because they are more efficient at doing what the ‘legacy media’ used to do best: deliver audiences to advertisers.

That was always a bit of a Faustian bargain, and still is. There is no reason why we should pull out all the stops to try to bring it back. It won’t happen, and advertising subsidized media raise their own prickly problems, not least of which is it is never really the audience – us – that are the main parties calling the shots. Given the extent to which it is wedded to advertising, it is also not surprising that the report acknowledges but shies away from another undeniable fact that is inseparable from the points raised here and which is key to understanding journalism: the general public has never paid for a general news service. This has not changed (see here and here, for example).

Forgetting also that there has never been any true love between business and the advertising-supported media model — just a marriage of convenience — the report keeps alive the innocent fable of how the mutually beneficial relationship between advertisers, journalism and audience brought us “the free press” and how we must wrestle this back from the “vampire economics” of Silicon Valley. No, that won’t work, no matter how much the report gooses the numbers and argues in favour of its proposal to impose a withholding tax on the advertising and subscriber fees of ‘foreign digital platforms’. Nor should it. The invidious distinctions between Canadian media versus those from the world beyond our borders that it draws is based on warmed over cultural nationalism from the 1960s and 1970s, and this, too, should also raise an eyebrow.

The idea that we should harness society’s whole communication infrastructure – increasingly the internet – to foster a small sliver of activities that people use it for is also backwards. As said earlier, in the past, this may have been an acceptable idea because a limited purpose broadcasting distribution network was leveraged to support a single activity: broadcasting. Means were directly related to ends, and this made sense, even against the tough standards of free speech. Yet, today, we are in a different place where Canadians are being asked – incessantly – to harness a multi-purpose and general communication infrastructure (the internet) that already supports a vast array of activities that continue to expand in terms of diversity to a narrow, albeit incredibly important, range of activities.

The Shattered Mirror is not a forward looking report in these regards. It largely ignores questions about how the availability and control of distribution infrastructure (rather than just “digital platforms”) fundamentally effects the shape of the news media overall. To the extent that it does, the recommendations trot out the familiar calls for an ‘ISP tax’ to fund journalism that is so beloved by resurgent cultural nationalist groups (rather than the capacious language of “general intelligence” and “the people’s correspondence” that informed the universal postal system during the founding days of American democracy). They seem to see Minister Joly’s review of Canadian Content in the Digital Age as a once in a lifetime chance to entrench policy tools designed a half-a-century ago for ‘the industrial media age’ forever by applying them holus bolus to the emergent internet and mobile wireless-centric communications and media universe of the 21st Century. Nothing could be less helpful.

As I have tried to make clear above and every time I write on these matters, I am an enthusiastic supporter of the idea that a viable democracy needs good journalism, and that the culture of a democratic society needs arts, knowledge, media, public libraries, schools, science, archives, and a whole bunch of other things. We need a big view of culture, and we need to pay for it accordingly. So here are a few of my big ideas:

  1. Bite the bullet and accept that the general public has never paid full freight for a general news service and that, consequently, it has always been subsidized by advertising, “the state” or rich patrons. The question is how to do that today in a way that is fair, independent, effective, and accountable? The report goes part way in this direction with its Policy Recommendation #3 to change tax laws to encourage charities and philanthropists to step into the breach and invest in original news. I agree, but also think we need to dig deeper along the lines suggested below.
  1. Apply the HST/GST to all advertising expenses and subscription fees without discrimination based on medium or nationality, and earmark the funds generated for a “Future of Journalism and Democracy Fund” of the type the Public Policy Forum envisions (Policy Recommendation #5), but make the fund even broader to support other kinds of original Canadian content creation, from films, TV drama, video games, music, archives, etc. Consolidate the CanCon funds I say, and take a very big view of what CanCon is.
  1. Bolster the CBC across its mandate to inform, enlighten and entertain versus The Shattered Mirror’s emphasis on the first function (its Policy Recommendation #10). Do this because a ‘platform agnostic’ public media service not only informs people but plays a key role in cultivating new talent across the arts, and exposing artists to the audiences they need to go on to become bigger commercial successes. In line with these ideas, unshackle the CBC from any suggestion that its sails have been forever tied to the listing mast of the broadcasting ship. It should also be funded accordingly and in line with median levels of government support for public media in OECD countries (versus at the lower ends of the scale) (a modified version of the Public Policy Forum’s Recommendations 11 and 12, but without the restrictive focus on the CBC’s “informing” function).
  1. We can no longer think about journalism and the media without thinking about broadband internet and mobile wireless. In an ever more internet- and mobile wireless-centric media universe, this is essential. The “founding fathers” in the US stressed the essential role of a free press to democracy (as The Shattered Mirror notes), but they also went much further by subsidizing a universal postal system to bring “general intelligence to every man’s [sic] doorstep” to the tune of tens of billions of (current) dollars a year in the 19th Century to achieve that aim. So, too, must we integrate our thinking about broadband and mobile wireless policy with content, journalism and news together today (on postal history and news, see John).
  1. This means emphasizing the importance of common carriage and universal broadband internet. It is essential to not impose the publishing or broadcasting models on society’s communication infrastructure. Mobile wireless and internet access providers should be gateways not gatekeepers. This will help ensure that news organizations and all forms of media, cultural and personal expression can have unfettered access to those with whom they’d like to share an experience, an idea, a story. It will also help to reduce journalists and news organizations from their growing dependence on Google, Facebook, Apple, etc. for the reasons outlined above. Universal broadband internet service should also be funded accordingly by raising the subsidy from its current level of roughly $2 per person per year to a figure, by way of suggestion, between the $5 per person per year that Sweden invests to promote universal broadband internet uptake and the $33 per person per year that we currently invest in the CBC. The report is silent on these issues but by implication, it is hostile to them.
  1. Crush the idea that appears from time-to-time in the report that Facebook and Google should be treated like publishers. They are not. Similar to how the development of modern capitalism depended on the creation of the limited liability corporation so too do broadband internet and digital platforms that host, store and distribute huge amounts of other people’s content require the concept of the limited liability ‘digital intermediary’ to operate at scale. Google, Facebook, and the others that facilitate commercial and cultural intercourse over the internet are already treated this way by the law, and they should continue to be treated as such, without being ‘above the law’, or worse enrolled by governments using beyond the rule-of-law tactics to tackle a myriad of evils, whether stamping out child pornography, mass piracy, terrorist propaganda, counterfeit goods, etc. Where the interest is great, the law needs to swing in behind the power that these intermediaries have by dint of the fact that they stand mid-stream amidst the torrent of internet traffic.

The fact that intermediaries are increasingly being enrolled by governments to undertake these tasks without proper legal underpinnings, however, has already created problems enough (here, here and here). Calling, as this report does, to enroll ‘digital intermediaries’ like Facebook and Google to suppress “Fake News” is similarly fraught with problems. That this is so is readily evident in Facebook’s ham-fisted approach to enforcing its “community standards” that have led it to censor, for example, the Pulitzer Prize winning “napalm girl” photo of Kim Phuc running naked away from a village just after it was bombed by the US during the Vietnam War and when it has taken down or otherwise blocked access to images of, for instance, the famed Statue of Neptune in Bologna, the Little Mermaid Statue in Copenhagen, Evelyne Axell’s Ice Cream and Gustave Courbet’s Origin of the World. Illma Gore’s sketch of Donald Trump in the nude has also been banned from the site (see here).

While the desire to stamp out ‘fake news’ may seem especially appealing at the moment, there is good evidence that despite the fact that “fake news stories” were plentiful in the 2016 US election, the effects are probably not as strong as many seem to think. As the new “Social Media and Fake News in the 2016 Election” study by Hunt Allcott and Matthew Gentzkow from New York University and Stanford University, respectively, finds, this is because even though Americans use social media a lot, only a small portion of them – 14% — relied on social media as their “most important source of news” during the election. Instead, TV was the main source of political news by far. Even those who did get their news from social media, and were therefore exposed to fake news that favoured Trump over Clinton by a wide margin, very few could remember “the specifics of the stories and fewer still believed them”, observes a Poynter Institute summary and commentary on the study being recited here.

Ultimately, we need to see this report for what it is: the latest in an unending firehose of reports from well-heeled think tanks across the country, including the Friends of Canadian Broadcasting (here, here, here), the Fraser Institute, the MacDonald Laurier Institute and the C.D. Howe Institute that cover much the same ground. All of them respond to and in one way or another try to influence Heritage Minister Melanie Joly’s call for a top-to-bottom review of cultural policy, dubbed Canadian Content in a Digital World. That she has stimulated such interest is to her credit. However, the extent to which these reports are flooding the ‘marketplace of ideas’ with tired old ideas is a problem that I hope she and the good folks at the Department of Canadian Heritage – the cultural policy sausage factory, if you will – recognize them for what they are, and deal with them accordingly.

The Shattered Mirror also complements the Canadian Heritage Parliamentary Committee’s unfinished survey of similar terrain, and a series of recent decisions by the CRTC that are intended to shape the future of TV, broadband internet and mobile wireless services in this country: (1) its trilogy of Talk TV decisions; (2) its universal broadband internet service, and (3) several others that go to the core of the increasingly fibre and mobile wireless internet infrastructure that underpin the entire communications and media landscape upon which more and more of our economy, society and our day-to-day lives depend.

This report has nothing to say on the full sweep or specific details of these matters but lines up with those complaining bitterly about the CRTC’s new found willingness to take on media concentration and the perils of vertical and diagonal integration. The extent to which they do so and pine to keep industrial-era media policies — tweaked to bring them up to ‘digital speed’ — forever is a measure of how backwards such stances are and really just how much they see things through a rearview mirror. We deserve better, and let’s hope we get it.

Dream Bıg: Some Modest Reforms for the Telecom-Medıa-Internet (TMI) Industries in Canada

I’m taking a break for a few weeks, but before here ıs a slightly extended versıon of my column ,ın te Globe and Mail yesterday.

It’s time to step back for a bit from trying to explain, first, that the telecom-media-Internet (TMI) industries in Canada are concentrated, second that they are poorly regulated and, lastly, that this is problematic, not from the perspective of utopian ideals, but of a digital free press in a liberal capitalist democracy like ours.

 

When I come back I’ll write about other things, I promise (maybe). Before I leave, though, a few thoughts for your consideration.

 

We live in what Ron Diebert and Rohan Rohozinski of the Citizen’s Lab at the University of Toronto call a ‘constitutive moment’. This means that actions taken now will help lock in the structure, look and feel of the digital, networked mediaspace for years ahead.

 

Three matters are coming to a head as they wind their way through the CRTC and body politic:

 

  • The CRTC will decide the fate of the pay-per model of the Internet (UBB and bandwidth caps) (starting at CRTC hearings July 11) imposed by the ‘big six’ ISPs on Canadians while they were sleepwalking until all hell broke lose last January when the incumbents got regulatory approval to pin their hated pay-per model on the independent ISPs that serve the five percent of Internet users not served by the incumbents.
  • We will see if the CRTC has the wisdom and courage to pick the right tools to effectively deal with vertical integration and concentration across the TMI sectors as a whole.
  • a CRTC “fact finding inquiry” will examine whether online video distributors such as Netflix, YouTube, AppleTV and so on will be freely accessible in Canada or regulated like broadcasters.

 

By my estimation, each hearing involves about a hundred submissions of thirty or so pages each. That’s nearly 10,000 pages. It would be great if you could keep up to speed on these matters while I’m away by bumbling your way through the “truly primitive” website of the CRTC, as Cardozo Law School Professor Susan Crawford refers to it.

 

But who has the time and resources to do this? The incumbents and their well-heeled lobbyists, that’s who! I am on sabbatical, but still exhausted tracking this stuff day after day.

 

Others such as the Public Interest Advocacy Centre also take part in these processes as much as they can. For PIAC it’s a real problem, because late in the game it just learned that the CRTC’s fast-tracked “fact finding” expedition on new media isn’t a real hearing, so no funding for them.

 

The rabble-rousing group, Open Media, is marshalling its resources for this week’s UBB Hearings. Rightly so, since it put the issue of the pay per Internet model on the public radar to begin with. They are boycotting the OTT ‘fact finding’ mission, though, because their resources are stretched thin and to protest the fact that the CRTC buckled to vested interests’ pleadings to have the proceeding advanced from 2014 to now, even though similar examinations occurred just two years ago.

 

Google and Apple also scolded the CRTC for allowing matters to get all bungled up in a kind of regulatory trench warfare. The CBC and NFB want to deliver their content to as many people, anywhere, anytime and across as many platforms and devices as possible, as well, not new regulations. Mirko Bibic, Bell’s regulatory front man, called this idea “preposterous” at the vertical integration hearings two weeks ago.

 

This battle over the future of media is not the result of new industrial arrangements, digitization, or newfangled economic theory, but endemic to situations where those who control the medium also control the messages (content).

 

In the 1900s, for example, the Canadian Pacific Telegraph Co. and Great Northwestern Telegraph Co. (the latter owned by the New York-based goliath, Western Union) had exclusive distribution rights for the Associated Press news wire service in Canada. To fortify their dominant position in the lucrative telegraph business against smaller rivals (e.g. the Dominion Telegraph Co in Canada and Postal Telegraph Co. in the US), the Canadian Pacific Tel. Co. and Great Northwestern Tel. Co. gave away the AP’s news service to the dominant daily newspaper in each town across the country for free.

 

AP’s service was so cheap because instead of paying the cost for the news service and the telegraph charges for delivering it, the companies only charged for the ‘transmission costs’. This was a boon to established members of the press and AP and a useful tool for the companies’ own efforts to stitch up their lock on the telegraph business. It was also a menace to network competition, rival news services and a diverse press.

 

Any rival news service that tried to enter the market was at a disadvantage because its subscribers had to pay the ‘transmission costs’ plus the cost of the news service. When the Winnipeg-based Western Associated Press set up a news service in 1907, it found its opportunities blocked because there was no way its subscribers could afford to pay two costs — transmission and for the news service — and stay in business, while AP’s new service was given away free to competitors.

 

Leveraging control over the wires, the telegraph companies choked the messages flowing through them. 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 withholding privileges that are of general right cannot be too strongly condemned.”

 

The matter was brought to a head by one of the first regulatory bodies in Canada, the Board of Railway Commissioners in 1910. Canadian Pacific Tel. Co. came out swinging, arguing that the BRC had no authority over news services or to compel them to separate the costs of the news service from their transmission costs.

 

The BRC didn’t wilt for a moment but shot-back that the law compelled it to insure that rates were ”just and reasonable”. 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”, it declared matter-of-factly.

 

The regulator had all the authority in the world it needed to break up the ‘double headed news monopoly’, and it did.

 

To be sure, the modalities of communication have changed tremendously since and we now live in an age when information is plentiful, not scarce. Yet, as Tim Wu’s Master Switch, and the mounting evidence before us attests, the basic logic of leveraging content and networks to confer advantages on one’s own services whilst driving others into submission, if not out of business altogether, is alive and well.

 

Australia, Argentina, Belgium, Brazil, Britain, New Zealand and many others are dealing with their own contemporary experiences of networks being used to trample competition and diminish the range of voices and expression available. Australia created the National Broadband Company in 2009 with $43 billion in funding to spur competition and open networks, for instance.

 

We have the publicly-owned and financed CANARIE with its ultra fast networks serving hospitals, schools, universities and researchers across the country. However, its modest funding ($30 million/year, roughly), uncertainty about funding levels after March 2012, and its executives’ squeamish view of how little they should compete with the incumbent commercial providers all limit CANARIE’s ability to offer much by way of an alternative network.

 

In Belgium and Britain, respectively, Belgacom and British Telecom have been forced to give more generous access to their facilities to speed the development of next generation networks. The level of functional separation adopted in the UK is unmatched elsewhere and depended heavily a strong regulator to force it upon a kicking and screaming BT in 2006. It has already led to more telecoms competition, broadband Internet services with greater speeds and capabilities, and lower prices relative to most countries, including Canada.

 

As an academic, I can dream big, but between my dreams and reality, there is a middle ground represented by measures that the FCC and Department of Justice in the U.S. put in place when they approved Comcast’s take-over of NBC-Universal earlier this year. In return for their blessing, Comcast must meet four fairly tough demands:

 

  • its television and film content must be available to Internet competitors and online video distributors (OVDs), a new category designed to cover Netflix, Hulu, AppleTV, etc.;
  • adopt open Internet principles generally;
  • “offer broadband services to low-income Americans at reduced monthly prices;
  • provide high-speed broadband to schools, libraries and underserved communities, among other benefits”.

 

These are practical measures that the CRTC could implement. It is a middle of the road choice, not a radical one. It does force the market to deliver a minimum level of social justice, but first and foremost it tries to foster a digital free press fit for a liberal capitalist democracy, rather than striving for abstract utopian ideals or bowing to the status quo.

 

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.

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.

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?

The Harper Majority, Telecoms Foreign Ownership and Canada as Digital Free Media Haven

Canadians are all a tizzy about what the Harper majority might mean across a whole range of things. There’s a panopoly of issues within the communication and media realm that might be up for quick action: foreign ownership rules, the re-tabling of copyright legislation, the potential regulation of Online Video Providers (OVPs), and the possibility to turn back the tide that his now transforming the Internet in Canada into a pay-per model governed by the incumbent’s ‘business models’, bandwidth caps and UBB.

For now, I want to focus on the first issue: the telecoms foreign ownership rules and the potential that any changes taken in that regard might be harnessed to a bigger project, namely turning Canada in a digital, ‘free media haven’ governed by the highest standards of the networked free press possible (see here and here, as well).

A version of what follows was published in my column for the online version of the Globe & Mail today, so here I will expand on a few of the issues and add a few links, as I usually do.

The Conservatives are well-known for wanting to liberalize the current rules. Academics and consultants such as Michael Geist and Mark Goldberg have also called for greater foreign investment in Canadian telecoms. Most banking analysts feel the same way.

Konrad von Finckenstein, CRTC chief, is also in favour, but frets about how to deal with the slew of integrated telecom-media behemoths that he has recently blessed: Bell Media, Roger Media, Quebecor, Cogeco, Shaw, (but not Telus). In other words, how to open the gates for more foreign investment in telecoms but not broadcasting?

Those in favour of changing the existing rules believe that doing so could usher in more investment in network development, more competition, less bandwidth throttling and far greater consumer choice. The current incumbents who dominate the telecoms, media and Internet markets in Canada would, so many appear to believe, be forced to compete head-on with the big global players – AT&T, France Telecom, T-Mobile, Japan’s NTT, China Telecom – for customers.

The goals are laudable, but are they realistic?

Some suggest that movement on the issue will be slow because the Tories do not have a clear strategy to deal with it. Yet, the Government has had several options on the table since 2006:

  • 1. removing all foreign investment limits;
  • 2. raising the limits from the current twenty percent to just under half;
  • 3. permitting foreign investment only in new companies that have less than 10 percent market share.

The only strategy the Government doesn’t have is keeping the status quo. Expect change soon.

The Government’s Cabinet Directive in 2006 instructing the CRTC to rely on market forces to the maximum extent feasible also tips its hand. Indeed, the Government tried to do an end run around the law through another Cabinet Directive overturning the CRTC’s decision to reject Globalive’s (Wind Mobile) bid to become a new wireless player on the grounds that it was not Canadian owned and controlled, as the Telecommunications Act (sec. 16) demands.

A Federal Court in February stopped that effort in its tracks. At least a formal change to the Telecommunications Act’s foreign ownership rules would have the virtue of bringing the law into conformity with the facts on the ground, i.e. Wind Mobile is up and running.

Even if we assume that allowing greater foreign ownership is a good thing, and I will offer a few more reasons below as to why it could be, many pesky issues remain. For example, what if the Government decides to just go with option #1: Allowing greater access to foreign capital markets for new comers?

The intended beneficiaries, of course, are Wind Mobile, Mobilicity and Public Mobile, but would it also apply to Quebecor, a company that is a newcomer to wireless but well-entrenched across the rest of the media? Somehow that doesn’t seem right.

That raises the larger issue about how to disentangle telecoms from broadcasting? The fact that telecoms and broadcasting are becoming more intertwined is becoming clearer by the day as Netflix gains a stronger footing in Canada and as Google and Apple appear routinely before the CRTC and Parliamentary Standing Committee on Canadian Heritage.

Indeed, when the Americans negotiated the NAFTA and WTO deals they anticipated that digitization would soon dissolve the boundaries between telecoms and broadcasting and bring the ‘cultural industries’ within the reach of the ‘global trade regime’ as a result of ‘technological forces’. MIT scholar Ithiel de Sola Pool argued much the same thing in his 1983 classic, Technologies of Freedom, many years earlier.

Yet we also need to ask if loosening the rules will lead to the outcomes that so many expect? AOL, AT&T and PSiNet were important players in telecoms and the Internet in this country during the dot.com era, but where are they now?

They have long since retreated, collapsed or gone bankrupt. The point being that this is not the rah-rah days of globalization in the late 1990s, but one when foreign investment in telecoms is at a low ebb.

Just as the “old” AT&T was retreating from Canada, it was also selling off a slew of networks across Latin America in the mid-2000s – mostly to Mexico-based TelMex. The trend continues.

Just last month, Deutsche Telekom sold its T-Mobile wireless operator in the U.S. to the resurrected ‘new’ AT&T. Pundits can believe all they want that AT&T, France Telecoms, Deutsche Telekom, NTT, and so on are lining up to enter Canada, but evidence suggests otherwise.

The lesson from T-Mobile is that foreign capital investment is hunkering down rather than trying to conquer the world. As two World Investment Reports from UNCTAD in 2008 and 2010 observe foreign investment and cross-border mergers & acquisitions in telecoms have fallen considerably from their late-1990s peak throughout the decade, and have yet to recover, especially after the ‘crisis of 2008’.

The sale of T-Mobile also reveals that even the massive U.S. wireless market is unable to sustain robust competition. Three players dominate the U.S. wireless market: AT&T, Verizon and a smaller Sprint/Nextel.

In other words, foreign ownership is no sure-shot solution for concentrated telecom, media and Internet markets. In fact, the World Bank’s message since the early 1990s, amongst others, is that foreign capital investment in telecoms only delivers the good when it is properly regulated and used to launch new rivals, rather than to acquire incumbents (i.e. ‘greenfield investment’).

None of this is to say that we should avoid more foreign investment in telecoms. In fact, the history of telecoms in Canada has been bound up with foreign capital since the first telegraph lines linked Toronto to Buffalo and New York in 1846 and the trans-Atlantic cables created a vast Euro-American space of capital, markets, migration and information with Canada at the hub in the 1860s and 1870s.

Today, greater foreign investment could not only be used to increase the availability and use of broadband telecom and Internet services and foster more competition, but as a stepping stone to far-reaching efforts to transform Canada into an open ‘digital media haven’.

New rules would provide an incentive for greater foreign investment, while our cool climate could entice Amazon, Google, Rackspace, Microsoft and others to build their massive ‘data warehouses’ on Canadian soil because it is cheaper to run these energy hungry facilities here than in the United States. Our stronger protections for personal information could put vast stores of data beyond the reach of the U.S. Patriot Act and keep the ‘domain name snatching’ operations of Homeland Security at bay.

Birgitta Jonsdottir, the Icelandic Member of Parliament, has similarly proposed to make her country a haven for “digital free speech” – similar to what the Cayman Islands is for banking, but with the higher purpose of advancing human rights, democracy and freedom of expression. Seen from this angle, relaxing foreign ownership rules in Canada could serve as the cornerstone of efforts to foster an open telecom, media and Internet system governed by the highest standards of a networked free press in the world (also see here).

For that to happen, however, the new majority Harper Government will have to embrace openness, freedom of speech and democracy just as firmly as it now has its hands on the levers of the state.

Telus Hearing Angels?

The other day I posted that Telus stands apart from the other dominant integrated telecom and media giants in Canada — Bell, Rogers, Shaw, Quebecor and Cogeco — on several grounds.

First, that while it has Usage Based Billing and bandwidth caps on the books, it has yet to implement them — although it has just announced plans to do so. If it does, it will be in the same league as the rest of the incumbents. Until then, there is still a chance that it will back down.

Second, unlike the other ‘big 5’, it is not a fully-integrated media conglomerate. It does not own broadcasting or other major ‘content’ services.

Third, it is opposed to vertical integration because companies that own the ‘medium’ and the ‘message’ lock up content in ways that are anti-competitive and against open networks. It is already encountering the difficulties that that entails in its attempts to gain programs for its IPTV, mobile tv services, etc.

Today, Telus filed documents for the upcoming CRTC hearings on vertical integration outlining that opposition. It is worthwhile to read. Here’s a link and another.

The following quote from Telus press release announcing its position gets to the thrust of its position:

“The unprecedented concentration of market power in the broadcasting sector created by the common ownership of programming services and distribution platforms requires regulatory safeguards to protect consumers . . . . The potential for abuse of market power is real and the risk to consumers is significant. Without proper regulatory safeguards consumers could soon be facing increased costs and reduced choice in their TV viewing options.” Michael Hennessy, senior vice-president Regulatory and Government Affairs at TELUS.

To be sure, unless it renounces plans for UBB, bandwidth caps and to stop throttling P2P services and OVP (online video providers), Telus is certainly nowhere being on the side of the Angels. However, it has gone part way down the right path, and in so doing, broken ranks with the others who simply see the Internet as a threat and merely an adjunct to their ‘business models’ when useful.

Angels to Telus: Don’t be Evil

A reader, Sean, sent me an email yesterday, two actually and a couple of questions. They reminded me of something, and then inspired me to read and write. Thanks Sean.

The immediate point was that Shaw Media and Telus are about to ramp up bandwidth caps and UBB — the cornerstones of the the pay-per Internet model — in western Canada. To be sure, people in Alberta and BC have already had lots of this model already.

However, while both Shaw and Telus have had ‘bandwidth caps’ and UBB on the books, they have not used them. That looks set to change.

Shaw appears to be first off the mark in wanting to kick these into action, as it told, again, those pesky investment bankers who are now hovering around companies because it is the ‘end of quarter’ reporting season of its plans. As Shaw stated, it has the market power to impose the pay-per pricing model and supposedly the consent of its users. I don’t doubt the former, but the latter claim is circumspect.

Shaw has come full circle in the past sixth months after acquiring Global TV and has begun to sing a new gospel from the top of its lungs in favour of regulating OVP (online video providers) such as Apple TV, Google, Netflix, etc..

Telus, too, has had pretty tough bandwidth caps and UBB on its books.  It’s cost per ‘extra’ GB when going over the cap is a punitive $2-5. Telus infamously shut down access over its ISP to the website “Voices of Change”, a site run by the Telecommunication Workers Union, during a strike in 2005.

It has been no angel. However, I am also reminded that amongst the ‘big six’ — Bell, Shaw, Rogers, Quebecor, Telus and Cogeco — Telus is something of an exception, or at least has a few characteristics that distinguish it from the others and put it on, as my friend Marc-Andre put it, “the side of the angels”. We should probably give credit where credit is due.

First, we must remember that in a situation where Canada stands unique, if not completely alone, in the universal coverage of ‘bandwidth caps’ and pay-per GB ‘excess usage charges’, Telus has not yet made the move to implement these measures and might yet be dissuaded. So, for what that’s worth: Telus, please don’t be evil.

Second, on some key ‘structural issues’ that go to the heart of the organization of the network media in Canada, Telus stands alone amongst the ‘big six’ for not following the path of ’empire’ by becoming vertically-integrated with a dominant broadcaster.  This means that its voice has been absent among all of the others who have called in unison for the CRTC to regulate online video providers.

Third, Telus recently told the Standing Committee on Canadian Heritage  in no uncertain terms that it opposed the Shaw-Global TV and Bell-CTV amalgmations, respectively. In sum, Telus has not embraced the shangri-la of ‘media convergence’.

That, however, does not mean that it is not in the TV business. It serves as distributor of Bell satellite TV in the west. It has its own IPTV service, mobile tv channels, and so forth. It  needs programs and ‘content’ for its IPTV service, mobile tv channels, and so forth as well, and therein lies a problem.

Telus already claims to be having a lot of difficulty getting the programming that it wants on reasonable terms. This is more grounds for its opposition to vertical integration still. For that reason, Telus will stake out a unique stance at the upcoming CRTC hearings on vertical integration in being the only major incumbent likely to argue on behalf of some form of structural separation. This is a good thing and, again, Telus is on the side of the angel

Having just been blessed by the CRTC (and Competition Bureau) over the past six months, it is hardly likely that the CRTC will do much more than tinker around the edges with vertical integration. The fact that Industry Minister Tony Clement has already voiced his view that vertical integration is the way of the future and structural separation irresponsible only reinforces the impression.

All of this reminds me that the commitments to open networks is not about paying homage to abstract principles but to a concrete trilogy of real considerations: open networks, open sources and open societies. At the present conjuncture, each is under severe pressure, but yet to be bowed.

While no angel, Telus is on the side of the good with respect to open networks and should be applauded to the extent that it is. In terms of open source, the approach helps generate ideas, examination and conversation like Sean’s email did yesterday. Several others have written lately too, so thanks, but I would also like to suggest that it is best to raise issues here. That way others can weigh in, and go off on their own, too.

These are also the things upon which an open society — the ultimate endpoint of the trilogy to begin with — depends.  There are important questions about just how far Canada has fallen from that standard.

We have corporate disclosure rules that pale alongside those in the United States. Not just the major network media conglomerates, but publicly-traded corporations in Canada generally disgorge far less information to the CRTC and Competition Bureau than their counterparts in the US are required to do by the FCC and Department of Justice.

The Harper Government has clamped down on information flows and the general tenor it has set has simultaneously fortified and calcified the historical proclivity towards information secrecy in Canada relative to other capitalist democracies. Without a full-commitment to open societies and open sources and open networks, none of these elements can flourish on their own. It is a thought worth bearing in mind, I think.

The Great Struggle for the Soul of the Internet and Network Media in Canada (Part 1)

A strange confluence of forces has just made the push to have Netflix and other over-the-top video distributors (OVDs) such as Amazon, Apple and Google regulated by the rules of the Broadcasting Act a whole lot stronger.

Events kicked into high gear this week when Astral Media renewed calls for the CRTC to regulate OVDs just like any other broadcaster. Bell, Rogers and Shaw quickly endorsed the call.

Astral, Bell and other incumbents are coming under increased scrutiny from investment bankers worried that OVDs could wreck their bottom line and this seems to have increased their resolve to thwart would be rivals. Moody’s — the investment ratings agency – also recently raised such concerns, while casting doubt on the dominant integrated media companies’ — Bell CTV, Shaw Global (Corus), Rogers City TV and Quebecor Media – decisions to acquire ever bigger stakes in the television business.

When investment bankers worry, CEOs tremble and Netflix as well as the open Internet generally could end up paying the price.

The Canadian Media Production Association‘s recent appeal to the CRTC to regulate Netflix under the Broadcasting Act added to the full court push, as did the Supreme Court‘s decision last month to hear a case from various groups representing media workers who want ISPs as well as Netflix, Apple, Google, and so on to be regulated like broadcasters.

Lastly, a Standing Committee on Canadian Heritage report published last month and the CRTC’s upcoming reviews of its unpopular wholesale UBB decision and vertical integration have also brought the issues to a head.

These issues are not new. In fact, in its famous “new media” decision in 1999, the CRTC categorically asserted its authority to regulate broadcasting services delivered over the Internet, but decided to stand on the sidelines while such services were in their infancy.

The vertically-integrated, dominant telecom, cable and internet service providers love the approach because it has given them a green light to develop new markets while letting them off the hook with respect to issues about vertical integration, anti-competitive behavior, Cancon requirements and funding commitments in the emerging digital media universe.

The CRTC’s decision to stand on the sidelines has no doubt played well to the ‘hands-off-the-Internet’ crowd, as well. The truth is, however, that this has only postponed the day of reckoning.

That day of reckoning has been moving ever closer since broadcasters finally made a concerted effort to launch substantial video portals in 2007/2008 (e.g., CBC.ca, CTV.ca, GlobalTV.com), while offering some programs through Apple iTunes and YouTube. Simultaneously, they have  fought tooth and nail to defend their existing markets and expand into new ones, while using a well-stocked arsenal of measures to block rival OVDs such as Netflix. Six such tactics stand out:

First, bandwidth throttling was used by Bell in 2008 to cripple the CBC’s attempt to use BitTorrent to distribute an episode of Canada’s Next Great Prime Minister, while today Rogers’ throttling of P2P applications causes no end of frustration for those who play World of Warcraft online.

Second, ‘bandwidth caps’ and Usage-Based Billing are being used by all of the major ISPs to deter online video use. Netflix has deliberately degraded the quality of its service to help subscribers avoid these punitive and restrictive measures as a result.

Third, the incumbents do not apply the same measures to their own services. Bell’s chief regulatory officer, Mirko Bibic, recently provided a great example of the tortured logic used to justify such treatment when he argued that, despite using the same network facilities, Bell’s OVD service is not a ‘true’ Internet-based service, while Netflix is.

Fourth, the incumbent telecom and cable companies’ refusal to interconnect their systems with others has blocked large OVDs and Internet companies such as Amazon, Apple, eBay, Facebook, Google, and Netflix from bringing their ‘content distribution networks’ as close to users as possible.

Fifth, Canada’s integrated multimedia conglomerates have used a combination of program rights, geo-gating and digital rights management (DRM) technologies and a smattering of deals with Apple and Youtube to shore up their control over access to our ‘national media market’. The Rogers, Bells, Shaws, Quebecors, and so on of this country do not like the prospect of having to compete for each and every new digital market with newcomers one bit; nor do cable providers in the United States.

As a recent New York Time’s article observes, Time Warner and Cablevision are locked in battle with Viacom (MTV, VH1, etc.) and Scripps Howard (HGTV, Food Network, etc.), with the cable companies arguing that the rights they have acquired to deliver channels to audiences’ tv sets also lets them beam those same channels over the Internet to iPads and iPhones. Viacom and Scripps Howard vehemently disagree.

In the incumbents’ “perfect world”, they would simply fold the OVD market into the suite of rights they acquire for traditional television markets without having to compete with Netflix at all. If they had it their way, the Internet would just be bolted on to the side of their lucrative television business.

Netflix strengthens the hands of content creators and rights holders on both sides of the border relative to traditional broadcasters. In Canada, this battle over the essential resources of the media economy — networks, money and copyrights — are concealed by a fog of sanctimonious rhetoric about cultural policy led by vested interests.

Seen from the broadcaster’s point of view, Netflix’s recent acquisition of new drama series and its deal with Paramount Studios for online video distribution are just further evidence that the company is steadily encroaching on their turf — one more reason why it should be quickly brought to heel. Even if we thought for a moment that regulating Neflix and OVDs was a good idea, what should we do as Hollywood experiments with using Facebook as a new ‘window’ for blockbusters such as The Dark Knight, Philosopher’s Stone, Yogi Bear, and Chamber of Secrets, among others?

Do we regulate Facebook as a broadcaster too?  I’m all for attending to that company’s privacy issues and other mattters, but Facebook and broadcasting? Obviously, there is no shortage of slippery slopes and pitfalls along the incumbents’ garden path.

The sixth defensive weapon in the incumbent’s bid to hobble new rivals is their coordinated push for government regulation. Perhaps the award for sharpest U-turn on these issues goes to Shaw after it acquired Global TV in the fall of 2010.

After a decade of opposition to the CRTC in general and to the regulation of the Internet specifically, Shaw President Peter Bissonnette laid out the new gospel in front of the Canadian Heritage Committee referred to earlier: “If there’s one message we want to leave with you . . . it is that over-the-top competitors have a free ride. They’re aggregators of broadcasting. They provide broadcasting services in Canada.” They should be regulated like broadcasters.

For anybody still under the illusion that the Internet is unregulable, Shaw and others point to extensive regulatory tools that they’d like to see pressed into service: e.g. ISP levies; extending Section 19 Income Tax Act Exemptions so that adverting on Canadian Internet sites can be written off just as it is for Canadian-owned newspapers, magazines and broadcasters; Canadian Media Fund contributions; Cancon Quotas, etc.

Acceding to the full sweep of this agenda would not just wreck Netflix’s ‘business model’, it would destroy the future of the Internet. To stem the tide, we need to understand just how wildly out of synch the ‘sky-is-falling’ rhetoric is with the fact that the television industry is more lucrative then ever. We also might wonder if Netflix, Apple, Google, Amazon, et. al. might agree to adding some water to their wine in return for a quick stop being put to the discriminatory practices that now hobble their activities in Canada?

No ABC in 1st 2011 Canadian Election Debates

No Australian Broadband for Canada, or much to do with the Internet, media, telecoms and copyright issues at all in tonight’s federal election debate.

Before I go any further, though, let me confess that I did not watch all of the federal election debate tonight. I’m sorry, I had other things to do. But I did catch about a half-hour of the debates on tv, another 10 minutes on radio while in the car, and another 15 minutes of video with no sound while at the gym. I may have missed something. Zygmunt Bauman calls it the ‘liquid life’ — that is, cobbling things together to make up your life on the fly.

But, I think I caught the gist of things and that is that none of the leaders really had much to say on media and Internet issues. Nothing about copyright or the uproar over Usage-Based Billing. In other words, none of the ABCs of ‘digital media policy’ merited much attention.

To be sure, I didn’t expect broadband Internet, media, copyright and UBB to be at the top of the agenda in tonight’s federal election debates. In fact, such issues probably should not be at the top of the agenda and generally I agree that funding pensions, healthcare, the general state of the economy, widening economic inequality, and the moral integrity of the Government-of-the-day are probably more important. Still, though, I didn’t expect digital media and Internet issues to be left out altogether, either.

There are a great many who wield fancy labels like the digital media economy, creative industries and the lot to give such issues a lustre and limelight they may not deserve. Big economic numbers for the media, telecom and Internet industries, and their contributions to the economy, culture and society, are often wielded about to underscore the impressiveness of these things. There is, truth be told, a great deal of puffery involved when it comes to talking about these things.

All of which is to say, that while I agree that digital media and Internet issues probably should not be artificially hyped, they should not be peripheral too the election, or just a blip that gets twittered about opportunistically amongst the twitterati. Why should we care if these issues are not at the centre of televised electoral debates?

First, because as a study by Canadian Media Research Consortium just released underscores, television is still people’s preferred medium for information and news. Television still plays an extraordinary powerful role in bringing things to people’s attention. This not just true for old people or couch dwellers, either. The fact of the matter is that those who spend the most time online are also the heaviest traditional media users, too.

Second, most of the primary news sources behind online news sites are creatures of the dominant traditonal news providers: CTV, Global, CBC-Radio-Canada, Globe & Mail, Toronto Star, Le Presse, Quebecor Media Inc. These entities largely, although not exclusively, play a big role in setting the news agenda for the country’s media as a whole, including the ‘news aggregators’ and blogosphere that thrive off of their efforts.

Of course, we can gain access to the New York Times, Le Monde and the Guardian or the Huffington Post, but they aren’t going to be much help on matters specifically Canadian in focus. Elections are one just such crucial matter.

For issues to be taken as a going concern in a democracy, they must be on the media screen, and in today’s world that means being on at least three different screens: the ‘big screen’ of tv, the glowing screen of the computer, and the wee screen of portable ‘devices’.

Third, media and Internet issues have been central themes in other national elections and politics. Network neutrality and broadband development were cornerstones of the Obama campaign in 2008, for instance; his administration has also paid considerable attention to issues surrounding the so-called ‘crisis of journalism’ and media concentration since then.

In Australia, the Government’s creation of a National Broadband Network to do an end-run around a recalcitrant incumbent — Telstra — in order to bring about a ultra high speed, broadband Internet service to ninety-plus percent of all Australians was extremely prominent and divisive in the 2010 federal elections. The Labour Government now in power supported the initiative, as did the Greens, a few independents, Microsoft and Google.

In Canada, the Usage Based Billing issue has received pretty good coverage in general, but broader media and Internet-related issues and, specifically, their place within the context of the elections, have not fared so well. The link between the media and Internet, on the one side, and electoral politics, on the other, has mostly been made on the Internet and Twitter.

This is important because, as the Canadian Media Research Consortium study pointed to above states, if stranded on a desert island, the internet is the least likely of all media to be let go by people. The importance of the internet in general is reflected in the uses of Facebook and Twitter in particular.

Facebook has been central to the efforts of the advocacy group OpenMedia.ca to make these issues an important part of the election campaign and all the political parties have responded rather eagerly, even if sometimes opportunistically, to ‘trending Twitter topics’ and Facebook-based campaigns.

At the end of 2010,Twitter had an impressive average number of monthly users in Canada of around 3.5 million, according to Comscore (p. 19).  That’s a lot. Many fear Twitter-induced attention deficits and depraved forms of journalism will be the natural upshot of Twitter’s 140 character per tweet format, but Alan Rusbridger, the editor of the Guardian in the UK, offers a rousing defense of its contributions to journalism and to public discourse.

However, we also must remember to keep things in perspective. The number of people who use Twitter — roughly 3.5 million a month — is less than the number of people who watched the debates last night or that buy a newspaper every day.  In terms of credibility and trust, the press blows away online sources, and television still fares somewhat better as well — although not much (see p. 14 of the Canadian Media Research Consortium study).

The Twitterverse is also a lot smaller than Facebook. With 22 million unique users a month, Facebook has nearly 7 times the number of unique monthly viewers in Canada (22 million) than Twitter has.

Interestingly, the Broadcast Consortium overseeing the organization of the federal election debates had the foresight to add a Facebook page to the mix of how political debate is circulated in the emergent network media ecology. The development suggests an interesting attempt to meet people where they are.

Facebook also raises anew questions about the relationship between popular culture, the media and politics. Its increasing pivotal role has drawn it closer to traditional conceptions of news and politics. Its inclusion as a formal part of the ‘operational machinery’ of the first televised English-language debates are one indicator of that. Recent overtures by Facebook to news executives is another.

Indeed, as a story on the Globe and Mail’s technology website the other day relayed, Facebook “is looking to strengthen its relationship with the news media and has already helped boost traffic to news websites” (see here).  It also created a special Facebook page just for journalists who want to integrate social media into the journalism process.

The New Yorker drew the connection a step further this month by requiring online readers of the magazine to use Facebook’s “Like” icon to gain access to one of its articles. The experiment essentially sets up the “Like” button as a kind of  “paywall”, but one that tries to translate the ‘social capital’ of Facebook users into a real pot of gold that many commercial media providers hope exists at the end of the digital rainbow.

All of this, of course, adds yet another wrinkle in the ‘evolution of the news’, to put it somewhat grandiosely. To date, the debate has been much about the impact of ‘content aggregators’ like Google and Yahoo on the news industry, and wails from many stalwarts in the latter that the blogosphere lives parasitically off the hard labour of real news organizations and journalists. Enter Facebook stage left.

There is something in all this related to the ‘functional convergence’ between ‘search’ and ‘social’ that I spoke about last week in relation to what I called the Google Switch — i.e. Google’s response to increasing competition from Facebook by increasingly adding ‘social capabilities’ such as ‘+1’ to its ballooning suite of functions such as Orkut, YouTube, Blogger.  However, in the circumstances just outlined, the drift is not from search to social, but rather the other way around. If such a ‘functional convergence’ is in fact taking place, then perhaps it is not just Google, but Facebook and other social networking sites, that will emerge as pivotal to the ‘future of the news’.

Communication researchers have always understood how media and information flows are nestled within existing networks of personal relationships.  Now the process is being digitized, fully commercialized, and rendered visible. Through all of this, will Google and Facebook be good for the News, good for democracy?  Hmm, now there’s a question ripe for pondering in the context of the 2011 election.

Conservative Election Platform and the “Nothing New” Digital Economy Policy

The Conservatives released their election platform this morning. The news with respect to those looking for something with respect to broadband Internet development and digital media policy?  Nothing new.

For those looking to see some shift in policy direction that might increase broadband Internet development, greater competition and anything else that has led to the uproar over Usage Based Billing, bandwidth caps and the pay-per Internet model, the document offers little.  No measures are offered to foster greater competition, such as setting aside spectrum for new wireless entrants, encouraging greater foreign ownership, or regulatory reforms so that the CRTC can better address problems of media, telecoms and Internet concentration. Instead, it is business as usual: the maximum reliance on market forces possible.

Nothing new is on the table with respect to broadband Internet development, although existing commitments of spending $225 million over the next five years to help fund the extension of such capabilities to 200,000 rural and remote households are maintained (see page 65).

The Quebec Government’s budget, in contrast, adopted last month announced spending of $900 million between now and 2020 to extend broadband Internet to all Quebecers and, in particular, the 290,000 households in Quebec alone theat currently do not have access to broadband Internet capabilities. In other words, the Conservative platform not only lowballs broadband development relative to, say, Australia, Britain, France, Finland, Korea, Japan and the U.S., it pales in comparison to actions taken by one province: Quebec.

No commitments are made to anything that looks like Network Neutrality, either.

In terms of copyright and digital media policy, nothing new here either, except a promise that a majority Conservative Government will reintroduce and pass quickly the Copyright Modernization Act that died when the election was called. That Act, as others have pointed out, has some very important beneficial qualities, such as formalizing fair use provisions and allowing individuals to create copies of digital content for their personal use across various platforms, i.e. computers, digital music players, tv, and computers.

The Copyright Modernization Act, however, has two fatal flaws: (1) provisions requiring ISPs to function as copyright cops and (2) the outlawing of attempts to undo digital locks that tie media content to specific devices.

Requiring ISPs to function as digital cops is a problem because it puts them on the slippery slope of playing the role of gatekeeper in the digital media environment. Preventing people’s attempts to undo digital locks is also problematic because it prevents people from using the freedom to make personal copies of digital content for their own purposes across different devices/platforms. In other words, digital locks and the content industries’ ability to lock content to specific devices trumps users’ rights to enjoy media content they have legally acquired across whatever platforms they choose to use.

With respect to a few other matters central to cultural policy, the election platform holds the line. For one, the CBC is not mentioned at all, thus sparing it from what some see as a Government hostile to the public broadcaster. This could be a good thing in the face of persistent worries that the Conservatives have a hidden ‘scorched earth’ approach to the CBC and all things cultural policy.

The Canadian Media Fund and Canadian Periodical Fund are also mentioned, without either new commitments made or drastic cutbacks. Thus, rather than slashing the CBC and gutting programs and funding mechanisms designed to foster the development of media content, the Conservatives appear set to maintain the status quo.

All-in-all, the Conservative election platform lays out an underwhelming approach in light of the magnitude of issues in front of us. Despite grandstanding by both PM Harper and Industry Minister Clement in the face of the massive uproar over the January 25 UBB decision by the CRTC, nothing at all is offered that suggests relief or that such considerations are central to the Conservative’s digital media policy. That, in turn, seems to be more rhetoric than substance, a mantra invoked in the hope that some of the pixie dust associated with digital media can transform Conservatives into hipsters. That is definitely not the case.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bandwidth Caps, Bankers and the Canadian Pay-Per Internet Model

Not being the quickest guy with numbers, I often wonder just how much of what we can do on the Internet before hitting the Rogers ‘Bandwith Cap” wall that comes with my service? Using Rogers high-speed express service, I get 60GB per month, after which I will have to fork out $2 per GB.

I mean, first of all, just having to even think about this, let alone having to calculate it is a pain in the neck.  The Globe and Mail had a good break-down the other day of how much bandwidth is involved in downloading email, music files, tv programs and movies. Here’s its graphic.

So, I could send 4 million emails or download 8,570 songs, 37.5 television shows (hd) and 19 movies (hd).  Even if I’m a mad, crazy emailer or music downloader, I’d unlikely hit the limit. But, then again, what if I had a mass distribution list for the eco-feminist news letter I send out to 2,000 people every month, or to my red meat eaters club?

What if I play World of Warcraft? If you think I’m being funny, well, I am trying. But take a look at Teresa Murphy’s letter to the CRTC outlining how Rogers throttles World of Warcraft players. The problem is that restrictions and limits on how we use the Internet are popping up all over the place and for everyone, not just the villified ‘bandwidth hogs’.

The limits are also impinging on how Netflix operates in Canada as well. On March 28 2011, Netflix set the default quality of its video streaming service in Canada to low to help people conserve bandwidth.

In other words, Netflix has deliberately degraded it services relative to what it offers in the U.S. in response to the restrictive conditions imposed by the ‘big six ISPs’ in this country: Bell, Telus, Shaw, Rogers, Quebecor and Cogeco.  Users do, however, have a choice and can still select from three settings:

  1. “Good” – The default setting with good picture quality and lowest data use per hour (about 0.3 GBytes/hour)
  2. “Better” – Better picture quality and medium data use per hour (about 0.7 GBytes/hour)
  3. “Best” – Best picture quality and highest date use per hour (generally about 1.0 GBytes/hour – or up to 2.3 GBytes/hour when streaming HD content)

Tying up the Internet and its users in a thicket of technical and economic restrictions, however, could come back to bite the big 6 in the ass. For that too happen, however, we probably shouldn’t look to the CRTC or to the Harper Government.

The CRTC has already brazenly said that the review sparked by the furor over its January 25, 2011 UBB decision will be narrowly focused on that decision alone. In doing so, it ruled out a critical public examination of the ‘long march’ to the pay-per, provider controlled Internet model in Canada.

Industry Minister Tony Clement is a little more ambivalent on the matter. He offered no rebuke to the CRTC for stubbornly sticking to its myopic focus. He did, however, rebuke Bell’s attempt to replace its wholesale UBB with a new Aggregate Volume Pricing Model.

There are two more interesting areas that hold better prospects of turning this wreck of a digital media policy around, and both lead straight not to the consumer Internet market but rather to the capital investment market.

In a study by the New York branch of the investment bank, Credit Suisse, the author stated that the added cost of using over-the-top video services such as Netflix, AppleTV, etc. due to ‘excess usage charges’ (but which the “big six” exempt their own video/tv services from) could result in people cutting back on their cable and satellite bills. They could do that either by subscribing to a cheaper tier of channels, or dumping cable and satellite TV altogether.

The latter is improbable, at least in any great number, anytime soon.  The idea of cutting back to a cheaper tier of cable channels while cobbling together a range of over-the-top services such as Netflix, Boxee, etc., however, may have more legs. That scares the investment bankers because cheaper tiers mean lower ARPUs (average revenue per user), in the lingo, and that is one of the holy grails for figuring out how much companies are worth on the stock market, i.e. their market capitalization.

The UBB uproar has also spawned fears in the capital investment markets in Canada that Bell, for one, is taking seriously. Thus, during a Conference Call on February 10 2011 with Canada’s leading investment bankers, Jeff Fan of Scotia Capital posed the following question to George Cope, BCE’s CEO:

Yes, good morning.  Thanks very much.  I want to ask you guys about the broadband situation that’s going on.  A lot of  investors are obviously quite concerned about what’s going on on the regulatory front with usage-based billing so perhaps can you give us a sense of what . . . the impact of this could be should the government move forward on a more Draconian basis? (emphasis added, see page 12)

Fan was not alone in raising the issue. And Cope went on and on to assuage any concerns. But look again at the last line in Fan’s quote that brands any attempt by regulators to roll back the pay-per Internet model juggernaut would be “Draconian”. Clearly, investment bankers are not on the side of the ‘good and the just’, but their fears reveal cracks in the walls that may play well into the hands of those who do want to turn back the tide.

These are important things to bear in mind as the politics of the Internet unfold. I’ve said in the past that the CRTC is constrained by a heavy-handed and interventionist Harper Government. It is also constrained, apparently, by perceptions on Bay Street. It is also limited by its own timidity.

Nonetheless, there is scope for maneouvre in all this. So long as World of Warcraft players and Internet users of the world unite there may yet be opportunity to stem the tide. A quick search of the Internet shows that others around the world wish Canadians well in their battle against a model that they hope never sees the light of day in their own countries (or more correctly, hope that it never becomes the norm, as it is in Canada, as Professor Geist’s recent study shows).

Goldberg / Incumbent Report: Canadian telecoms — laggard or leader

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ottawa Globalive Appeal: Open Network Fans Should Beware the Strong Arm of the State

In several of my previous posts, I talked about the current Government’s penchant for intervening in the CRTC’s affairs and bringing about policies that it had been unable to do by normal routes. I have also argued that such interventions have played a crucial role in transforming the Internet from a user-controlled and open model to a provider-controlled, pay-per medium.  Without any formal changes in policy or law, the Internet has been changed beyond recognition. All the while, the Government sings from the rooftops that it is the champion of competition, innovation and the consumer.  It is doubtful that it is any of these.

In December 2009, the Government stepped into reverse another decision: this time it was the CRTC’s decision to reject Wind Mobile’s bid to become a new player in the Canada’s notoriously uncompetitive and technologically backwards wireless industry that was over-ruled.  Wind Mobile was rejected because most of the cash behind the company came from an Egyptian company, Orascom, and while most of the directors would be Canadian, the CRTC ruled that ownership conferred control in fact. The bid was not in synch with Telecommunications Act’s restrictions.

Foreign ownership has been a perennial issue in Canada, and especially in the last decade or so.  While the discussion has been endless, there has been no decision by the Canadian government to change the law.  The Industry Minister’s decision in 2009 to over-rule the CRTC and green-light Wind Mobile was essentially an attempt to change the law by stealth.  The introduction of Wind Mobile was no doubt a much needed shot in the arm for an anemic industry.  Yet, doing end runs around the law and ramming the Government’s choices down the regulator’s throat is not the proper way to do this; either a change in the existing Telecommunications Act or a new law altogether is the right way to go.

The Order in Council overturning the CRTC in the Wind Mobile was declared illegal on February 4, 2011 by a Federal Court. Industry Minister Tony Clement served notice on February 15th that the Government is appealing the court’s decision. This will certainly keep Wind Mobile on life support for a while, but it will do nothing but delay action on foreign ownership.

The problem in all of this is that we have policy by stealth and hand-to-hand combat. This is the strong state in action, and the state, to paraphrase Napolean, is Harper.  Clement’s announcement of the appeal was also accompanied by a statement meant to counter charges that it has been playing heavy-handedly with the CRTC. That is a point that I’ve been making in the past several posts. Clement wasn’t responding to me, however, but to comments made by former Liberal appointed chairwoman of the CRTC, Francoise Bertrand and another former vice-chairman of the agency, Richard French.  Both have argued in the past few weeks that such constant meddling is deeply politicizing the regulatory process and rendering the telecoms environment opaque and chaotic.

Bertrand has been denounced by Open Media and P2P.Net as an industry hack and well-connected spearhead of Quebec industry, including Quebecor (Sun Media, TVA, Videotron), where she is a board of director.  Undoubtedly, her interests are aligned with her corporate masters, but at least in this instance being against the Cabinet Directives in either the CRTC’s UBB or Wind Mobile doesn’t put you on the wrong side of the issue.

Open Media and P2P.Net’s, among others, push for much greater competition and an open Internet are indeed worthy goals, and I’m fully in support of them.  These groups have been instrumental in fomenting opposition to the recent UBB decision. On the issue of Cabinet Directives, however, Bertrand is right.  Regulation on a short leash is deeply problematic, and while it may get what we wish for with respect to the UBB decision and Wind Mobile, it is not the way to create a real competition, diversity and open media. In fact, it is the exact opposite. We should be leery of relying on the strong arm of the state to bring about ends that we might seek.

That Bertrand was on the mark is reflected in the fact that Clement directly took aim at her charges by trying to repudiate them when announcing that it would appeal the Federal Court decision on Wind Mobile (Globalive).  Indeed, an essential paragraph in the announcement aimed to give the impression that the Government has only meddled modestly in the CRTC’s affairs:

“Since 2006, the Canadian Radio-television and Telecommunications Commission has issued approximately 2,200 telecommunications decisions. During this period, there have been 13 CRTC decisions that have been formally reviewed by the Governor in Council. Of those, the Government has upheld seven decisions, varied three, and referred three back to the CRTC for reconsideration.”

In fact, however, 13 interventions into the CRTC’s telecoms decisions within five years is a lot. From 2001 until 2005, governments of the day intervened 7 times, in the five years before that 8 times, and between 1990 and 1995, just 4 (see Privy Council Office’s Order-in-Council database). Matters are different (in many ways) for broadcasting, but in the matter of telecoms, this is the strong state in action.

So, make no mistake about it, 13 interventions in the past five years is high. The CRTC has been put on a short-leash.  The use of Cabinet Directives has consequences that are sometimes ambiguous, and some that are good for competition (Wind Mobile), but it has also deterred greater competition in services, blocked speed-matching for ISPs, encouraged greater deference to incumbents’ investment plans and business models, and opened the door for UBB.  The crumbs off the table that may accrue from the Government’s likely overturning of the January 25th UBB decision by the CRTC, unless the agency beats them to it, are not even close to making up for such strong intervention into media matters.

Those who think that the Government’s directive-happy instincts can opportunistically be turned to their own advantage, I believe, are going to wake up very soon to find that they are sadly mistaken.

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