November 2009 Archives

[Disclosure:  in the early 1980's (sadly, not a typo) I worked in the software industry and was a full-time employee of Bell Canada.  In 1986 I did a short contract once for Rogers inolving their billing systems.  In 2008 I collaborated with TELUS (as an ISP) on a paper concerning network traffic management.  I have never consulted with any of these companies (or any others) in their capacity as a BDU.  Also, directly or indirectly, I own shares in a number of ISPs including those mentioned above.  They also happen to be BDUs, but that's not why I chose to invest in them.]


[This article was also published by Cartt.ca]

I support the Canadian content industries and salute those who have done much with little.  There's much of which to be proud.  Today, though, the Canadian broadcasting system is in crisis.  Mostly, it is caused by a failure to adapt quickly enough to a rapidly changing world.  That's been exacerbated by the current economic situation, too.   But some of it is caused by injurious and spiteful infighting between players in the system that ends up confusing, frustrating and alienating the consumer.

Every player in the system has a role and has responsibilities as defined by the Broadcasting Act.  Beyond that, though, every player also has an unwritten obligation to Canadians.  That obligation is to continually evolve as needed to preserve our Canadian content industries and our creative voice in the world - and to do so collaboratively when necessary.  At the moment, I think all sectors are falling short of this obligation.  We're seldom innovators, we often lag.  It's tough to innovate when you're a small player, as Canada is in this space.  Innovate when possible, follow when practical, but don't follow so far behind that you become irrelevant - and, sadly, that's the dangerous reality we face today.  No one wants to see what we have collapse - but perpetuating a failing system through piece-meal changes isn't going to succeed for long.  The entire system - and everyone in it - needs to change their ways of doing business - and needs to do that now.  Five years from now we won't look back at the great "fee for carriage" or "value for signals" battle of 2009 as the salvation of local TV.  The problem is systemic, regardless of the outcome of this specific battle.  We're far more likely to look back to 2009 and ask ourselves why we didn't do something to really fix the problems while, arguably, we still had a chance.

The Canadian TV industry isn't naturally an economically viable ecosystem where each player can succeed on its own and still fulfill a cultural responsibility.  It never has been and it may never be in the future.  When models break - as they are now - the answer isn't simply to drain money from one sector of the ecosystem and pump it into another.  That's a last-ditch "life support" approach, not one that promotes a sustainable future.  It's a band-aid on a much bigger problem and the answer to such extreme problems always lies in taking radical and decisive action, not applying first-aid to slow the bleeding while hoping that the problem will heal itself.

I certainly don't speak for BDUs but if I did here's what I'd say to conventional broadcasters:

You buy content and sometimes you create it yourself.  You sell advertising that you wrap around that content.  Then you give that away for free over the air (and often on the Internet, too).  You hope that at the end of the day the advertising revenue you receive exceeds the costs of content and distribution - and for the longest time, it did just that, handsomely.

The airwaves are a public good.  In exchange for a right to use a portion of that scarce resource, you must carry some Canadian content.  The CRTC says so.   Fair enough, right?

Lately, though, you like to spend more and more of your money on U.S. content.  If a U.S. broadcaster is airing the same program as you at the same time, I must replace the U.S. signal with your signal so that you preserve the advertising effectiveness of the content in which you've invested.  You benefit greatly from that.  The CRTC says I must do that.  Fair enough.

I spend massive amounts on wire (cable / IPTV) or birds in the sky (satellite) and distribute your signals for free, helping you to reach a larger advertising audience (and therefore allowing you to charge higher advertising rates).  I do that on a localized basis (to the extent that I am able).  You benefit greatly from that.  I must do that.  The CRTC says so.  Fair enough.

As part of the broadcasting system, I must contribute back to the industry.  A percentage of my revenue comes right off the top and goes to the CTF to help create the Canadian programming that you wrap your advertising around.  You benefit greatly from that.  I must do that.  The CRTC says so.  Fair enough.

I also administer and contribute to independent production funds to help you finance content creation through outright grants and/or equity investments.  You benefit greatly from that.  I must do that.  The CRTC says so.  Fair enough.

Local programming is hurting.  You spend so much on foreign content that you can't afford to spend enough on local stations and content.  I now also make contributions to the Local Programming Improvement Fund (LPIF) specifically to help "maintain and improve the quality of local television programming".  You stand to benefit from that.  I must do that.  The CRTC says so.  Fair enough.

So, through the CTF and the independent production funds I make a significant financial contribution to support your operations already - and not just your conventional OTA operations but also your profitable specialty channels, too.  And, through the LPIF I further support your local OTA endeavours.

And let's not forget the taxpayer.  In the case of the CBC, the taxpayer provides direct funding.  And those CTF funds?  They're provided in part by the Department of Canadian Heritage - using taxpayer dollars.  Let's not forget about Telefilm Canada, for that matter.

With respect to your local conventional signals, my value proposition has always been to make those signals available to those who choose not to use an antenna, can't pick up a strong enough signal from an antenna, or for whom an antenna is not an option.  We are part of a unique symbiotic relationship, whether you appreciate it or not.  You create a product and I distribute it for you at no charge to you.  You benefit greatly from this, and so do I, even though it's something I must do.  The CRTC says so.

Apparently that's not enough for you.  Now you want to change the equation.  You want me to pay to distribute your content.  But wait a second.   The Canadian dramatic, comedy and documentary content you carry is paid for in part by me through my CTF contributions.  Don't our independent production funds also make it possible for you to finance many of these projects?  As for local content, isn't that what the LPIF is all about?  Directly or indirectly, the BDUs and the customers of BDUs are already paying to help create the content you use so that you have something to wrap your advertising around.  That begs the question: whose content is it anyway???

Now you want us to pay for that content again when we distribute it on your behalf.  Remember, too, that the consumers who are your customers but not mine - that is, the over-the-air consumers - don't pay anything directly into the system and, other than through general tax coffers, don't fund content creation at all (local or otherwise).  The same goes for those who watch your content free on the Internet.  So the people to whom you give your content for free return little, while those to whom I deliver the content on your behalf indirectly pay much of the freight.  Your business may not be healthy, but it likely wouldn't even exist in today's world without my customers.

You try to sound fair.  You say you'll consider giving up mandatory carriage in return for a negotiated fee for your signals.  That might be fair enough - except that you're also asking that I black out U.S. signals that carry the same content as you if we can't reach a deal.  If I do that, we both lose.  You won't get the distribution I give you and your ad rates will plummet.  I won't be able to offer consumers what they want, and my subscribers will drop like flies (and with that, the funds available through the LPIF, the CTF and the independent production funds upon which you depend will significantly decrease).  Over-the-air signals aren't an option for many (and will be an option for even fewer with the transition to digital OTA guidelines that are now in effect) so if we go down that road we'll be denying many Canadians timely, affordable and legitimate access to content that they want to see.

Your model is broken.  I won't dispute that.  But mine is breaking too.  In ten year's time we will both be largely unrecognizable, if we exist at all.  Today, though, could you survive without me?  I doubt it.  Could I survive without you?  Maybe.  Maybe not.  Is your current proposal apt to accelerate our potential demise without solving any of the underlying problems?  Absolutely.  Can we work together to innovate and find new ways to survive - and perhaps even prosper together as we once did?  I think so.  We both need to innovate, individually and collectively, to survive, not waste valuable time, energy and money fighting each other. 

You're backing me into a corner.   Whether I absorb the new fees you are seeking, or pass them on to the consumer, my business will suffer significant harm.  Worse though, if I don't give in to your demands, the consumers that you and I are both in business to serve will suffer the most.  They're already leaving the system, and your current approach will just drive them out the door more quickly and in even great numbers.

You've done little to adapt to change.  Your record of innovation is abysmal.  Yes, I admit, I could do much better, too, in that regard.  But rather than fix your own problems, or find new ways to operate and engage Canadians, you'd prefer to see my business suffer further damage in order to put a bandage on your gaping - and probably terminal - wounds.   If you don't want to adapt, fine, stick to your crumbling little world.  But don't penalize those who want to change - and that includes many Canadian content producers who want to do more with their content - except that you all too often demand all of the content rights across all platforms and media.  Be part of the solution, not part of the problem.  If you don't want to innovate, don't stop those who do.  Develop reasonable Terms of Trade with the content producers so that they can work with us and others to (re-)engage that audience in new and innovative ways.

The Canadian broadcasting system is an artificially sustained ecosystem that we are all part of.  It's important to Canada and Canadians from an industrial point of view, and it's important to Canada and Canadians from a cultural point of view.  We're all in this together, but "a house divided against itself cannot stand".   Let's fulfil our roles and responsibilities but let's also fulfil our unofficial obligation to Canadians by working together to innovate and prosper in the 21st century with appropriate new models.  Let's not disregard that obligation by fighting each other as we try to perpetuate out-dated and obsolete ways of doing business.  We do so at the expense of Canadians - and of the future.