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Précis: Canadian Television 2020: Technological and Regulatory Impacts

Jan 5, 2016

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Context

The purpose of this study is to equip stakeholders with an arms-length analysis to assess the consequences of changes to broadcasting regulation based on technological change and the LTTV decisions as issued. (para 2)

The scenarios presented are designed to provide the most plausible possible outlooks, given available information. No one of the models developed represents either a worst or best-case scenario.

The authors welcome a vigorous dialogue about these assumptions and their conclusions. Indeed, they hope this study triggers a debate among decision-makers and stakeholders about the economic future of Canadian TV and Canadian programming as a whole. (para 5)

General Findings

These outlooks do not consider the end of Canadian television to be pre-ordained or foreseeable, despite what we agree will be an inexorable transformation from a predominantly linear/channel model to a predominantly IP based on-demand model. (para 12)

The most likely scenario over the short to mid-term is a material, but not fatal, erosion of traditional television. These changes are being driven primarily by Millennials, infrequent TV viewers and non-sports/TV news watchers. The CRTC’s LTTV Decisions (particularly on unbundling, OTT and changes in regulations affecting the predominance of Canadian services) will accelerate this erosion unnecessarily. (para 13-14)

In the longer term, Canadian TV faces profound changes and challenges, but this does not necessarily mean abandoning the fundamental objectives of broadcasting policy, nor many of the regulatory instruments that the CRTC employs to further those objectives. They need not hasten the end of Canadian TV as we know it, nor cause Canada to abandon regulation as a policy tool. Based on this analysis, the proposed LTTV regulatory changes merit a re-think.  In that light, the CRTC’s LTTV decisions should not be considered the final word. (para 17-19)

Support for Canadian programming is the principal goal of Broadcasting Policy.  The regulatory system has been carefully constructed over decades to maximize support for Canadian programming in ways consistent with public taste, in terms of both exhibition and expenditures from public and private broadcasters, and BDUs (broadcasting distribution undertakings). A key measure of success for Canadian broadcasting policy going forward, and a litmus test for the CRTC’s LTTV decisions, is whether the system continues to maximize support for Canadian programming.  By that measure, the LTTV decisions fail the test. (para 21-22)

The Commission deliberately opted for fundamental rather than incremental regulatory change. This position appears to have been taken notwithstanding the absence of any direct or specific evidence to suggest that current regulatory approaches were becoming unworkable. (para 81-82)

Fundamental objectives of broadcasting policy, such as support for Canadian programming, have been compromised through the elimination of longstanding regulatory measures with little rationale and no analysis as to impact.  (para 83)

The analysis demonstrates that the CRTC’s LTTV decisions will materially exacerbate reductions in support for Canadian programming.  From $4.1 billion in 2012, system expenditures on Canadian programming would have barely declined by 2020 without the LTTV impact. The analysis estimates that with the LTTV decisions in place, expenditures on Canadian programming will have declined to $3.7 billion by 2020. (para 97)

Combined, by 2020, the LTTV decisions are likely to result in a loss of 15,130 FTEs of employment in the Canadian economy, including 6,830 FTEs of employment directly within the broadcasting and production sectors (i.e. direct impact) and a further 8,300 FTEs of employment in other sectors of the economy (i.e. spin-off impact).  The likely resulting loss in overall GDP within the Canadian economy by 2020 is $1.4 billion. This includes $802.5 million in direct GDP and $608.6 million in spin-off GDP. (para 74)

We acknowledge that this impact outlook is materially worse than a ‘worst case’ impact analysis provided during the LTTV process that the Commission explicitly rejected. (See  http://www.crtc.gc.ca/eng/archive/2015/2015-96.htm, (para 40-41)

However, that 2014 ‘worst case’ calculation was made for a regulatory scenario that assumed that only unbundling would be mandated. In fact, the impact of the Commission’s decisions goes well beyond merely the impact of unbundling, and the analysis demonstrates that the LTTV unbundling decision alone is responsible for only roughly 50% of total impacts.  

While it can be argued that a public policy body being ahead of the ‘technological change’ curve is a good thing, we believe that the more materially negative outlook created by the LTTV decisions is more likely to have a longer-term negative consequence.  Damaged too much now, Canadian services will not have the same resilience as they would have if support effectively tapered off more slowly over time. Moreover, as technological change can often be slower to take hold than expected, the value of the accumulated loss of regulatory support for Canadian programming could easily reach single-digit billions of dollars over the next five years. (para 98)

Specific Findings

Unbundling

The economic impact of unbundling has been the most remarked upon aspect of the LTTV decisions, although it is by no means the only area of potential significant economic impact.  Changes to rules regarding the predominance of Canadian services (from received by the subscriber to offered) and the treatment of Canadian OTT services (from complementary to competitive) will also have a significant impact. Moreover, the interplay between certain of the major LTTV policies could cause a greater impact than their sum, taken separately. (para 41)

In the immediate aftermath of the Unbundling LTTV decision, analysts posited a range of impacts on BDUs and the system from nominal to grave. (para 75)

In introducing unbundling, the Commission has chosen to ‘re-regulate’ the system and to specifically direct activity, rather than rely on market forces as much as possible. Presuming that the industry itself does not know its market, and needs ‘prodding’, it could be said that the CRTC is substituting its view of the market for that of those who are in the marketplace. This vastly increases the risk and likelihood of negative impact. (para 84)

Had, for example, the Commission merely required specialty services to allow unbundling, while maintaining rules that benefit those services – such as access rules and the requirement for predominance of Canadian services received – the goal of greater consumer choice would have been achieved, but at far less cost to the system in terms of Canadian programming contribution and general economic benefit.  In particular, the analysis shows that such a less interventionist approach to introducing unbundling would reduce negative effects of the LTTV decisions described in the outlook above by approximately 75%. (para 85-85)

This report recognizes that the ‘clock can not be turned back’ on all LTTV decisions.  However, the analysis suggests that relatively minor ‘tweaking’ could materially reduce the negative impact on Canadian programming and the system from some of the unnecessary and perhaps unintended effects of certain aspects of these decisions. (para 88)

Or, it would merely require relatively minor ‘tweaking’ that recognizes Canadians as broadcasting policy has always recognized them – not merely as consumers, but as creators and citizens too. (para 105)

Predominance

The Commission’s decision to change the requirement that Canadians receive a predominance of Canadian services to one where Canadians are only offered a predominance of Canadian services has received little attention. The lack of reaction is surprising, given the absence of demonstrable need for such a decision and the significant risk inherent in it. (para 47)

Rather than taking a conservative or minimalist approach – and thus maintaining the preponderance regulation, the Commission chose to take a leap of faith. (para 49)

Currently most Canadians receive far more than a “preponderance” of Canadian channels: fully 86% of BDU wholesale fee payments go to Canadian services. (para 50)

Thus a reduction to a bare “majority” – something the Commission appears to suggest is acceptable (and the study findings could well become a reality for those Canadians that choose unbundled options)  – could constitute a 40% reduction in BDU payments to Canadian specialty services. (para 51)

OTT (Over-the-Top)

Originally conceived and launched as complementary services available to existing subscribers, Canadian OTT Services like Shomi and Crave TV will, under the LTTV framework, be available to all Canadians on a competitive basis.  This transformation from a “complementary” to a “competitive” OTT approach, encouraged if not effectively mandated by the CRTC, is expected to materially increase cord cutting and cord shaving and the take-up of OTT in Canada. (para 65).

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