The Vertical Integration Elephant in the Room

Cross-posted from Mediamorphis The world has been sitting on pins and needles since the CRTC’s hearings on vertical integration in the telecom-media-Internet industries held in June.  CRTC’s just come out with its new vertical integration decision today. You can see the press release here or the full decision here.

A lot was at stake. The big four vertically integrated media companies in Canada — Bell, Rogers, Shaw and Quebecor Media (QMI) — said there was no problem, and proposed that, at most, the CRTC could accept some amalgamation of their propsed code. Everybody else disagreed: Telus, CBC, Access Communications, public interest groups, Channel Zero, the Weather Channel, and in a qualified way, Astral.

Rogers also carved out a somewhat distinct position given that with its CityTV network being the smallest of the big four’s holdings (QMI/TVA, Bell/CTV, Shaw/Global (Corus), suggesting a code with a bit of teeth so that it could feed its own mobile and Internet operations. A complete list of positions is available here.

Arguments were made about small markets needing big media players, and that argument front-ended the CRTC’s press release today.  In fact, however, as I’ve said in previous posts, Canada’s total media economy is not small, but the eighth largest in the world, and growing fast. We don’t need ‘big media’ to protect small Canadians, but rather entities that will provide the best and most open media set-up possible, full stop.

So, what did we get. The CRTC announced five key measures, and I think there’s at least one big elephant in the room that’s not gone noticed, but I’ll await more closely reading the full decision before saying anything definitive on that. Here’s the five headline items:

1. The big four — Bell, Shaw, Rogers, QMI — cannot offer tv programs exclusively to their own mobile or Internet subscribers. They must make them available to Telus, Wind, Access Communications, MTS Allstream, etc. Score on this one: Good.
2. Programs created specifically for Internet or mobile distribution by the big 4 can be exclusive. Score on this one: umm, I suppose it’s a good one, but perhaps an effort in carving out ‘dumb space’ for those would like to corral content behind fences rather than make it as widely available as possible. Will have to read more on code of conduct for this one, and ultimately watch behaviour.
3. No disrupting people’s experience in front of the telly. In other words, no black outs like the kinds that have bedevilled relationships between Bell and Quebecor in the past and which have periodically erupted in the US between, for example, Time Warner and Comcast on the distribution side of the business and Disney, Fox (NewsCorp) and Conde Naste on the content side , when things get nasty over carriage (transmission) and programming rights. Score: sure, seems pretty good to me.
4. Status quo maintained with respect to independent television producers access to schedules of the big four’s specialty channels (25 percent) and broadcast schedule
5. CRTC admonished the vertically integrated companies to come up with a broader range of ‘pick and pay’ models within six months allowing people to order television and programming services ala carte.  And what happens if they don’t? Another round of hearings, that’s what. Score: pass for at least trying and the cute raised eyebrow.  If you don’t regulate, you can always browbeat these behemoths into doing something, suggesteth the latter. I don’t know, this one just seems to punt the issue down the line.

And how about those elephants-in-the-room, you ask? The big elephant from what I can see at first glance is that there’s nothing in the decision establishing parity of treatment between rivals’ online video distributors (OVDS) such as Netflix, AppleTV, GoogleTV, etc., on the one hand, and the big four’s on online “tv everywhere” initiatives and IPTV offerings.

What that means, simply, is that when Bell, Shaw, Rogers and QMI stuff tv programming/video down their pipes, it won’t count against the bandwidth caps that characterize almost all Internet access offerings in Canada. For Netflix and other OVDs, the caps apply and bandwidth measured bit by bit. Call this the Netflix choke-hold, and the CRTC seems to have done nothing about it.

It’s quite a lost opportunity and one can’t help wonder if its a byproduct of all the fuss being made about how OVDs like Netflix that are supposedly ravaging the foundations of the incumbents’ tv operations (although accounting for less than 1 percent of industry revenues) and how it should be regulated like the rest of the broadcasters.

That charge, as we have seen, extends beyond just the big four, with Shaw being especially vocal about the need to keep “Canadians within the existing system”, but also with added support from Astral, a report of the Senate Committee of Canadian Heritage, and the Media Working Group representing other broadcasters and media professionals in the Canadian television industry.

The extent of this loss can be seen when comparing it along side the model adopted by the FCC and Department of Justice when they conditionally approved the Comcast — NBC/Universal amalgamation in January earlier this year. While that deal actually had many interesting facets, the most interesting for here is the requirement that Comcast not give preferential treatment to its own online tv services over those of rival OVDs or withhold NBC-Universal programming rights from OVD providers either.

The extent to which the CRTC’s approach seems to fall short can be further realized once we remember that the incomparably stricter measures of the FCC -DOJ conditions in the Comcast – NBC case are only modest measures alongside steps taken elswhere. In the UK and NZ, for example, structural separation between the wholesale pipes and retail services/content, is the name of the game, while in Australia, Sweden, Chile, Romania, and a few other countries national and urban governments are building competing networks to prise open networks.

Such measures were simply off-limits in the current proceedings. Compared against those standards, the CRTC’s decision, whilst passing muster on several important measures, falls flat.

Of course, the big four argued all along that need to regulate them was always a case of a solution looking for a problem and that any suggestions that there were real problems blocking access to networks, audiences and content were always speculative and without foundation. Yet, that is simply not born out be the evidence provided during the hearing by Telus, Access, MTS Allstream, SaskTel, Channel Zero, Wind, etc., that argued the problems are all too real and the gaining access to CTV content, for instance, became a whole lot harder once Bell acquired it earlier this year. The historical record, as I’ve also argued, is also quite unequivocal on the folly of allowing those who own the medium to control the message.

At the very least, the CRTC does seem to have disagreed with the Big Four’s Panglossian view of the world, where nothing needs to be done, and at least taken baby steps to deal with a real issue.

And just to point out one thing that you won’t find in the CRTC’s decision is the we bit underpinning all of this, and that is the heavily concentrated state of the TMI industries in Canada. Yes, I state these numbers regularly, but it’s worth repeating that when you allow those who control the medium to control the messages as well, predatory behaviour and choke points on the free flow of information will arise as sure as night follows day.

So, again, just as a reminder, here was the picture in 2010 of Bell, Shaw, Rogers and QMI’s share of the entire TMI industries in 2010:

• 84 per cent of cable and satellite distribution
• 78 percent of all television revenues
• 66 per cent of wireless revenues
• 54 per cent of Internet Service Provider revenues
• 53 per cent of the wired telephone market
• 39 per cent of radio

That is, ultimately, the source of the issues at hand, and unfortunately, the CRTC’s decision today seems mostly to be tiny pin pricks in the side of the real elephant-in-the-room.