September 13, 2016 3 years 1 month ago

ANALYSIS: How the FCC’s set top box rules can kill Canadian television

Without a major regulatory change, the traditional TV industry here faces a chilling future

IF THE CRTC DOESN’T, at long last, review the 1999 New Media Exemption Order, the Canadian TV industry as we know it may well perish in the next five years, at the cost of billions of dollars and tens of thousands of jobs – all while production of Canadian content shrivels to whatever the CBC makes.

Last week, the Federal Communications Commission reached a compromise deal with the subscription TV titans in the States over the American regulator’s so-called push to “unlock the box”. For most of 2016, the FCC has been promoting new rules which would allow American consumers to watch the TV they pay for on any device they have, not just via the locked down systems run by cable, satellite and IPTV pay TV providers.

It’s something savvy consumers surely want, no matter their citizenship.

The new U.S. regs say, among other things, that within two years, pay TV providers must offer customers free online apps so that they can access all the programming they pay for on just about any device of their choosing, whether it be a smart TV, connected gaming system, tablet, smartphone, PC or any other streaming device. They must also offer cross-platform search and show no discrimination in those searches. The pay TV companies would continue to negotiate carriage deals and run their apps.

FCC chairman Tom Wheeler has stated repeatedly he doesn’t believe it’s fair for American consumers to be forced to pay to rent a set-top-box from their pay TV providers when there are no other hardware choices available to them. Some customers end up paying rental fees long after the cost of their in-home device has been recovered by their provider. The FCC estimates Americans pay an average of US$231 per year on box rental, or a total of US$20 billion per year.

There are no ready statistics that we know of which break out what Canadians pay for set top rentals (and it is hard to determine from the outside what those fees are, due to all the bundling deals and free boxes offered within pay-TV packages). However, we learned during the roll out of the CRTC’s mandated skinny basic package some consumers gained a new awareness – and dislike for – box rental charges, which can range from a few dollars a month to the $15 range for high end HD DVRs.

However, if we take an $8/month as a potential rental charge and spread it over Canada’s approximately 11 million TV households, you get to $1 billion. Perhaps the CRTC’s next Communications Monitoring Report could attempt to deduce accurate data for this bit of the market.

Anyhow, it seems reasonable to us that Jean-Pierre Blais, our consumer-focused CRTC chair, would take a hard look at what the U.S. is doing with this issue and wonder if he can also “unlock the box” here.

That said though, it doesn’t really matter if he does or not because when it comes to TV distribution technology, the U.S. is in the driver’s seat. Comcast, and to a lesser extent, Charter Communications and Cox, have the heft to decide what happens in cable technology development. While Rogers and Shaw and Vidéotron have an early, storied, history of cable technology innovation and are large in a Canadian context, the pay-TV companies here now rely almost exclusively on foreign companies for their video delivery technology. Shaw has cast its lot with Comcast’s Infinity, Bell and Telus offer Ericsson’s MediaFirst and Rogers’ upcoming IPTV platform is rumoured to be Ericsson-based, too. Rogers’ current boxes are mostly Cisco-made, EastLink is running Cisco, as well and Cogeco’s high-end cable experience is thanks to TiVo. Many of Vidéotron’s illico boxes are Samsung-branded and Bell Satellite TV relies on Dish Network technology.

It’s also worth noting that Ericsson used last week’s International Broadcasting Conference in Amsterdam to announce a partnership with Google so that its MediaFirst platform will work with Google’s set tops. All Android TV content can flow to Telus and Bell customers as well as the other telco IPTV providers in Canada such as SaskTel and MTS.

What all these new set tops, streaming boxes and various other devices have in common is that they can be – or already are – essentially browsers delivering IP video. They can deliver all video over-the-top.

So, the U.S. industry has now been directed to offer all customers free apps, delivered over the internet. That ecosystem will move north and then if all TV is now being delivered via Internet Protocol on any device, using HTML5, what will then stand in the way of stopping our providers from using the 1999 New Media Exemption Order, bypassing all regulations altogether and delivering all their video OTT, just like Netflix, YouTube, Crave, shomi and other exempt services?

Nothing.

That 17-year-old exemption order allowed innovation to happen in Canada. Crave and shomi and Rogers NHL Gamecentre, for example, operate under it, as do the various “GO” apps and other portals offered by Canadian broadcasters. It also allowed Netflix and YouTube and others to grow and flourish here.

"Why then have that Act, or a Regulator, at all?"

It also means those digital entities don’t have to abide by the Broadcasting Act’s subsection 3(1), for example, which forces those transmitting video in the traditional way to display a preponderance of Canadian content and to contribute to the making of that content, such as paying into the Canada Media Fund or the other private funds. It also forces them to be Canadian-owned. The NMEO lets digital entities avoid all of that.

Online entities, because they are exempted from regulation, don’t have to be based here or employ any Canadians in any capacity (like Netflix), nor do they, like the Act says, have to “encourage the development of Canadian expression by providing a wide range of programming that reflects Canadian attitudes, opinions, ideas, values and artistic creativity, by displaying Canadian talent in entertainment programming and by offering information and analysis concerning Canada and other countries from a Canadian point of view.”

All digital entities are also exempt from serving “the needs and interests, and reflect the circumstances and aspirations, of Canadian men, women and children, including equal rights, the linguistic duality and multicultural and multiracial nature of Canadian society and the special place of aboriginal peoples within that society,” as the Broadcasting Act reads.

There are no such things as must-carries in that world. An all-IP apps TV world which the U.S. is launching doesn’t have to make room for CBC or Canadian news or channels like APTN or Accessible Media. All-IP pay-TV carriers would not have to abide by the CRTC’s new Broadcaster’s Code of Conduct when it came to contract negotiations.

Of course, Canadian companies might want to continue to do some of what the Broadcasting Act says, but when none of it applies to the likes of a massive competitor such as Netflix, well, if I was running a business competing with Netflix where I had to divert 5% of revenue by law and Netflix didn’t, I’d be looking hard at ways to level the playing field. Or selling. And if I’m all-IP and under the exemption order, I could sell to anyone, anywhere. There are no foreign ownership restrictions if you’re exempt from regulation.

In case you don’t think Canadian consumers would be ready for an all IP world in their homes, think again. According to Solutions Research Group’s 2016 Digital Life Canada syndicated survey, 63% (7.5 million) Canadian households already have at least one game console, PC or other device in order to stream video, 26% (3 million) are currently using a dedicated streaming video device such as an Apple TV, Chromecast, Roku, Boxee or similar to watch movies and TV. And of course, everyone has a smartphone capable of taking video anywhere, anytime.

Of course, the New Media Exemption Order can be changed. CRTC chairman Blais has cautioned the industry about that before, noting a choice not to regulate is still a form of regulation.

However, reviewing the NMEO is sticky and politically damaging. Can, or should, the CRTC apply the old regs to digital media (to foreign companies which are likely to just scoff at any such attempts)? If the NMEO is turned around, whatever changes are made must be applied equally to Canadian companies and outsiders, too – and our new government has the exact same policy as the old one in this respect, blithely promising “no Netflix tax” to Canadians – which is how any change will be spun by many.

Why should a Cancon tax exist for Canadian companies if none exists for Netflix?

I wonder if Heritage Minister Mélanie Joly is prepared to consider all of this as the federal government examines Canadian content and all the regulations around it? As she says on the Ministry’s web site: “Canada's cultural and creative industries are important drivers of innovation and a vibrant part of our economy. The intersection of culture and technology holds tremendous potential for our country's growth and prosperity.”

But what if the companies who deliver the content are exempt from contributing if they don’t want to? Exempt from reflecting our culture? Exempt from employing Canadians or showing Canadian content? Exempt from carrying our news or our entertainment programming, because they are exempt from even being here or contributing to our economy or culture at all?

If we’re moving to an all internet delivered world for video, as it seems we are, does it make sense that all the players in this new world are exempt from the Broadcasting Act? And then if they’re to remain exempt simply because they transmit video over the Internet, why then have that Act, or a Regulator, at all?