CRTC Cannot Control Content Consumption

The CRTC is beginning to fray at the edges as the government increasingly ignores it in its pursuit of opening up the telecommunications market to competition. The government appears to have the better understanding of what Canadians want -- more and better choices -- and is willing to do what it takes to make it happen, despite what its own regulatory arm is saying and doing.

I believe that it is good for the government to shake things up since we are decades past the time that ownership and Can-con (Canadian content) required draconian government intervention. I also believe that the government does have to move carefully to avoid disruption even if their direction is correct; rapid regulatory changes could cause unwanted volatility in the industry. A measured pace also allows for corrective action in case the wrong steps are taken.

However let's return to the CRTC and the latest statements by its head, Konrad von Finckenstein, which prompted me to suggest that that not all is well within the national regulator. Clearly he is feeling the pressure and wants to put the brakes on the coming changes. First on his agenda is foreign ownership.

The head of Canada's national broadcast regulator warned yesterday of the need for a "massive subsidization" of Canadian content by the federal government if Ottawa moves to allow foreign ownership of telecommunication operators.

This is very explicit and deserving of some scrutiny. Are Can-con and domestic ownership tied?

Failing such a subsidization regime, content created by the broadcasting sector and other culturally sensitive industries would wither to nothing under non-Canadian ownership of the country's distribution businesses, said Konrad von Finckenstein, chairman of the Canadian Radio-television and Telecommunications Commission.

Clearly he thinks this is the case. Not everyone else agrees.

"The fact that cable carriers don't carry the real HBO and do carry the [Canadian]W Network has nothing to do because they're Canadian and want to, it's because the CRTC has told them in both situations what they could and could not do," said Michael Hennessy, senior vice-president of regulatory at Telus Corp. "And it makes no difference whether it's a foreign owner."

Let's get back to the basics of just what the CRTC regulates. We can summarize these as follows:

• Compel or fund the production of Can-con
• Compel consumption of Can-con

The Telecommunications Act enables them to do both, and they have done so for a very long time. This is nothing more than intervening in the industry to manage both supply and demand, respectively, all in the service of Can-con. This has nothing to do with ownership -- as Hennessy says quite clearly -- but one of regulatory mandate. Where I believe von Finckenstein's argument goes off the rails, as exemplified by this recent article in Techdirt, is to confuse access and content. As von Finckenstein puts it:

"Our system right now is based on control of access. If you take that away because you let foreigners in, you run the danger of our broadcast industry being overtaken by foreigners and they would obviously produce as little content as they could get away with," he said. "If you want to get [Canadian content] sufficiently funded, would you then not have to have a scheme of subsidizing or financing in order to get the Canadian programming you get right now?"

What appears to have spurred this bizarre position is one that I covered recently: convergence. He sees that telecommunications (access) and broadcasting (access and content) are converging due to the internet, with its majority of easily-accessed non-Canadian content. There has also been a steady ramp upward in non-Canadian content availability via cable television. He is correct that Can-con is at some risk in the future, even the near future, and that the CRTC is losing control of supply and demand. Ownership, however, isn't the problem.

Unlike Hennessy's view, mine is that ownership won't matter since the internet changes everything. No, not instantly, but it will change. While I don't have a reference at hand, TV viewership is declining as people, especially the young, shift to gaming (alternative entertainment) and other media sources (video and other content). The CRTC's ability to regulate supply and demand of content over the internet is woefully poor, especially the demand side of the equation. This holds regardless of whether the access providers are domestically owned and controlled, unless the CRTC proposes to censor the internet with mandatory content filtering, which would be doomed both technologically and politically.

Yet Can-con isn't in the dire straits it was a half-century ago when, for example, Canadian musicians did have some difficulty getting air-time. The problem was that broadcasters believed that Canadians wanted foreign acts and many Canadians were not always aware of or supportive of domestic talent. It had nothing to do with broadcaster ownership. Further, the cultural issues that existed then do not exist now since, for the most part, Canadians do recognize and appreciate Canadian talent even as they pursue other content as well. However when it comes to television and Canadian programming there is a distinct preference for US content, and no amount of CRTC-mandated production funding and mandated air-time (including CBC's own tax-funded efforts) will make a large dent in the market. It's not as if we don't want Canadian content, just not quite of the type and quantity that the CRTC seems to prefer.

Not only will there be Can-con over the internet, there will be more since more content producers can reach an audience without requiring the broadcasters as a channel to their market. Even if the the CRTC does force the collection of content funds from broadband consumers (taxation if you will), it can no longer guarantee an audience since there is no longer a supply line that they can control. The current Conservative government, while it seems to understand this point, doesn't care anyway since they are biased against market intervention, including some animosity toward the CBC. CRTC Chairman von Finckenstein is trying to stem a technological and popular tide of overwhelming strength. No wonder he sounds so desperate.

I think it will all turn out well in the end. There will be convergence and an increase in Canadian content and consumer choice of content. CRTC will have to, eventually, restrict themselves to regulating access and promoting access competition, not obsessing about the ownership red herring, and playing only a modest role, if any, in funding content.