Speech by Scott Hutton, Executive Director, Broadcasting, Canadian Radio-television and Telecommunications Commission
To the National Conference of the Broadcast Educators Association of Canada
May 25, 2012
Check against delivery
Thank you for the opportunity to be with you today.
As I have been thinking about my remarks for this morning, it struck me that your role as educators and the CRTC’s role as regulator are quite complementary.
As educators, you set a framework for the classroom; a framework that allows big ideas to flourish, creativity to be rewarded and best practices to be learned.
As regulators, we set a framework for Canada’s communications sector; a framework that ensures that all Canadians have access to a wide variety of high-quality Canadian programming, and to employment opportunities in the broadcasting system.
In that sense, your Convention’s theme “Capitalizing on the Future,” is relevant not only for you, as educators, but for us as regulators. It is, in fact, a theme that the CRTC spends a great deal of time thinking about: how we can promote competition, innovation, consumer choice and Canadian content to foster a world-class communications system for all Canadians.
I would like to spend the next few minutes looking at some of the key aspects of Canada’s broadcasting sector as it stands today, and how the CRTC’s regulatory approaches have been influencing it. Then, I would like to look ahead to some of the ways in which the sector might evolve over the coming years: something I know is important to you, as you consider how to best prepare your students to succeed once they leave the classroom.
Canada’s broadcasting sector today
Canada’s broadcasting sector has gone through a great deal of change over the past decade, with the explosion of new technologies, social media and online and mobile broadcasting. Shifts in the industry’s corporate structure have also led to the development of new business models and fiercer competition.
These trends have put pressure on Canada’s broadcasters. Just think, for example, of the impact that Netflix has had since it came onto the scene. In less than a year, Netflix has been able to attract more than 1 million Canadian subscribers.
New trends have prompted the CRTC to examine its regulatory approaches in a few key areas: digital media, vertical integration, local programming and radio.
Digital media and over-the-top programming
Let me start with digital media.
The CRTC has been working to ensure that its regulatory approach to digital media remains effective in the context of changing needs and technological developments. In 1999, the CRTC exempted from regulation broadcasting content delivered over the Internet. Similarly, in 2007, the Commission exempted services that delivered broadcasting content from mobile devices.
In June 2009, the Commission announced that it would continue to exempt online and mobile programming services from most of its obligations.
Our decision reflected—and continues to reflect—the Commission’s view that these services act in a complementary fashion to the traditional broadcasting system. Furthermore, it underscored—and underscores—our view that regulatory intervention will only get in the way of innovation.
Since then, we have been closely monitoring the dynamic nature of the digital media environment. In 2011, we held a fact-finding exercise to see how Canada’s communications system has been impacted by what we call “OTT,” or “over-the-top” programming, such as online and mobile programming services.
We use the term “OTT programming” because these unregulated services are able to bypass the regulated over-the-air television stations and broadcasting distribution companies.
Our fact-finding exercise produced inconclusive results. The responses we received suggest that:
- The traditional broadcasting system continues to support Canadian programming as it has always done, even as services emerge to deliver content to Canadians in new ways.
- There is no clear evidence that Canadians are reducing or cancelling their television subscriptions. Online and mobile programming appears to be complementary to traditionally programmed content.
- Some online programming services have established viable business models and are competing in the global marketplace for programming rights and viewers. This creates new opportunities for the producers of Canadian content.
We will continue to closely monitor OTT programming going forward. We will also keep our eye on the policy considerations that OTT programming has for a country like ours. As you know, the CRTC’s broadcasting regulations have always been an important tool for supporting, enhancing and contributing to Canada’s cultural identity and economy. They have helped sustain an industry that is capable of producing compelling programming that is sought after at home and abroad.
As the unregulated OTT sector continues to grow and attract larger audiences, however, we need to consider the impact that it may have on the promotion of Canadian content. The OTT sector is not, after all, obligated to broadcast Canadian content, whereas traditional broadcasters are.
Specialty, pay, pay-per-view and video-on-demand services
Let me now turn to Canada’s specialty, pay, pay-per-view and video-on-demand services.
Just a few weeks ago, the CRTC released statistical and financial information for this sector of the industry. We found that:
- Over the last five years, revenues were up by more than one-third (36.7%), and profits rose by over $282 million.
- In 2011, these services generated revenues of $3.7 billion, an increase of 7.9% over the year before. Profits before interest and taxes improved to $930.5 million. Specialty channels captured the largest share of the total revenues, $2.9 billion.
- A total of $1.3 billion was spent on Canadian content, including news, sports and human-interest programs. This represented an increase of 8.5% over the previous year.
Our findings confirm that Canadians are demanding these kinds of broadcasting services more than ever before. Even with the explosion of digital media, Canadians still enjoy premium television programming at home on their TV sets. Times are changing, but our traditional creature comforts still remain!
If you cut through the layers of digital media, OTT programming and television services, you will find a constant theme: Canadians want choice. They want to be able to choose what they watch, and where, how and when they watch it.
The CRTC shares the view that Canadians must have choice in our broadcasting system. This view has been consistently reflected in our regulatory approach. Perhaps the best example of this is our vertical integration policy.
Before I explain the core elements of the policy, let me start by defining what I mean by “vertical integration.”
“Vertical integration” reflects the structural changes that have been taking place within Canada’s broadcasting and telecommunications sectors. In recent years, the two sectors have converged into a single industry. Large-scale corporate consolidation has led to the creation of four large integrated companies: BCE, Shaw Communications, Rogers Communications and Quebecor Media.
These four now control the full range of communications services: Internet access and telephone services, over-the-air television stations and cable channels, as well as TV distribution via cable and satellite.
It is this control by one entity of both programming and distribution services that we call “vertical integration.” The term also applies to control of both programming services and production companies.
Vertically integrated corporate structures make sense from a business standpoint. They are also natural consequences of the digital revolution. And, they certainly offer benefits to a country with a small media market like Canada.
Nevertheless, vertically integrated companies can have potentially negative effects on innovation, competition and consumer choice as well, all of which are at the center of the CRTC’s regulatory mandate.
As a result, when the CRTC reviewed the last two mega-mergers, we decided to hold a public hearing last summer. This hearing resulted in the announcement of our new regulatory framework on vertical integration. The framework was also reiterated in our April 2012 decision regarding a dispute between Bell Media and a group of independent cable companies.
The framework has two core elements.
The first is the protection of consumer choice.
- There can be no exclusivity of television programming for digital media platforms such as mobile devices and the Internet. Programming must be made available to all distributors so that Canadian consumers have access to the programming they want.
- The framework does, however, make one important exception. Exclusive programming can be offered to Internet or mobile subscribers, as long as it was created specifically for these platforms. Why? Because the CRTC believes that this kind of digital media innovation should be free to develop. Indeed, our view is that the future lies in digital media, and under no circumstances do we want to stifle new ideas.
The second is to ensure the marketplace function effectively.
- To protect consumers from interrupted service due to contract negotiations, the framework includes a standstill rule. It guarantees that Canadians will not lose access to their services during a contract dispute. It also allows for more balanced negotiations as a small distributor cannot be deprived of an important program or service, nor can a small broadcaster lose carriage while negotiations are in progress.
- Competition is also facilitated by the framework’s no-head-start rule. Any new channel licensed by the CRTC must be made available to all distributors. This prevents a vertically integrated company from giving itself an unfair head start over its competitors.
- Finally, the framework includes a code of conduct that applies to all players in the industry. The code’s aim is to ensure that negotiations between vertically integrated companies and others are conducted in good faith. It spells out expected standards of behaviour that the CRTC will apply should it have to intervene in cases of allegation of undue preference.
In our view, the vertical integration policy is a building block for the future of Canada’s broadcasting industry. It offers protection to consumers, facilitates competition, and gives the largest players the flexibility to develop new business models and reap the benefits of their integration.
Local Programming Improvement Fund
Even in the digital age where content comes from anywhere around the world, Canadians continue to value local television programming, particularly local news. This is especially true for Canadians who live outside metropolitan areas.
In 2008, the CRTC created the Local Programming Improvement Fund at a time when private broadcasters’ spending on local programming was stagnant.
The Fund was designed to support the development of local television programming in smaller markets. It was also designed to improve the quality and diversity of local programming, and ensure a level of parity in French-language markets.
In response to the severity of the economic downturn and the impaired advertising market in 2009, the Fund was modified and expanded to provide sufficient support to local programming. Cable and satellite companies were required to contribute 1.5% of their gross broadcasting revenues.
In the first two years of operation, the Fund distributed over $200 million to 80 television stations across Canada.
This past April, the CRTC held a public hearing to review the Fund, and to determine whether it should be maintained, modified or cancelled. We heard from a wide range of stakeholders, including one of your former students, David Welch. David is the Chairman of the St. Andrews Community Channel, and a graduate of Algonquin College’s TV broadcasting program.
The Commission will announce its decision this summer.
Let me turn, for a moment, to radio broadcasting.
Canada’s radio sector has never lost sight of the importance of local programming and of maintaining a close connection with the communities it serves.
News, traffic, weather, sports: that is the type of content that is relevant to listeners, and keeps them loyal to their local stations. It is also the type of content that is allowing radio to continue to thrive even as content moves to digital platforms.
As Canada’s demographics change, the CRTC ensures that its licensing decisions add to the diversity of programming on the airwaves. Since 2006, we approved 7 new ethnic services to serve local communities across the country. By 2011, the number of ethnic commercial stations had grown to 23, and we fully expect this trend to continue.
Preliminary figures in the CRTC’s 2011 financial results for the radio sector indicate that stations across Canada have weathered the economic storm of the last few years. The intense competition for new licences is another indication of the sector’s health.
Nevertheless, radio broadcasters need to be aware of, and responsive to, the new ways Canadians are consuming audio content. They must continue to innovate, making the most of the availability of bandwidth and opportunities in the digital environment to continue to succeed.
Canadian Broadcasting Corporation
I’d be remiss if I spoke about the Canadian broadcasting sector and didn’t say a few words about our national public broadcaster.
This fall, we will be holding a public hearing to renew the licences of the CBC’s French- and English-language television and radio services. This will give us an opportunity to review the CBC’s overall mandate as it relates to its programming, as well as its performance and future plans in a digital environment.
Among those future plans, you may have heard that the CBC has asked for permission to air ads on Radio 2 and Espace musique. This request will be a topic of discussion once the hearing gets underway on November 19.
In preparation for the hearing, we will be seeking the views of Canadians towards the end of the summer.
Looking ahead to Canada’s broadcasting sector tomorrow
I’d like to use my last few minutes to look ahead to what Canada’s broadcasting industry may look like in the next few years, at just about the time your students will be ready to leave the classroom and enter the workforce.
We can expect that tomorrow’s broadcasters will be producing content for a wide variety of platforms, above and beyond just the six o’clock news. Today’s students must be trained to become “whole media” experts, not just “TV” or “radio” experts anymore. Once they graduate, they must be equipped with the skills to produce content that can be broadcast seamlessly between traditional and digital media, alike.
We can also expect that the industry’s corporate structure will continue to converge. This means your students will have fewer doors to knock on to get a job. As a result, they will need to understand the business realities of how the big players in the industry work—how they operate and make decisions—so that they are in a position to succeed.
Furthermore, we can expect Canadian consumers will continue to demand even greater choice in what, where, how and when they watch, and listen to, their favourite programming, including Canadian content and local news. This will only serve to elevate the standards of excellence and creativity for content that is produced in Canada.
And lastly, we can expect that OTT programming will give Canadian producers unprecedented access to audiences around the world. Digital media will only continue to open up whole new frontiers, providing today’s students and tomorrow’s broadcasters with extraordinary opportunities to reach new audiences with innovative products.
At the beginning of my presentation, I drew parallels between your role as educators, and the CRTC’s role as regulators. Looking ahead, we will both continue to have a role to play in equipping the next generation of broadcasters with the tools and regulatory frameworks they will need to succeed. We will both continue to have a role to play to ensure the next generation of broadcasters can take their places in large and small broadcasting companies alike, contributing to Canada’s cultural sector with creativity, innovation and technological advances.
On behalf of my colleagues at the CRTC, I would like to thank you for the many ways in which you have been, and will continue to do, just that.
- 30 -
Follow us on Twitter @CRTCeng
Media Relations, Tel: 819-997-9403, Fax: 819-997-4245
Tel: 819-997-0313, TDD: 819-994-0423, Fax: 819-994-0218
Toll-free # 1-877-249-CRTC (2782)
TDD - Toll-free # 1-877-909-CRTC (2782)
Ask a question or make a complaint
This document is available in alternative format upon request.
- Date modified: